Evergrande Fear Fades As We Wait on Fed

Markets gapped about six-tenths of a percent higher at the open Tuesday as markets tried to recover from the ugly Monday session.  However, volatility continued to reign as prices swung in waves all day.  Unfortunately for bulls, the last two major waves of the day were to the downside.  This left us with black-body candles with upper wicks that went out on or near the lows in all 3 major indices.  On the day, SPY lost 0.10%, DIA lost 0.09%, and QQQ gained 0.12%.  The VXX fell to 28.70 and T2122 popped back out of the oversold territory to 28.37.  10-year bond yields rose to 1.323% and Oil (WTI) rose slightly to $70.51/barrel.

After the close, a US government agency, headed by Attorney General Garland, reported it will be "reviewing" the proposed ZM acquisition of FIVN (announced in July). In the announcement, the agency pointed to foreign participation (ZM has R&D operations in China and FIVN has operations in Russia). 

Elsewhere after hours, FDX shares fell as the company missed on earnings and cut its Q4 profit forecast as cost increases are expected to outpace their recently announced price increase.  In addition, DIS shares fell hard when CEO Chapek told a GS event that his company believes the Delta variant will cause Q4 subscription growth to come in below previous estimates.  On the other side, SFIX shares jumped after the company unexpectedly reported a profit while beating on both lines.  ADBE also rose after beating on both lines.

Following very strong Housing starts data yesterday, this morning's weekly mortgage demand spiked to the highest level since April.  Analysts say this points to strong home sales for September.  The average 30-year fixed, conforming loan rate remains at 3.03%. However, new purchase loan applications rose 2%, but refinance applications climbed 7% week-on-week.  While mortgage demand remains below the same week a year ago, the gap is narrowing.

Overnight, Asian markets were mostly modestly lower.  An IMF spokesman said they do not expect the Evergrande crisis to be a “Chinese Lehman Brothers moment.” She said the differences include the company owning physical assets (properties) and the Chinese government has much stronger controls over their financial markets and is in a better fiscal position to simply take ownership of the debt and assets if needed than the US/West did in 2008.  Taiwan (-2.03%) was the outlier because after a drop at the open, Shanghai (+0.40%) recovered fully and both Shenzhen (-0.57%) and Japan (-0.67%) made significant comebacks.  In Europe, markets are up significantly at mid-day, bouncing as they have seen a lack of panic in Chinese markets.  The FTSE (+1.15%), DAX (+0.55%), and CAC (+1.11%) are typical of the region in early afternoon trading.  As of 7:30 am, US Futures are also pointing to another up open.  The DIA is implying a +0.58% open, the SPY implying a +0.51% open, and QQQ implying a +0.30% open.

The major economic news scheduled for release on Wednesday includes August Existing Home Sales (10 am), Crude Oil Inventories (10:30 am), and Fed Interest Rate Projections, Fed Interest Rate Decision, and FOMC statement (all at 2 pm), and the Fed Chair presser (2:30 pm).  The major earnings scheduled for the day include GIS before the open.  Then after the close, FUL, KBH, and SCS report.

With the rest of the world rebounding as the Evergrande debt crisis in China did not look so scary today, US markets are likely to wait and see what the Fed does/says before making big bets. The ugly day Monday and volatility then and Tuesday should give us pause about any further pullback or reversal into rally mode. We have resistance overhead and some support below. So, consider how much confirmation you want before blindly chasing an intraday trend.

Remember, you don't have to trade every day. Activity does not equal progress. And when you do trade, the Trend is your friend. Right now, that trend remains bearish with a lot of volatility. So, manage your existing trades before you chase any new ones. Focus on the process and on managing the things you can control. Don't worry about the things you can't control. Discipline and good trading rules are what separates trading success from failure over the long run. Above all, consistently take profits when you have them. A good trader refuses to let greed turn their winners into losers.


Swing Trade Ideas for your consideration and watchlist: No trade ideas today. You can find Rick's review of tickers on his YouTube Channel here. Trade your plan, take profits along the way, and smart. Also, remember to check for impending earnings reports. Finally, remember that any tickers we mention and talk about in the trading room are not recommendations to buy or sell.

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