US Stock Index Futures Testing Record Highs as Earnings Season Continues

U.S. stock futures are edging higher in overnight trading on Wednesday following a flat opening after the major cash market averages hit record highs on inauguration day.

At 07:21 GMT, benchmark S&P 500 Index futures are up 0.27%. The blue chip Dow Jones Industrial Average is trading higher by 0.16% and the tech-based NASDAQ Composite is up by 0.49%.

The early price action indicates investors have moved on from the bearish earnings report released by United Airlines after the close on Wednesday.

Major airline United dipped more than 2% in extended trading on Wednesday after missing on the top and bottom lines of its quarterly earnings. The airline warned sales would continue to suffer in the early part of 2021 as the coronavirus pandemic drags on.

Earnings season continues on Thursday with Baker Hughes, Union Pacific and Citrix reporting before the bell. Intel, IBM and CSX report after the closing bell on Thursday.

In economic news, the Labor Department will release last week’s jobless claims data at 13:30 GMT on Thursday. Economists polled by Dow Jones expect 925,000 Americans filed for unemployment last week, down from the previous week’s 965,000.

Wednesday Recap

U.S. equities rose to record highs on Wednesday as the latest batch of strong corporate earnings rolled in, as Joe Biden was sworn in as commander in chief.

The S&P 500 Index climbed 1.4%, notching an all-time high. The Dow Jones Industrial Average rose more than 250 points to close at a record and the NASDAQ Composite surged nearly 2%, closing at a record. The technology heavy index was helped by a 16% jump in Netflix’s stock on the back of the streaming giant’s strong earnings and subscriber results.

The rest of the FAANG group, due to report results in the coming weeks, jumped with Facebook Inc, Amazon.com Inc, Apple and Google-parent Alphabet Inc rising between 2% and 5%.

Eight of the 11 S&P sectors advanced in afternoon trading, with technology, communication services and consumer discretionary among the biggest gainers.

The broader banks index, however, shed about 1.6%, declining for the third day.

Earnings Results

Morgan Stanley edged higher after its quarterly profit blew past estimates driven by strength in its trading business.

Procter & Gamble Co raised its full-year sales forecast for a second time as it benefited from sustained coronavirus-driven demand for cleaning products. Its shares, however, slipped about 1.4% after it warned that the pace of sales might slow as vaccines roll out.

UnitedHealth Group Inc slid 0.3% after the health insurer’s quarterly profit slumped nearly 38%, weighed down by costs related to its programs to make COVID-19 testing and treatment more accessible for its customers.

For a look at all of today’s economic events, check out our economic calendar.

E-mini Dow Jones Industrial Average (YM) Futures Technical Analysis – Trade Through 31116 Changes Trend to Up

March E-mini Dow Jones Industrial Average futures finished higher on Tuesday. The blue chip average was supported by a surge in shares of component Goldman Sachs Group, which rose 2.5% as its fourth-quarter profit more than doubled, dwarfing estimates after another blowout performance at its trading and underwriting business.

On Tuesday,  March E-mini Dow Jones Industrial Average futures settled at 30828, up 108 or +0.35%.

Goldman Sachs on Tuesday beat analysts’ expectations for fourth-quarter profit and revenue on strong performance from the firm’s equities traders and investment bankers. The bank posted earnings of $12.08 a share, crushing the $7.47 estimate of analysts surveyed by Refinitiv. Revenue of $11.74 billion exceeded expectations by about $1.75 billion.

Daily March E-mini Dow Jones Industrial Average

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 31116 will change the main trend to up. A move through 30506 will signal a resumption of the downtrend.

The minor range is 31148 to 30506. The market is currently straddling its 50% level at 30827.

The second minor range is 29760 to 31148. Its 50% level at 30454 is potential support.

The short-term range is 29318 to 31148. Its 50% level is another potential support level.

Daily Swing Chart Technical Forecast

Tuesday’s price action suggests the direction of the March E-mini Dow Jones Industrial Average futures contract over the short-run will be determined by trader reaction to 30827.

Bullish Scenario

A sustained move over 30827 will indicate the presence of buyers. If this generates enough upside momentum then look for a test of 31116. Taking out this level will change the main trend to up. This could trigger an extension of the rally into the next main top at 31148.

Bearish Scenario

A sustained move under 30827 will signal the presence of sellers. This could lead to a retest of Friday’s minor bottom at 30506, followed by 30454. If this fails then look for an extension of the selling into 30233. This level is a potential trigger point for an acceleration to the downside.

For a look at all of today’s economic events, check out our economic calendar.

