Powell Reassures Markets Again

Markets opened flat Tuesday and then rallied most of the day as bulls delivered some follow-through to Monday’s bullish reversal of last week’s action.  However, a selloff the last half hour of the day took stocks out away from their highs.  DIA was by far the least positive of the 3 major indices, printing a white-bodied Spinning Top candle.  However, the SPY and QQQ put in stronger bullish candles.  On the day, QQQ closed up 0.93% (to an all-time high close), SPY gained 0.53% (half a percent shy of a new all-time high), and DIA gained 0.20% and remains the laggard.  The VXX fell 5% to 30.87 and T2122 rose 1%, but remains just outside the overbought territory at 78.79.  10-year bond yields fell slightly to 1.465% and Oil (WTI) was off eight-tenths of a percent to $73.08/barrel as the dollar fell again.

During the afternoon, Fed Chair Powell’s prepared remarks (for his House testimony) were released.  In the prepared statement, Powell said the Fed will “soon begin discussing” the tapering of QE (bond buying).  However, in questioning, he was very positive about the economic comeback and continues to maintain the position that the inflation being seen now is temporary in nature.  Powell said it is “very, very unlikely” that the US will see 1970s-type inflation.  He also repeatedly said that the pandemic remains a risk, specifically noting the slowing in the pace of vaccinations and the Delta variant of the virus.    

Bloomberg reported that semiconductor order lead times increased another 7 days during May.  The wait time on an average chip order (regardless of industry) is 18 weeks.  However, the primary cause of the increase in wait time is phone chips, which saw an increase to almost 26 weeks lead-time.  However, the report Bloomberg cited said that chipmakers like AVGO are cautioning against reading this as massive demand.  The CEO of AVGO told Bloomberg this is more of a case of their customers coming to terms with a not-just-in-time supply chain.  (Which means every link in the chain is just building inventory buffers now and that inventory will be worked back down in the future.)

Bitcoin briefly fell below $30,000 on Tuesday before rallying back to close just under $33,000.  The pullback put fear into crypto markets as a Death Cross set up and weak hands ran for the doors.  Bitcoin-related stocks (like MSTR and GBTC) suffered great volatility and/or losses on the day. Overnight Bitcoin continued its rebound rally and is trading near $34,000 in the premarket.

Related to the virus, new US infections are flat.  The totals rose to 34,434,803 confirmed cases and deaths are now at 617,875. These numbers are now under-reported again as some (mostly Southern) states have decided to stop reporting data on a daily basis. Nonetheless, on the data we do have, the number of new cases is flat and at an average of 11,775 new cases per day (the lowest number since March 2020). Deaths continue to fall and are now down to 306 per day (again, the lowest number since March 2020).  The White House said Tuesday that the country will not meet its stated goal of 70% of American adults having received at least one vaccine shot by July 4.  They went on to say we are now on pace to be at 67% of adults in that state by the holiday.  We will also come up short on the goal of 160 million Americans being fully vaccinated by that date, now being on a pace to be at 151 million as of Independence Day.

Overnight, Asian markets were mixed, on mixed trading. For example, Japan was dead flat, but Hong Kong (+1.79%), Taiwan (+1.53%), and Shenzhen (+1.00%) made nice gains.  Meanwhile, Indonesia (-0.88%), Australia (-0.60%), and India (-0.54%) were down a bit.  In Europe, markets are mostly in the red so far today.  The FTSE (+0.23%) is an outlier, but the DAX (-0.67%) and CAC (-0.59%) are typical of the continent at this point in their day.  As of 7:30 am, US Futures are pointing to a dead flat open.  The DIA is implying a +0.04% open, the SPY is implying a -0.02% open, and the QQQ is implying a -0.04% open at this hour.  Commodities are largely higher overnight with the Dollar down slightly.

The major economic news scheduled for Wednesday includes Q1 Current Account (8:30 am), Manufacturing PMI (9:45 am), Services PMI and May New Home Sales (both at 10 am), Crude Oil Inventories (10:30 am), and multiple Fed speakers (Bowman at 9:10 am and Bostic at 11 am).  Major earnings reports on the day include INFO, PDCO, and WGO all before the open.  Then after the close CNXC, FUL, KBH, and SCS all report. 

Inflation and the fear of Fed tightening continue to be the main talking points for the market. This comes despite some glaring examples in the other direction. For example, Lumber prices are down almost 50% and Corn is down 27% from the peaks in early May. Meanwhile, companies that use lumber and corn have pricing power...and their prices are not falling. So, they are reaping greater profits. In a perfectly efficient market, you might expect a huge rally in Housing and Food sectors, but that has not been the case since early May. The point is that it is not news, but the fear and rumor related to news that is drives markets. So, focus on the reaction and not the news itself in your trading.

The odds still favor following the trend and respecting support and resistance levels. That doesn't really help in terms of the large caps, but the QQQ is still holding the bullish trend. Still, all trends reverse at some point and every S/R level is breached eventually. So, don't just assume trend, support, or resistance will always hold. Keep locking in profits, moving your stops, and maintaining discipline. Follow your trading rules, don't chase, 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: AMSC, RIOT, MRO, NKLA, FANG, PTON, RUN, EXPR, PLUG. 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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