Focus Turns to Retail With Big China Miss

Markets opened slightly higher on Friday and then ground sideways is a tight range the rest of the day. This left us with small-body, indecisive candles across the 3 major indices.  However, both large-cap indices did this at a new all-time high close and the QQQ only missed a new all-time high close by a fraction of a percent.  On the day, SPY gained 0.18%, DIA gained 0.05% (which accounts for it having a small black body candle), and QQQ gained 0.35%.  The VXX was flat at 26.28 and T2122 remained in the mid-range at 58.26.  10-year bond yields closed down slightly at 1.359% and Oil (WTI) was flat at $68.90/barrel.

During the day Friday, the Michigan Consumer Sentiment reading came out at a pandemic-era low of 70.2.  This was the lowest reading since 2011 and accounted for one of the largest one-month drops of the metric on record.  This dramatic decline comes as covid (Delta variant) is out of control again, communities and businesses are reintroducing mask mandates and the bulk of major corporations are delaying “return to the office” and issuing company vaccination mandates.

With 10-year bond yields stuck in the 1.3% range and plunging consumer sentiment, the stock market continues its perpetual rally.  It seems odd to be sitting at all-time highs on low and declining breadth.  This weekend, Bloomberg said it believes the reason is the market-wide, record corporate profits that have been reported so far this quarter. It seems that despite inflation complaints, the pandemic recovery works in Wall Street’s favor.  It does so by lowering inventories, reducing absolute payrolls/expenses, and giving pricing power to industries across the gamut. This week the focus turns to Retail as WMT, HD, LOW, TGT, KSS, M, FL, and ROST all report.

In miscellaneous stock news, CNBC reports Saudi Aramco is close to a deal that would give it a 20% stake in Indian Chemical (oil to chemical processing) for $25 billion.  A deal for the same ownership stake fell through a couple years ago when oil prices crashed.  Meanwhile, BHP is in talks to sell its petroleum business to Australian producer Woodside.  SONO is also surging in premarket after the ITC rules that GOOGL had infringed on the Sonos audio technology patents.

Overnight, Asian markets were mostly in the read as Chinese Retail data showed only an 8.5% year-on-year gain in July (well below the 11.5% forecast).  Japan (-1.62%) and South Korea (-1.16%) led the region to the downside.  Meanwhile, India (+0.21%) and Thailand (+0.19%) were the only real green in the area.  In Europe, we see a similar pattern so far today.  The FTSE (-0.95%), DAX (-0.40%), and CAC (-0.76%) are typical of the continent with only Russia (+0.49%) in the green at mid-day.  As of 7:30 am, US Futures are pointing to a quarter of a percent gap down at the open.  The DIA is implying a -0.25% open, the SPY implying a -0.24% open and the QQQ implying a -0.24% open at this hour.  10-year bond yields are also significantly lower (1.278%) with Oil (WTI) also 1.5% lower in early trading.

The major economic news scheduled for release on Monday is limited to NY Empire State Mfg. Index (8:30 am).  The major earnings reports scheduled for the day are limited to UWMC before the open.  The major earnings reports scheduled for after the close include EDR, FN, RBLX, and TME.

With no major earnings news this morning and only the NY Fed Mfg. Index in economic data, markets are very likely to follow the rest of the world. Fear over retail growth numbers indicating a slowing recovery at the same time the Fed is seeing pressure to begin bond-buying tapering will give markets a shiver. This is only going to be exasperated by growing concern over Delta variant impacts. However, there has been no stopping the bulls so far. At most, the bears have just given bulls a rest once in a while. So, caution is required. However, calling reversals is not a strategy for long-term success.

Stick with the trend until the trend is broken. However, if you missed a move, admit it and move on to the next trade. Never chase price on an entry. Remember to keep your losses small by managing stops and then consistently take profits when you have them. Above all, we have to maintain our discipline to trading rules. Focus on the process and on managing what you can control.

Ed

Swing Trade Ideas for your consideration and watchlist: AAPL, BAC, AMRN, WEN, KBH. 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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