US Stock Market Overview – Stock Rally Led by Energy and Technology

U.S. stocks moved higher on Tuesday, led by gains in the Nasdaq. Growth and value were both strong. Most S&P 500 index sectors were higher, led by gains in energy and technology, real-estate bucked the trend. Janet Yellen was on the hill testifying for her confirmation hearing in front of the senate. She said she would focus on the American worker if confirmed. U.S. Yields moved lower along with the dollar as crude oil prices moved higher. Netflix reported after the closing bell, beating expectations on the top and bottom line. The stock immediately popped more than 5%. The company said in a statement that they no longer will need to raise capital by external financing. Money will now go to stock buybacks. Goldman Sachs reported financial results before the opening bell. Gains in trading and investment banking drove the better than expected top and bottom line.

Yellen Hearing to Be Treasury Secretary was Held on Tuesday

Janet Yellen told lawmakers she would make the needs of America’s workers her core focus if confirmed as the next U.S. Treasury secretary. The former Chair of the Federal Reserve said that she would ensure the U.S. has a competitive economy that offers good jobs and wages workers in cities and rural areas.

Goldman Reported Better than Expected Results

Goldman Sach reported a profit of $4.51 billion in the Q4 or $12.08 per share, which was more than double Goldman’s profit from the same quarter a year ago. Both quarterly net income and quarterly revenue of $11.74 billion were much better than the expectations of of $7.39 a share on revenue of $9.99 billion.

Union Pacific at New High Ahead of Earnings

Union Pacific Corp. (UNP) reports Q4 2020 earnings in Thursday’s pre-market, with analysts expecting a profit of $2.23 per-share on $5.12 billion in revenue. If met, earnings-per-share (EPS) will mark a 10% profit increase compared to the same quarter in 2019. The stock sold off more than 6% in October after missing Q3 top and bottom line estimates, and fell another 6% into month’s end. However, it’s recovered since that time and is now trading at an all-time high.

Union Pacific Raises Guidance

This is America’s largest railroad, with 32,340 route miles linking the Pacific and Gulf coasts and Great Lakes. The company issued upside guidance on Jan. 8 and now expects to report revenue of $5.1 billion, compared to prior estimates of $5.06 billion. It also projects an adjusted operating ratio of 55.6%, marking a 4.1 point improvement over the same quarter in 2019. The stock rallied 3.4% after the news, breaking out to a new high.

United Pacific is the highest capitalized component in the Dow Jones Transportation Average, with a $146 billion market cap about $5 million higher than runner-up United Parcel Service Inc. (UPS). The stock posted a modest 14% return in 2020, which was enough to lift the Average above 3-year resistance to an all-time high. UNP price action is highly vulnerable to economic cycles, which impact shipping volume carried across the rails.

Wall Street and Technical Outlook

Wall Street consensus is mixed, with a ‘Moderate Buy’ rating based upon 11 ‘Buy’, 6 ‘Hold’, and 0 ‘Sell’ recommendations. Price targets currently range from a low of $160 to a Street-high $250 while the stock opened Tuesday’s U.S. session about $3 below the median $222 target. The pre-announcement triggered just one upgrade but more could follow if Q4 earnings-per-share also exceeds current expectations.

Union Pacific has been grinding higher since 2017 when it broke out above 2015 resistance near 125. Price action since September 2018 has tracked a rising highs trendline that’s now come back into play for the third time. This tells sidelined investors the reward-to-risk profile isn’t favorable, unless a bull surge generates a trendline breakout. The sky’s the limit if that happens, opening the door to 300 and beyond.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

US Stocks Recap (15th Jan): Stocks Decline, More May be Coming

We’ve reached a very critical juncture in the markets. Last week, I mentioned how this reminded me of the Q4 2018 pullback ( read my story here ), and still maintain that there is way too much complacency in this market. Stock markets are risky for a reason, something many Robinhood traders are sure to find out this year.

My goal for these updates is to educate you, give you ideas, and help you manage money like I did when I was pressing the buy and sell buttons for $600+ million in assets. I left that career to pursue one where I could help people who needed help, instead of the ultra-high net worth. Hopefully, you’ll find the below enlightening from my perspective, and I welcome your thoughts and questions.

Stocks closed the week with their first weekly declines in nearly a month.

The pullbacks weren’t anything astronomical, but it could potentially be the start of the Q1 declines that I have been predicting.

For one, valuations are insane, and the tech IPO market is looking like clown school. The S&P 500 is trading near its highest forward P/E ratio since 2000, while the Russell 2000 has never traded this high above its 200-day moving average.

