PPI On Tap as Fed Members Call for Taper

The July CPI number came in exactly as expected and markets gapped up slightly after having feared seeing a hot number.  The QQQ faded that gap immediately, but the entire market ground sideways in a very tight range from mid-morning on.  This left us with a nice white candle in the DIA, a Dragonfly Doji type candle in the SPY and a black Spinning Top type candle in the QQQ.  On the day, SPY gained 0.24% (a new all-time high close), DIA gained 0.63% (a new all-time high close), and QQQ lost 0.17%.  The VXX fell 2.65% to 26.80 and T2122 rose back into the overbought territory at 83.16.  10-year bond yields fell slightly to 1.334% and Oil (WTI) rose 1.5% to $69.32/barrel.

During the afternoon, a bipartisan bill was introduced in the Senate that could have dramatic impacts on AAPL and GOOG.  The bill, as introduced, would prevent the two behemoths from requiring App developers to use the app store payment system.  It would also prevent AAPL and GOOG from limiting app developers from directly contacting app users with offers.  Finally, it would prevent AAPL and GOOG from punishing app developers for offering better pricing anywhere outside of the app store.  Although the impacts have not been quantified, if this were to become law both companies (and any other app store with 50 million users) would take a huge hit to a major cash cow division.

Also during the day, Dallas Fed President Kaplan said that the Fed should announce they are tapering bond-buying and should then begin tapering in October.  It is worth noting that Kaplan has always been known as a “hawk” and that he is not a voting member at this time.  However, this is the first FOMC member to put a firm timeline out in the public.  KC Fed President George also said that she believes the Fed should move out of “extraordinary policy” and into a “neutral monetary policy” as the recovery continues.  However, once again, George is not a voting member this year.

In another sign that the economy has recovered, US freight volumes (truck and rail) have returned to pre-pandemic levels.  The Cass Freight Index for July showed volumes higher than July 2019.  However, the numbers were down a bit from June.  Interestingly (related to inflation), shipping prices fell faster than volumes in July (shipments declined 3% while costs came down 5%).  The full index will be released later this morning.

Overnight, Asian markets were mostly in the red on modest trading.  Shenzhen (-0.79%), Thailand (-0.64%), and Hong Kong (-0.53%) led the moves lower.  Indonesia (+0.84%) was the only appreciable gainer.  In Europe, markets are showing modest moves, but are mostly green at mid-day.  The FTSE (-0.15%), DAX (+0.38%), and CAC (+0.25%) are typical of the continent.  As of 7:30 am, US Futures are pointing to a flat open.  The DIA is implying a 0.14% gain, the SPY implying a 0.07% gain, and the QQQ implying a 0.04% gain at this hour.  The dollar is flat, but 10-year bond yields are up to 1.357% in early morning trading.

The major economic news scheduled for release on Thursday includes July PPI and Weekly Initial Jobless Claims (both at 8:30 am) and the WASDE (World Ag Supply and Demand Estimate) at noon.  The major earnings reports scheduled for the day include ARKO, BIDU, BR, BAM, CSIQ, DDS, ESLT, IQ, KELYA, MDP, MIDD, EYE, and OGN before the open.  Then, after the close, ABNB, WISH, BAP, DASH, FLO, RKT, and DIS report.

This morning markets will look to July Producer Prices for another clue as to how soon the Fed might start taking away stimulus. Europe and Asia showed some caution as fears over Delta variant impact increase. However, the US Markets love new highs, and a drift higher continues. Beware of volatility as markets have been gapping and resting the rest of the day for a while now. So, even the new highs feel like they are range-bound.

Stick with the trend until the trend is broken. Reversal predictors don't tend to last long in trading. Also, keep in mind that you don't need to call market turns to be successful. Just keep your losses small by managing stops and consistently take profits when you have them. Never chase price on an entry. If you missed a move, admit it and move on to the next trade. Above all, stick to your trading rules. Focus on the process and managing what you can control. Discipline will see you through.

Ed

Swing Trade Ideas for your consideration and watchlist: FOLD, FAST, AMD, NET, DOCU, KBH, PLTR, DDD. 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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