Fear of a more aggressive Fed confirmed downtrends with lower lows in four indexes as Treasury yields spiked, spooking investors.  Sadly, yields continue higher this morning, and the mixed bag of earnings results so far adds yet another layer of uncertainty.  The short-term oversold condition in the T2122 indicator suggests a relief rally could begin at any time but expect the price action to remain very challenging.  Geopolitical as Russia threatens invasion of Ukraine will also keep the market on edge and have negative market impacts if cooler heads don’t prevail.

Overnight Asian markets traded mainly in the red, with the Nikkei falling 2.80%.  However, European markets try to begin a relief rally with modest gains in a choppy early session.  U.S. Futures also point to a cautiously bullish open ahead of market-moving earnings and housing data.  Expect price action to remain volatile as the QQQ nears a test of its 200-day average.

Economic Calendar

Earnings Calendar

We have just over 40 companies listed on the Wednesday earnings calendar, most of them confirmed.  Notable reports UNH, AA, ASML, CFG, CMA, DFS, FAST, FUL, KMI, MS, OFG, PACW, PG, PLD, STT, USB, UAL, & WTFC.

News & Technicals’

Dr. Bruce Aylward, a senior WHO official, warned high transmission levels to give the virus more opportunity to replicate and mutate, raising the risk that another variant will emerge.  New infections have increased by 20% globally over the past week, with nearly 19 million total reported cases.  “This pandemic is nowhere near over,” WHO Director-General Tedros Adhanom Ghebreysus said.  The Biden administration will make 400 million highly protective N95 masks available to Americans for free.  People can pick up the masks at thousands of pharmacies and community health centers.  The masks will become available next week, and the program will be fully up and running by early February.  Emirates, ANA, and Japan Airlines were among the carriers to cancel some U.S. flights over concerns that the new 5G service could interfere with some onboard systems.  AT&T and Verizon agreed to delay the deployment of 5G near airports temporarily but didn’t provide additional detail.  U.S. airlines had also prepared to cancel flights before the telecom giants agreed on the delay.  Genting filed to the Hong Kong exchange, and the company will “imminently be unable to pay its debts as they fall due” as liquidity dries up.  The embattled cruise operator said it applied to wind up the company at the Supreme Court of Bermuda after the company “exhausted all reasonable efforts to negotiate with the relevant counterparties under its financing arrangements.”  The 10-year Treasury yield continued higher in early Wednesday trading at 1.9%, and the 30-year climbed to 2.2036%

The bears went to work yesterday as fears of a more aggressive Fed pushed bond yields higher, confirming downtrend patterns in all four index charts.  The mixed earnings results have also raised the uncertainty level in markets as some big banks miss expectations.  However, there is a glimmer of good news if you’re a bull because the T2122 indicator is nearing a short-term oversold condition suggesting a relief rally could begin anytime.  If a rally does begin, keep a very close eye on all the price resistance levels above for entrenched bears.  Because stock valuations are so elevated, companies that miss expectations could experience significant selling this quarter, just as we saw in the huge volume decline in GS.  For the same reason, companies that meet or slightly beat expectations could easily experience a lackluster response from investors beaten and battered by all the recent price volatility.  Although I expect a relief rally to begin soon, the price action will likely be challenging, so plan your risk carefully.

Trade Wisely,

Doug