Signs are starting to point towards the return of inflation by mid-year as well. As the 10-year yield ticked up to its highest level since March, economist Mohammed El-Erian said “if we were to see another 20 basis point move in yields, that would be bad news.”

Expectations haven’t been this high for inflation in years either. According to Edward Jones , the 10-year breakeven rate hit its highest level since 2018 last week due to rising commodity prices, a weaker dollar, and broad stimulus policy. The 10-year breakeven rate is a market-based measure of inflation expectations.

What’s also concerning is that investors didn’t seem to bat an eye at Joe Biden’s $1.9 trillion stimulus package !

What does this tell me?

That maybe this was anticipated and priced in already. According to Jim Cramer on his Mad Money show on CNBC, “When an event occurs and the market gets exactly what it wants, but nothing more, it’s treated as a reason to sell, not to buy.”

Although this week’s decline was moderate, I still feel that a correction between now and the end of Q1 2020 is likely amidst a tug of war between good news and bad news.

Generally, corrections are healthy for markets and more common than most realize. Only twice in the last 38 years have we had years WITHOUT a correction (1995 and 2017). The last time we saw one was in March 2020, so we could be well overdue.

Corrections are healthy market behavior and could be an excellent buying opportunity for what should be a great second half of the year.

Therefore, to sum it up:

While there is long-term optimism, there are short-term concerns. A short-term correction between now and Q1 2021 is possible. I don’t think that a decline above ~20%, leading to a bear market will happen.

I hope everyone has a great day. Best of luck, and happy trading!

Time to Wager – Is the Dow Over/Under 31,000 Before the End of January?

Figure 1- Dow Jones Industrial Average $INDU

Is it possible to choose “push” on this gamble?

I have too many short-term questions and concerns about the Dow Jones to unequivocally say it’s overheated like the Russell or tech IPOs, or if it’s at the right buying level.

Although the Dow’s RSI is comparable to the Nasdaq’s on the surface, it has also not exceeded overbought levels as much.

I do like the Dow’s decline this week. But I’d like to see a more profound dip before buying back in.

If someone wanted to make an over/under bet with me on the Dow’s 31,000 level by the end of January, the truth is I’d probably choose “push.” You’d have better luck betting on the AFC Championship game this year (but only if Mahomes plays).

I don’t like how COVID-19 is trending (who does?), I am disappointed in the vaccine roll-out (although it’s improving), and I am concerned about short-term economic and political headwinds. But I think it’s more likely than not that the Dow hovers around 31,000 by month’s end rather than make any significant move upwards or downwards. It is very hard right now to make a conviction call on this index.

If and when there is a drop in the index, it probably won’t be anything like we saw back in March 2020.

While a 35,000 call to close out 2021 is a bit aggressive, the second half of 2021 could show robust gains for the index once vaccines are available to the general public.

With so much uncertainty, the call on the Dow stays a HOLD. I am closely monitoring the RSI if it exceeds 70.

For an ETF that looks to directly correlate with the Dow’s performance, the SPDR Dow Jones ETF (DIA) is a strong option.

Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter – it’s absolutely free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

For a look at all of today’s economic events, check out our economic calendar.

Thank you.

Matthew Levy, CFA
Stock Trading Strategist
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research, and information found above represent analyses and opinions of Matthew Levy, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Matthew Levy, CFA, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Levy is not a Registered Securities Advisor. By reading Matthew Levy, CFA’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading, and speculation in any financial markets may involve high risk of loss. Matthew Levy, CFA, Sunshine Profits’ employees, and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

E-mini Dow Jones Industrial Average (YM) Futures Technical Analysis – Potential for Steep Break Under 30233

March E-mini Dow Jones Industrial Average futures finished lower on Friday with Dow component JPMorgan Chase & Co weighing on prices and weakness in Exxon Mobil Corp dragging down constituent Chevron.

JPMorgan Chase on Friday beat analysts’ estimates for fourth-quarter profit on record trading results and a boost from releasing money previously set aside for loan losses. The sell-off was part of a price slide in the banking sector, led by weakness in Wells Fargo and Citigroup.

Shares of Exxon slipped more than 5% on Friday after The Wall Street Journal reported that the Securities and Exchange Commission opened an investigation that the Securities and Exchange Commission opened an investigation into the oil giant over how it valued a key asset in the oil-rich Permian Basin. The bad news quickly spread to other stocks in the energy sector including Chevron. Lower oil prices also weighed on the stock.

On Friday, March E-mini Dow Jones Industrial Average futures settled at 30720, down 189 or -0.62%.

