Fed and Q2 GDP Week Starts Slow

Markets opened mixed on Friday, ran up the first 30 minutes, and then reversed into a strong selloff into 2:15 pm.  The bulls then stepped back in to lead a small counter rally from 2:15 into the close.  Eight of the 10 sectors are in the red with Technology leading the charge lower after Thursday night’s big miss by SNAP.  Utilities were the only sector to manage to stay significantly green as traders sought safety.  On the daily chart, the result was that all 3 major indices touched 6-week highs before retreating.  This action is left us with a bearish Dark Cloud Cover candle in the SPY (and close to one in the DIA).  Both also appear headed back down to retest their 50sma (which are now close below) as support. Meanwhile, the QQQ just printed a big, ugly black candle with larger wicks on both ends of the body. 

Yet again, volume was very light on the day, far below the average for the SPY, DIA, and QQQ.  On the day, SPY lost 0.93%, DIA lost 0.42%, and QQQ lost 1.75%.  The VXX rose nearly 1% to 21.40 and T2122 fell but remains inside the overbought territory at 85.78.  10-year bond yields also plummeted for the same reason, running down to 2.73% before closing at 2.754% as markets bought up bonds.  Oil (WTI) is down only 1.31% to $95.09/barrel.  Friday’s move also saw us give back some of the gains for the week, creating Spinning Top type candles in all 3 major indices on a weekly chart.

In China news, Macau casinos (as well as many other businesses) reopened on a limited scale on Saturday.  The reason for the slowed reopening is many restrictions remain in place.  In the Chinese Real Estate sector, the CEO and CFO of defaulted property company Evergrande Group have resigned.  Elsewhere, China continues to complain and warn about a potential trip by Speaker of the House Pelosi to Taiwan.  The Washington Post reported that the Biden Administration is now worried about the trip and may do some horse-trading with China to get something in exchange for stopping Pelosi from making the trip.  Finally, Sunday the Financial Times reports that major US-listed Chinese companies (including BABA, BIDU, and JD) have come up with a 3-tier data storage and audit strategy that they believe will allow them to remain listed in the US while complying with both Chinese and American regulations.  The idea is that all data will be classified as non-sensitive, sensitive, or secretive data and different auditors would be allowed access to different tiers of data.

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On the Russian invasion story, we have passed 150 days of war and are now working on the 6th month. Russia surprised markets Friday with a 150-basis-point rate cut (analysts had expected a 0.50% cut).  This seems to indicate Russian concern over their economy.  Related to grain, Ukraine and Russia did sign an agreement to allow the reopening of the Ukrainian Black Sea ports for grain shipments.  This caused a major decrease in grain prices globally Friday.  However, less than 24 hours after they signed the agreement, Russia launched multiple missile attacks on the port of Odesa. Meanwhile, Germany stepped in with a $15.3 billion bailout of German gas company Uniper on Friday afternoon.  The deal also allows Uniper to start passing along some of the soaring gas price increases to end consumers (which were prohibited in the past).  Meanwhile, the US has approved a 16th military assistance package for Ukraine.  More importantly, the Pentagon also says the US is now ready to give/lease Ukraine jets in future packages, including the A-10 Warthog (tank buster made by NOC) and F-16 (a fighter from GD). 

In business news, after the close Friday, UBER admitted to covering up a 2016 hack of their systems which affected 57 million passengers and drivers.  This was part of a non-prosecution agreement with the FTC.  On the other hand, TMUS agreed to pay $350 million plus spend another $150 million on security upgrades to settle litigation over a 2021 cyberattack affecting 76.6 million customers.  (They are expected to take a $400 million Q2 charge over the matter.)  A Hyundai subsidiary in Alabama has been accused of using child labor (including a 12-year-old boy, his 14-yeard old sister, and 15-year-old brother).  The Hyundai subsidiary denied responsibility saying they relied on 3rd-party temporary work agencies to fill assembly plant jobs and expects them to remain in compliance with all labor laws.  On Sunday, 2,500 workers at 3 BA (Defense division) plants rejected a contract (over the removal of a pension and funding level in 401K contributions) and announced they will strike on August 1. 

So far this morning, INFY, NEM, and RPM have all reported beats on revenue while missing on earnings.  RHG reported in line with expectations on both lines.  DORM beat on both revenue and earnings, but also lowered forward guidance.

Overnight, Asian markets leaned heavily toward the downside, but on modest moves.  Shenzhen (-0.83%), Japan (-0.77%), and Shanghai (-0.60%) paced the losses with only Thailand (+0.49%), South Korea (+0.44%), and Malaysia (+0.23%) in the green.  In Europe, stocks are leaning the opposite way (again on modest moves) with only 4 showing red at mid-day.  The FTSE (+0.10%), DAX (+0.46%), and CAC (+0.53%) are typical of the region with Norway (-0.77%) and Denmark (-0.91%) the only appreciable losers in early afternoon trading.  As of 7:30 am, US Futures are pointing toward a green start to the day. The DIA implies a +0.55% open, the SPY is implying a +0.57% open, and the QQQ implies a +0.56% open at this hour.  10-year bond yields are back up to 2.814% and Oil (WTI) is up 1.25% to $95.90/barrel in early trading.

There are no major economic news events scheduled for Monday.  The major earnings reports scheduled for the day include INFY, and RPM before the open.  Then after the close, ARE, BRO, CADE, CDNS, CLS, CR, WIRE, FFIV, KALU, LBRT, LOGI, NXPI, PKG, RRC, RNR, SSD, and WHR report. 

In economic news coming later this week, on Tuesday we get Conf. Board Consumer Confidence, June New Home Sales, and the 5-year bond auction.  Then Wednesday June Durable Goods Orders, June Trade Goods Balance, June Retail Inventories, June Pending Home Sales, Crude Oil Inventories, the Fed Interest Rate Decision, Fed Statement, and FOMC Press Conference are announced.  Thursday brings Q2 GDP, and Weekly Initial jobless Claims.  Finally, Friday we get the June PCE Price Index, Q2 Employment Cost Index, June Personal Spending, Chicago PMI, and Michigan Consumer Sentiment.

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This data-heavy week (including a ton of major earnings reports) starts off slowly this morning. Ahead of the Fed and Q2 GDP, markets are drifting higher to start the week. The same may be true of food commodity prices as Russian attacks on Odesa (and for no apparent military reason Ukrainian wheat fields) has the world once again worried about food supplies. Don’t be surprised if/when we see more intraday whipsaw action. Yet on the daily chart, the bulls have the short-term trend on their side and are well up off the overnight lows. Still, if we look at a longer-term (perhaps weekly) chart, you can see that the downtrend has not been broken (or at least it is not clear it is broken and held) across the major indices. So, be careful taking anything but short-term trades ahead of the data and more importantly market reactions coming later in the week.

Remember that trading is our job. So, do the work and follow the process. Stick with your trading rules, trade with the trend, and take those profits when you have them. Demonstrate patience and wait for confirmation. So, don’t be stubborn. If you have a loss, just admit you were wrong, respect your stop, and take the loss before it grows. Always move your stops in your favor (remember the “Legend of the man in the green bathrobe“…it is NOT HOUSE MONEY, it’s all our money!). Lastly, remember that you get rich slowly and steadily in Trading…not by striking it rich on one or two trades. So, give up that lottery ticket mentality.

See you in the trading room.

Ed

Swing Trade Ideas for your consideration and watchlist: UPRO, SQ, ARKK, AFRM, CROX, NOK, BA, MRNA, DIS. 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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