Fed Chair Powell's Speech Tops Agenda

Markets opened flat on Thursday and sold off in a couple of waves during the day as Fed members spoke to close on the lows.  While the move was larger than the previous 3 days of the week, the move was about the same size as every move last week.  So, it was by no means a selloff.  This action left us with a Bearish Engulfing candle in the DIA (which failed the 8ema, but just black-body candles that did not even test the 8ema in the SPY and QQQ.  On the day, SPY lost 0.58%, DIA lost 0.56%, and QQQ lost 0.64%.  The VXX rose 4% to 27.25 and T2122 dropped back into the mid-range at 40.16.  10-year bond yields gained slightly to 1.351% and Oil (WTI) fell three-quarters of a percent to $67.85/barrel.

After the close Thursday, WDAY, MRVL, and GPS beat on both lines.  HPQ missed on revenue, but beat on earnings.  PTON beat on revenue and missed very significantly on earnings (-$1.05/share vs. -$0.44/share estimated).  PTON also announced they will be slashing the price of their less expensive bike by hundreds of dollars starting immediately.  (The Bike+ debuted at $2,495 was reduced twice to $1,895 and will now sell for $1,495.)   In legal news, GILD won an appeal on the $1.2 billion judgment BMY had won related to a cancer treatment that encourages the patient’s own immune system to fight the disease. The judge said the original ruling was not based on substantial evidence.

The big news on the day is expected to be Fed Chair Powell’s speech at the Jackson Hole Symposium.  Markets (and especially media analysts) are expecting to get strong guidance from Powell on when and how the FOMC will begin to taper bond-buying.  However, there is a major risk of disappointment in the speech with uncertainty over the current and future effect of the Delta variant on one side and a seemingly surging economy on the other. 

As an example of Powell’s problem, just yesterday the Q2 GDP we revised upward a tenth of a percent to 6.6%, jobless claims came in holding at pandemic era lows, and two Fed members told the press they were worried about inflation.  However, the US also reported 170,000 new covid cases, almost 12,000 new hospitalizations, and 1,215 deaths. More companies also announced pushing back the “return to the office” and that they are requiring employees to be vaccinated.  So, the market wants concrete direction, but Powell needs to say we will taper, without locking himself into hard timelines.

Overnight, Asian markets were mixed but leaned slightly to the green side on modest moves.  Taiwan (+0.84%), Shanghai (+0.59%), and Thailand (+0.58%) led the gainers.  Singapore (-0.92%), Japan (-0.36%) and Indonesia (-0.28%) paced the losses.  In Europe, markets are mixed and flat but lean slightly to the downside ahead of the headliner speeches at Jackson Hole.  The FTSE (-0.06%), DAX (-0.02%), and CAC (-0.11%) are typical of the continent.  As of 7:30 am, US Futures are pointing to a modestly green open ahead of data and the Fed Chair Speech.  The DIA is implying a +0.24% open, the SPY is implying a +0.30% open, and the QQQ is implying a +0.34% open at this hour.

The major economic news scheduled for release on Friday includes July PCE, Jul Trade Balance, July Personal Spending, and July Retail Inventories (all at 8:30 am), and Michigan Consumer Sentiment (10 am). The Jackson Hole Symposium resumes at 9 am and Fed Chair Powell does his presentation at 10 am.  The major earnings reports scheduled for the day are limited to BIG before the open.  There are no earnings reports scheduled after the close.

With Powell's speech beginning at 10 am, I expect very light action early (unless Powell's speech gets leaked early). With that said, I also expect considerable volatility when the speech sinks in. If you are not already hedged or lighter in your positions, it is probably time to be very nimble. Trade carefully and remember this is Friday. So, don't forget to pay yourself and prepare for the weekend news cycle.

Good trading rules and discipline is what separates long-term success from failure in trading. Concentrate on the process and on managing those things you can control, while not worrying too much about the things you cannot control. As always, manage your existing trades before you go chasing any new ones. Remember, the trend is your friend until it is broken. And if you miss a move, just admit it and move on to the next chart. Never chase price on an entry and remember to keep your losses small by using stops or hedges. Above all, consistently take profits when you have them. Don't let greed turn winners into losers.

Ed

Swing Trade Ideas for your consideration and watchlist: RIDE, BTBT, CARR, BB, BTU, EBAY, WKHS, GSMG, NURO. 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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