Daily March E-mini Dow Jones Industrial Average

Daily Swing Chart Technical Analysis

The main trend turned down on the daily swing chart on Friday when buyers took out 30638, breaking a higher-top, higher-bottom chart pattern that had been intact since January 4. The main trend will change to up on a move through 31116. Taking out 31148 will reaffirm the uptrend. The downtrend will be reaffirmed on a trade through 29318.

The first minor range is 31148 to 30506. Its 50% level at 30827 is potential resistance.

The second minor range is 29760 to 31148. Its 50% level at 30454 is the first potential support level.

The short-term range is 29318 to 31148. Its 50% level at 30233 is the most important support level. It’s the last potential support level before the 23918 main bottom.

The main range is 25872 to 31148. Its retracement zone at 28510 to 27887 is controlling the near-term direction of the Dow.

Short-Term Outlook

Given the close at 30720, we’re looking for an upside bias to develop on a trade over 30827, and for the downside bias to resume on a trade through 30454.

Bullish Scenario

A sustained move over 30827 will indicate the presence of buyers. This could lead to a test of the pair of tops at 31116 and 31148. Taking out these levels will signal a resumption of the uptrend.

Bearish Scenario

A sustained move under 30454 will signal the presence of sellers. This could trigger a break into 30233. Buyers could come in on the first test of this zone, but if it fails, be prepared for an acceleration into a minor bottom at 29760.

The main bottom at 29318 is the last potential support before the 28510 – 27887 retracement zone. This area is controlling the near-term direction of the Dow.

For a look at all of today’s economic events, check out our economic calendar.

US Stocks Falter Amid Concerns Biden Stimulus Plan Would Lead to Higher Interest Rates, Corporate Taxes

Wall Street’s major stock indexes finished lower on Friday. Gains were capped as investors assessed the impact of President-elect Joe Biden’s $1.9 trillion stimulus plan with some suggesting higher corporate taxes would be necessary to pay for it. Also weighing on prices was a drop in U.S. big bank shares after their reports kicked off earnings season and a sharp break in energy due to the announcement of a regulatory probe into Exxon Mobil Corp.

In the cash market on Friday, the benchmark S&P 500 Index settled at 3768.25, down 27.29 or -0.81%. The blue chip Dow Jones Industrial Average finished at 30814.26, down 177.26 or -0.65% and the tech-based NASDAQ Composite closed at 12998.50, down 114.14 or -1.02%.

Biden’s Stimulus Plan Caps Gains, Raises Concerns about Taxes

Biden’s proposal, called the American Rescue Plan, includes increasing the additional federal unemployment payments to $400 per week and extending them through September, direct payments to many Americans of $1,400, and extending the federal moratoriums on evictions and foreclosures through September.

Biden’s coronavirus relief stimulus package may prove a double-edged sword for investors, sustaining optimism for further economic revival while raising worries over how the United States will pay for it all.

Investors didn’t chase the market higher on Friday after Biden announced the package the evening before because it had been widely anticipated by Wall Street and has helped lift the broad S&P 500 Index nearly 3% in the week since Democratic challengers won both of Georgia’s U.S. Senate seats, giving Democrats full control of Congress.

However, that rally has been mirrored by a slide in Treasuries, due in part to expectations that the government will need to fund the spending with more debt issuance and nudging borrowing costs throughout the economy higher.

On the other side, there’s a chance that markets will have to pay for this in the form or sharply higher interest rates or tax hikes that could cap equity valuations.

Bank Stocks Drag S&P Lower

The S&P 500 Banks Index Lost Ground as shares of Wells Fargo & Co, JPMorgan Chase & Co and Citigroup Inc tumbled even though they had posted better-than-expected fourth-quarter profits. The bank sector had rallied sharply in recent days.

JPMorgan Chase on Friday beat analysts’ estimates for fourth-quarter profit on record trading results and a boost from releasing money previously set aside for loan losses.

Wells Fargo released mixed results for the fourth quarter, sending the bank’s stock lower. Earnings per share of 64 cents exceeded Refinitiv’s estimate of 60 cents, but revenue of $17.93 billion fell short of the $18.127 billion forecast

Citigroup posted fourth-quarter results that beat analysts’ estimates for profit as the firm joined rival JPMorgan Chase in releasing reserves for loan losses.

Wells Fargo, down 7.8%, was among the biggest drags on the S&P 500.

Exxon Reportedly Investigated by SEC

Shares of Exxon slipped more than 5% on Friday after The Wall Street Journal reported that the Securities and Exchange Commission opened an investigation that the Securities and Exchange Commission opened an investigation into the oil giant over how it valued a key asset in the oil-rich Permian Basin.

