Pre-Market Flat, CPI Will Call Tune Early

Markets gapped higher again (two-thirds of a percent this time) on Monday and once again that gap was met with immediate selling pressure in the SPY and QQQ.  However, the major action was over and markets stabilized by 10:15 am and then just ground sideways the rest of the day in those two indices.  The DIA did not immediately selloff, but instead ground sideways all way with an afternoon selloff and recovery.  This left us with a Bull Harami Doji in the DIA and black candles with lower wicks in the SPY and QQQ.  On the day, SPY gained 0.25%, DIA gained 0.75%, and QQQ lost 0.07%.  The VXX fell to 26.09 and T2122 rose back into the mid-range at 46.76.  10-year bond yields fell to 1.328% and Oil (WTI) rose 1.33% to $70.64/ barrel.

During the day Monday, House Democrats outlined the tax hikes they want to pay for the Infrastructure and Budget bills.  The plan calls for corporate taxes to increase to 18% for the first $400,000 of income, 21% for the next $4.6 million of income, and 26.5% for everything over $5 million in income.  While this is more than the current 21% highest rate, it is a percent less than previous proposals floated and still less than the 35% rate that prevailed until 2017.  On the individual side, the House plan does not include a repeal of the “stepped-up-basis” (meaning inherited wealth would not need to be marked-to-market at the time of inheritance) that had previously been proposed.  However, it does raise the capital gained top rate to 28.8% and adds a 3% surcharge on individuals that have post-deduction incomes exceeding $5 million.  This all said the proposal is still far from law yet as some Senate Democrats have proposed a 25% max corporate tax rate and certain critical House Democrats will not be happy that the plan does not include an increase in deductions for State and Local taxes. 

AAPL has had a busy few days.  On Monday the company rushed out a critical patch for its messaging app that had been vulnerable to spyware infections without even clicking.  This came only days after losing a lawsuit Friday which means they can no longer require app developers to use their payment system or prevent developers from contacting customers directly.  Offsetting those pieces of bad news, AAPL will hold its annual new product announcement dog and pony show today at 1 pm Eastern.  New versions of the iPhone, AirPods, and Apple Watch are expected. 

In miscellaneous stock news after the close Monday, WHR announced it has raised its employee vaccination bonus to $1,000. (This comes even as Covid cases fell from the recent peak, two weeks ago to “only” 144,300 new cases per day.) Elsewhere, ORCL reported a miss on revenue, but beat on earnings after the close. They also announced plans to increase spending encouraging customers to switch to (more profitable) cloud services instead of on-premise software and increased cloud capital spending by $1 billion.  Finally, INTU announced it will buy email marketing company Mailchimp for $12 billion.

Overnight, Asian markets were mixed again. Shanghai (-1.42%) and Hong Kong (-1.21%) led the region’s losses as China was forced to lockdown Xiamen, a city of 4.5 million due to an outbreak of Delta variant and just as a Southern China Mid-Autumn Festival was planned (and now canceled).  On the upside, Japan (+0.73%) and South Korea (+0.67%) led the gains.  Europe is also mixed but is leaning red as of mid-day but on more modest moves.  The FTSE (-0.25%), DAX (+0.10%), and CAC (-0.53%) are typical of the region although a couple of smaller exchanges have managed to gain three-tenths of a percent.  As of 7:30 am, US Futures are flat in front of the CPI report.  The DIA is implying a +0.02% open, the SPY implying a +0.05% open, and the QQQ implying a -0.03% open.  The Dollar is just South of flat while 10-year bond yields are up to 1.341% and Oil (WTI) is up half a percent in early trading.

The only major economic news scheduled for release on Tuesday is limited to August CPI (8:30 am).  The major earnings reports scheduled for Tuesday are limited to CNM before the open.  There are no earnings announcements scheduled for after the close.

The bears remain in charge of the short-term trend while the longer-term is much a rosier picture. The main longer-term technical concern is not the short-term trend, but instead breadth. For quite some time the bulls have been moving forward on fewer new highs, with the Mega-cap Tech names dragging the indices higher. As of now, less than 46% of stocks are above their 40-day moving average. While clearly, this is sustainable for a while given the massive weightings of TSLA, AAPL, and AMZN, it is not a recipe for a long sustained continuing rally. So, the short-term outlook remains bearish until we fix some of the technical damage done recently (break resistances and add breadth), but also keep an eye out for signs of a broader pullback.

Thought for the day: the Trend is your friend, so follow it. As always, manage your existing trades before you chase any new ones. Focus on the process and on managing the things you can control. Don't worry too much about the things you can't control. Good trading rules and discipline is what separates long-term success from failure in trading. However, above all, consistently take profits when you have them. A good trader just won't let greed turn their winners into losers.

Ed

Swing Trade Ideas for your consideration and watchlist: CARA, SDC, CLX, MPC, BP, COP, MRO, APPS, XLE, MSFT, LOW, GS, APA. 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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