Markets and Volatility On Pause for Fed

Following a PPI that came in showing 6.6% annual inflation (the highest since annual records were started in 2010, but still better-than-expected), May Retail Sales coming in lower than expected, and a NY Empire Mfg. Index that came in worse than expected, markets opened flat Tuesday.  Then after a small selloff early, they ground sideways the rest of the day.  Only a late-day mini-rally took us out up off the lows.  This left the SPY and DIA in black Hammer-type candles and the QQQ as a Bearish Harami.  Still, both the SPY and QQQ closed at the second-highest close of all time (second to Monday only).  On the day, SPY lost 0.16%, DIA lost 0.24%, and QQQ lost 0.65%.  The VXX gained 2% to 31.77 and T2122 rose, but remains in the mid-range at 70.97.  10-year bond yields were flat at 1.496% and Oil (WTI) gained almost 2% to $72.29/barrel.

In stock news after hours, LUV canceled 500 flights (15% of schedule) after the second straight day of computer system problems Tuesday.  ORCL beat on both the top and bottom lines, but guided forward at a lower-than-expected level.  The CFO of C also followed JPM’s suite from a day ago, telling a conference that they now expect a larger-than-anticipated drop (30% drop versus a year ago) in trading income this quarter.  He also said that consumers have paid down loan balances and loan income will also fall.  As a result, he expects revenue to drop roughly 15% year-on-year in Q2.  Finally, RCL has postponed its first sailing since the pandemic as 8 crew members tested positive during cruise prep.  So, all of the crew is now quarantined for 14 days and the cruise that had been scheduled to depart July 3 will sail on July 31.   

Bloomberg is reporting a consensus view essentially identical to CNBC reported yesterday on the Fed’s words and actions for today.  It is widely expected they will take no policy actions.  However, it is likely the FOMC will release wording that signals it is thinking about making a change to its policy bond-buying soon.  The dots (interest rate forecasts) are also expected to point toward a first interest rate hike in 2023.  All this would be consistent with what the Fed has said to date.  In other words, no rocking the boat, but an announcement that the dock is just over the horizon. Tone will be the key as markets look to parse words.

Related to the virus, new US infections continue to fall.  The totals rose to 34,352,185 confirmed cases and deaths are now at 615,717. These numbers are now under-reported again as some states (mostly Southern) have decided to stop reporting data on a daily basis. Nonetheless, on the data we do have, the number of new cases is falling again and are back down to an average of 13,577 new cases per day (the lowest number since March 2020). Deaths are also falling, just more slowly, but are now down to 3356 per day (again, the lowest number since March 2020).  

Globally, the numbers rose to 177,470,620 confirmed cases and the confirmed deaths are now at 3,839,931 deaths.  The trends are better again as we have seen a slowing in the rate of increase now that India has passed its peaked.  The world’s average new cases are falling quickly now, but remain at 377,371 new cases per day.  Mortality, which lags, is also falling, but remains at 8,770 new deaths per day.

Overnight, Asian markets were mostly in the red.  Shenzhen (-2.57%) and Shanghai (-1.07%) led the region lower as Chinese May Retail Sales missed expectations by 1.25%.  (Still, they had 12.4% sales growth.)  In Europe, markets a re mixed on flat trading as the world waits on the Fed.  The FTSE (-0.02%) is flat while the DAX (-0.13%) is down slightly and the CAC (+0.09%) is up slightly.  The rest of the continent is in a similar situation on slightly larger moves.  As of 7:30 am, US Futures are also pointed to a mixed, flat open.  The DIA is implying a -0.11% open, the SPY implying a -0.01% open, and the QQQ implying a +0.15% open at this point.

Wednesday is a heavy day for major economic news, headlined by the Fed. The news includes May Building Permits, May Housing Starts, May Import/Export Price Indices (all at 8:30 am), Crude Oil Inventories (10:30 am), and then Fed Interest Rate Projections (short and long-term), Fed Interest Rate Decision, Fed Statement (all at 2 pm), and the Fed Press Conference (2:30 pm).  The only major earnings report on the day is LEN after the close.   

Today is likely a "wait and see" day until 2 pm. Housing data early is not likely to push the market "off the fence" either way while we wait for Chair Powell and hope he can hit "the perfect note" in his statement. With that said, expect a dull day at least until the Fed announcements. Then expect an over-reaction in one direction to be followed by a whiplash back the other direction shortly after. (That is the typical Fed day pattern.) Finally, it also usually happens that there is a bit of a rethink again overnight the night following the Fed statements. So, after 2 pm, it is likely to be a volatile period into Thursday.

As always, follow the trend and respect support and resistance levels. However, don't just assume those levels will hold. All trends reverse at some point and every S/R level is breached eventually. Keep moving your stops, locking in profits, and maintaining discipline. Follow those trading rules and stick to the trade plan. Remember that consistency is the key to long-term trading success.

Ed

Swing Trade Ideas for your consideration and watchlist: EMR, SAND, TXN, BR, FB, QD, BNGO. 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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