For a look at all of today’s economic events, check out our economic calendar.

The Week Ahead – U.S Politics, Monetary Policy, Economic Data, and COVID-19 in Focus

On the Macro

It’s a busy week ahead on the economic calendar, with 73 stats in focus in the week ending 22nd January. In the week prior, 46 stats had been in focus.

For the Dollar:

It’s a quiet week ahead on the economic data front.

In a shortened week, there are no material stats to consider in the 1st half of the week.

Through Thursday, Philly FED Manufacturing PMI and weekly jobless claims figures are in focus.

With market attention to labor market conditions, expect the jobless claims to have the biggest impact. Another jump in jobless claims would likely weigh on riskier assets.

At the end of the week, prelim private sector PMI figures for January wrap things up.

Housing sector data also due out in the week will likely have a muted impact on the Dollar and risk sentiment.

The Dollar Spot Index ended the week up by 0.75% to 90.772.

For the EUR:

It’s a busy week ahead on the economic data front.

On Tuesday, January ZEW Economic Sentiment figures for Germany and the Eurozone kick things off.

Germany’s ZEW Economic Sentiment indicator will likely be the key driver.

The focus will then shift to January prelim private sector PMI numbers on Friday. France, Germany, and the Eurozone’s private sectors will be in the spotlight on.

Expect Germany’s manufacturing and the Eurozone’s composite to be the key drivers.

Finalized December inflation figures for member states and the Eurozone, also due out in the week, will likely have a muted impact on the EUR.

On the monetary policy front, the ECB is in action on Thursday. No moves are expected, leaving the press conference as the key driver. Questions on the economic outlook are likely as EU member states extend lockdown periods.

The EUR ended the week down by 1.11% to $1.2082.

For the Pound:

It’s a relatively busy week ahead on the economic calendar. Key stats include December inflation and retail sales figures, CBI industrial trend orders, and prelim January private sector PMIs.

Expect the retail sales figures and services PMI, due out on Friday, to have the greatest influence.

Away from the economic calendar, COVID-19 news will also influence. Following the vaccine approvals, the markets will be looking for new COVID-19 cases to begin abating.

On the monetary policy front, BoE Governor is scheduled to speak on Wednesday.

The Pound ended the week up by 0.16% to $1.3590.

For the Loonie:

It’s a busy week ahead on the economic calendar.

Key stats include December inflation and November retail sales figures due out on Wednesday and Friday.

Other stats include housing stats, manufacturing and wholesale sales figures. We would expect these stats to have a muted impact on the Loonie, however.

On the monetary policy front, the BoC is in action on Wednesday. With the markets expecting the BoC to hold rates steady, the rate statement and press conference will be the key drivers.

From elsewhere, economic data from China and private sector PMIs from the Eurozone and the U.S will also influence.

Expect COVID-19 news updates and chatter from Capitol Hill to also provide direction.

The Loonie ended the week down by 0.24% to C$1.2732 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s a busier week on the economic data front.

Consumer sentiment figures for January are due out on Wednesday.

With consumer confidence key to fueling a pickup in consumer spending and an economic recovery, expect Aussie Dollar sensitivity to the numbers.

On Thursday, December employment figures will also provide direction ahead of retail sales figures on Friday.

Economic data from China and private sector PMI numbers from the U.S and the Eurozone will also influence.

COVID-19 news updates will remain a key driver in the week. however.

The Aussie Dollar ended the week down by 0.70% to $0.7703.

For the Kiwi Dollar:

It’s a quiet week ahead on the economic calendar.

In the 1st half of the week, 4th quarter business confidence and electronic card retail sales figures are in focus on Tuesday.

At the end of the week, Business PMI and 4th quarter inflation figures wrap things up.

Expect business confidence, retail sales, and 4th quarter inflation figures to be the key drivers.

The Kiwi Dollar ended the week down by 1.51% to $0.7133.

For the Japanese Yen:

It is a busy week ahead.

Finalized November industrial production figures get things going on Monday.

On Thursday, December trade figures will draw plenty of attention. With the COVID-19 pandemic continuing to wreak havoc, weak numbers could test market risk appetite.

At the end of the week, December inflation figures and prelim private sector PMIs for January wrap things up. The PMI numbers should have greater influence at the end of the week.

On the monetary policy front, the BoJ is in action on Thursday.

The Japanese Yen ended the week up by 0.09% to ¥103.85 against the U.S Dollar.

Out of China

It’s also a busy week ahead.

