JPM Lifting Futures After Bad Day

Stocks gapped three-quarters of a percent higher and saw a little morning follow-through.  However, the afternoon gave us a sharp selloff that left bearish candles on the day.  QQQ printed a big Bearish Engulfing candle, SPY printed a Dark Cloud Cover, and the DIA printed what could be seen as an Evening Star type candle that failed the 200sma again.  At the close, QQQ was down 2.06%, SPY was down 0.88%, and DIA closed just above flat at +0.08%.  The VXX surged almost 10% to 35.25 and T2122 (4-week New High/Low Ratio) fell back to 43.64.  The 10-year bond yield fell slightly to 0.625% and Oil (WTI) also fell $39.60/barrel.

The main story of the day was the virus impacts across the US as the number of cases grew by 2% on the day.  CA reclosed indoor activities such as restaurants, theatres, bars, and churches as they reported a record number of hospitalizations.  In addition, both Los Angeles and San Diego school systems said they will be not be opening in-person schools in the fall, continuing their distance learning plans from the Spring.

The other story on the day was a deteriorating relationship between the US and China.  During the afternoon, the US formally rejected almost all Chinese claims on the South China Sea.  (This reverses the previous US position of being neutral on Chinese claims in that area.) The Chinese didn't like that and, in an unrelated story, China barred 2 US Senators in retaliation for the US barring some of their officials.

However, not all the news on the day was bad.  AMZN announced they are forcing 3rd-party sellers to reduce their inventories in AMZN warehouses as the company is now starting to ramp-up their own inventories (2 months earlier than normal) as they expect huge sales this coming holiday season.  OPEC also announced they are beginning to roll back some production cuts (expanding capacity) as they believe demand has stabilized. In addition, Senate Majority Leader McConnell said that Republicans will pitch their own stimulus plan next week.  And last, but not least on the good news front, PFE and BNTX stocks also soared Monday as their vaccine 2 candidates were granted FDA “fast track” status.

In the US, the virus numbers show we have 3,479,650 confirmed cases and 138,247 deaths. This includes over 65,000 new cases Monday as 20 states saw record highs in their 7-day average of new cases and 40 states saw a rise in new cases for the day.  Miami’s Mayor reported that the hospitals in the city are at 91%-92% of ICU capacity.

Globally, the number of cases has reached 13,265,782 confirmed cases and 576,249 deaths.  In the UK, the government reversed direction and announced masks will be mandatory in shops starting July 24. Singapore reported they have slipped into recession as the major shipping and commerce city-state saw a 41% drop in GDP.  In the Philippines, Manila will return to lock-down as of Thursday.

Overnight, Chinese trade data for June beat expectations (expanding when a contraction was forecast).  However, Asian markets were still red across the board with the minor exceptions of Indonesia and New Zealand.  In Europe, markets are also red across the board as the virus running out of control outweighs recovery hopes.  At this point the big 3 bourses are down between just -0.38% (FTSE) and -1.6% (CAC).  In the US, as of 7:30am futures are pointing higher, reversing after JPM reported stronger than expected earnings.

The only major economic news for Tuesday is the June Consumer Price Index (8:30 am).  However, there are also two Fed speakers (Brainard at 2 pm and Bullard ar 2:30 pm).  However, earnings season kicks off again as C, DAL, FAST, FRC, JPM, WFC, and WIT all report before the open.

Monday’s candles were ugly again, with the QQQ being the worst of the lot.  However, as we have been saying, that index has been on such a tear it was far overextended and needed some profit-taking.  So, the pullback may not be more of a blip than a change in trend.  The bulls certainly look like they want to run today with good earnings news this morning.  Still, it's early and virus news will continue to weigh. So, keep an eye on those “canary in the coalmine” FAANG stocks.  They are so big that they will call the tune for markets.  Watch those short-term charts and don’t chase, don’t predict, and take profits as you go.  Remember we are in earnings season now, so some surprises are likely to happen.

Ed

The Daily Swing Trade Ideas for today: CNVA, BYND, TSLA, SBUX, XLK, NKE, DG, FCX, JPM, VXX. Trade your plan, take profits along the way, and smart. Also, don't forget to check for upcoming earnings. Finally, remember that the stocks/ETFs we mention and talk about in the trading room are not recommendations to buy or sell.

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