December industrial production and 4th quarter GDP numbers are due out on Monday. These will be the key stats of the week.

Other stats include fixed asset investment, retail sales, and unemployment figures. Barring dire numbers, however, these stats should have limited impact on market risk sentiment.

On Wednesday, the PBoC is also in action. However, the markets are not expecting any moves.

The Chinese Yuan ended the week down by 0.10% to CNY6.4809 against the U.S Dollar.

Geo-Politics

U.S Politics

It’s a busy week on Capitol Hill.

Inauguration Day and Trump’s impeachment will draw interest.

COVID-19

Vaccination rates and availability of vaccines will be key areas of interest.

An upward trend in vaccination rates and a downward trend on infection rates would support optimism towards an economic recovery.

Corporate Earnings

A number of big names deliver results in the week ahead.

From the U.S

These include:

Bank of America (Tues)

Goldman Sachs Group (Tues),

Netflix (Tues)

United Airlines (Wed)

Morgan Stanley (Wed)

Intel Corp. (Thurs).

The Weekly Wrap – COVID-19, Economic Data, and U.S Stimulus Weigh on Riskier Assets

The Stats

It was a relatively busy week on the economic calendar, in the week ending 15th January.

A total of 46 stats were monitored, following 61 stats from the week prior.

Of the 46 stats, 21 came in ahead forecasts, with 17 economic indicators coming up short of forecasts. There were 8 stats that were in line with forecasts in the week.

Looking at the numbers, 17 of the stats reflected an upward trend from previous figures. Of the remaining 29 stats, 23 reflected a deterioration from previous.

For the Greenback, it was a 2nd consecutive weekly gain, with the Dollar Spot Index rising by 0.75% to $90.772. In the previous week, the Dollar had risen 0.18% to 90.098.

Out of the U.S

It was a relatively busy week on the economic data front.

It was a quiet 1st half of the week, however, with stats limited to JOLTs job openings and inflation figures.

While job openings fell in November, inflation held steady, with the annual rate of core inflation holding at 1.6%.

Consumer prices rose by 0.4%, month-on-month, while core consumer prices increased by a modest 0.1%.

In a busy 2nd half of the week, key stats included the weekly jobless claims, retail sales, and consumer sentiment figures.

Jobless claims figure disappointed on Thursday, with initial jobless claims jumping from 784k to 965k.

In December, core retail sales slid by 1.4%, with retail sales falling by 0.7%, both following on from declines in November.

Consumer sentiment figures also disappointed.

According to prelim figures, the Michigan Consumer Sentiment Index fell from 80.7 to 79.2.

The downside was limited, however, supported by COVID-19 vaccines and hopes of a bipartisan shift.

The survey noted that the fall was minor when considering the sharp rise in COVID-19 related deaths, insurrection, and Trump’s impeachment.

Other stats included industrial production, NY Empire State Manufacturing, and business inventory figures. These stats had limited impact on the markets, however.

On the monetary policy front, FED Chair Powell assured the markets that rates were not going up any time soon. The FED Chair also stated that there would be no tapering of bond purchases near-term.

In the equity markets, the NASDAQ and the S&P500 slid by 1.54% and by 1.48% respectively. The Dow fell by a more modest 0.91%.

Out of the UK

It was a relatively busy week on the economic data front.

Monday through Thursday economic data was limited to BRC retail sales and RICS house price figures.

Retail sales rose by a further 4.8% in December, following a 7.7% rise in November according to the BRC.

House prices were also on an upward trend, with the RICS house price balance coming in at 65%. While down marginally from October’s 66%, upward pressure on house prices is expected to remain.

At the end of the week, industrial and manufacturing production and GDP figures were in focus.

In November, industrial production fell by 0.1%, following a 1.1% rise in October. Manufacturing production rose by 0.7%, following a 1.6% increase in October. Both fell short of forecasts.

GDP figures were not much better. In November, the economy contracted by 2.6% reversing 0.4% growth from October. On a 3-month rolling basis, the economy grew by 4.1%, slowing from a 10.2% to October.

Trade data released on Friday had a muted impact on the Pound, however. In November, the trade deficit widened from £13.29bn to £16.01bn, with the non-EU deficit widening from £5.82bn to £8.01bn.

Away from the economic calendar, a pickup in vaccination rates in the UK offset the negative sentiment towards lockdown measures.

In the week, the Pound rose by 0.16% to $1.3590. In the week prior, the Pound had fallen by 0.76% to $1.3568. A 0.72% slide on Friday pared some of the gains from earlier in the week.

The FTSE100 ended the week down by 2.00%, partially reversing a 6.39% gain from the previous week.

Out of the Eurozone

It was a relatively quiet week on the economic data front.

Industrial production and trade figures for the Eurozone, together with full year GDP numbers for Germany were in focus.

It was a mixed set of numbers for the EUR and the European majors.

For the Eurozone, industrial production jumped by 2.5% in November, following a 2.3% increase in October.

Trade data disappointed, however, with the trade surplus narrowing from €30.0bn to €25.8bn in November. Weak numbers were expected, however, following Germany’s trade data from last week.

While economic data from Germany has been impressive of late, GDP figures disappointed.

For the full year 2020, the economy contracted by 5.0%, following 0.6% growth in 2019. Economists had forecasted a 5.1% fall, however, which limited the damage.

ECB President Lagarde had spoken the day before the release of the GDP numbers. Lagarde continued to stand by the ECB’s economic forecasts, in spite of the extended lockdown measures in the EU. Lagarde pointed out that the forecasts had factored in lockdowns through the 1st quarter.

At the end of the week, finalized inflation figures for France and Spain had a muted impact on the EUR.

On the monetary policy front, the ECB’s monetary policy meeting minutes also failed to move the dial in the week.

For the week, the EUR slid by 1.11% to $1.2082. In the week prior, the EUR had risen by 0.02% to $1.2218.

For the European major indexes, it was a bearish week. The EuroStoxx600 fell by 0.81%, with the CAC40 and DAX30 sliding by 1.67% and 1.86% respectively.

A continued spike in new COVID-19 cases weighed. Across the EU, member states were reporting particularly low vaccination rates that added to the negative mood.

For the Loonie

It was a particularly quiet week on the economic data front. There were no material stats to provide the Loonie with direction.

At the start of the week, the BoC’s Business Outlook Survey failed to move the dial.

Market optimism, fueled by expectations of a sizeable U.S stimulus package, had supported crude oil prices and the Loonie.

A Friday sell-off, however, left the Loonie in the red. Concerns over the COVID-19 pandemic and market reaction to the Biden stimulus package weighed on riskier assets.

In the week ending 15th January, the Loonie fell by 0.24% to C$1.2732. In the week prior, the Loonie had risen by 0.2% to C$1.2702.

Elsewhere

It was a bearish week for the Aussie Dollar and the Kiwi Dollar, following solid gains from the previous week.

In the week ending 15th January the Aussie Dollar fell by 0.70% to $0.7703, with the Kiwi Dollar ended the week down by 1.51% to $0.7133.

For the Aussie Dollar

It was a quiet week on the economic calendar.

November retail sales, building permit, and new home loan figures were in focus in the week.

Retail sales impressed in November, supported by an easing of containment measures in Victoria. Sales jumped by 7.1%, following a 1.4% rise in October.

Building permits rose by 2.6%, following a 3.3% increase in October, with new home loans surging by 5.5%.

Home loans hit a record high mid-way through the 4th quarter.

From elsewhere, trade data from China also provided support, with imports and exports on the rise in December.

For the Kiwi Dollar

It was also a particularly quiet week on the economic calendar.

There were no material stats from New Zealand to provide the Kiwi Dollar with direction.

For the Japanese Yen

It was a relatively quiet week on the economic calendar. Core machinery orders were in focus in the week.

Month-on-month, orders rose by 1.5% in November, following October’s 17.1% surge. Economists had forecast a 6.2% slide. Year-on-year, orders were down by 11.3%, after having risen by 2.8% in October. Economists had forecast a more severe 15.4% slump.

The stats ultimately had a muted impact on the Japanese Yen, however. COVID-19 news and chatter from Capitol Hill remained key drivers in the week.

The Japanese Yen rose by 0.09% to ¥103.85 against the U.S Dollar. In the week prior, the Yen had fallen by 0.72% to ¥103.94.

Out of China

Inflation and trade data for December were in focus.

The stats were skewed to the positive, supporting riskier assets in the week.

Inflationary pressures returned at the end of the year, with consumer prices rising by 0.7%, month-on-month. In November, consumer prices had fallen by 0.6%. As a result, consumer prices were up by 0.2% year-on-year, partially reversing a 0.5% decline from November.

Wholesale deflationary pressures also eased at the end of the year.

Trade data was more impressive, however, with exports surging by 19.1% following a 21.1% jump in November. Imports increased by 6.5%, leading to a widening in the USD trade surplus from $75.4bn to $78.16bn.

While the stats were positive, a spike in new COVID-19 cases in China was a concern in the week.

In the week ending 15th January, the Chinese Yuan fell by 0.10% to CNY6.4809. In the week prior, the Yuan had risen by 0.81% to CNY6.4746.

The CSI300 slipped by 0.68%, while the Hang Seng ended the week up by 2.50%.

US Stock Market Overview – Stocks Close Lower; Led Down by Energy; Retail Sales Disappoints

U.S. stocks moved lower on Friday, as weak retail sales weighed on sentiment. Most sectors in the S&P 500 index were lower, driven down by Energy shares, Utilities bucked the trend. For the second consecutive month, retail sales were negative and more fragile than expected. The spending seen in mid-2020 was driven by a stimulus that is now on deck for the Biden administration. Producer prices rose in December and were buoyed by energy and food. The bid banks kicked off the earnings season on Friday. J.P. Morgan was the standout, but the financial sector fell as traders appear to be taking profits.

Retail Sales Fall

U.S. retail sales dropped in  December as lockdowns to battle the spread of COVID-19 undercut spending. According to the U.S. Commerce Department, Retail sales dropped 0.7% last month. November was revised down to show sales declining 1.4% instead of 1.1% as previously reported. Expectations had been for retail sales to be unchanged in December.

Core retail sales were also lower. Excluding automobiles, gasoline, building materials and food services, retail sales tumbled 1.9% last month after a downwardly revised 1.1% decline in November. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. They were previously estimated to have decreased by 0.5% in November.

U.S. producer prices increased in December. According to the Labor Department, U.S. Producer price index increased 0.3% in December after nudging up 0.1% in November. In the 12 months through December, the PPI rose 0.8%, matching November’s gain. Excluding food, and energy, producer prices increased 0.4%. The core PPI inched up 0.1% in November. In the 12 months through November, the core PPI gained 1.1% after rising 0.9% in November.

JP Morgan Chase Beats

J.P. Morgan Chase reported profits of $12.14 billion or $3.79 per share, better than expected. The bank reported $29.22 billion for the quarter in revenue, up 3% from a year earlier, also topping analysts’ expectations for $28.67 billion. JPMorgan posted a record revenue of $119.54 billion, up 4% from 2019. The growth was powered by trading as clients were eager to raise capital and trade securities amid a troubled economy and record-high markets.

E-mini Dow Jones Industrial Average (YM) Futures Technical Analysis – Trend Changed to Down

March E-mini Dow Jones Industrial Average futures are trading lower late Friday, but clawing back most of their earlier losses. The blue chip average was under pressure from the start of cash market trading after weakening during the pre-market futures session.

The catalysts behind the pressure were concerns that President Joe Biden’s $1.9 trillion stimulus plan would lead to increased corporate taxes and lower bank stock prices after major U.S. lenders released their earnings reports to kick off earnings season.

At 19:34 GMT, March E-mini Dow Jones Industrial Average futures are trading 30795, down 114 or -0.37%. This is up from a low of 30506.

Biden’s stimulus proposal, unveiled on Thursday evening, includes some $1 trillion in direct relief to households and has sparked fears that the government would need to hike corporate taxes to fund the spending.

Additionally, shares of JPMorgan Chase & Co, Citigroup Inc and Wells Fargo & Co, which had seen a strong rally in the run-up to earnings, were all down even as the banks posted better-than-expected fourth-quarter profits.

JPMorgan fell 2.2% following a seven-day winning streak that had pushed the stock about 12% higher. Overall, the S&P 500 Banks Index shed about 3.3%.

Daily March E-mini Dow Jones Industrial Average

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. The trend turned down earlier in the session when sellers took out 30638. The main trend will change to up on a move through 31116, and reaffirmed on a trade through 31148.

The minor range is 31148 to 30506. Its 50% level at 30827 is resistance.

The second minor range is 29760 to 31148. Its 50% level at 30454 is support.

The short-term range is 29318 to 31148. Its 50% level at 30233 is another potential support level and a possible trigger point for an acceleration to the downside.

Daily Swing Chart Technical Forecast

The direction of the March E-mini Dow Jones industrial Average futures contract into the close will be determined by trader reaction to the pivot at 30827.

Bearish Scenario

A sustained move under 30827 will indicate the presence of sellers. This could trigger a late session break into a pair of 50% levels at 30454 to 30233.

Bullish Scenario

A sustained move over 30827 will signal the presence of buyers. The first upside target is the main top at 31116, followed by 31148.

For a look at all of today’s economic events, check out our economic calendar.

US Stock Indices Daily Recap (14th Jan) – Decline, Don’t get Caught

This market reminds me of the days leading up to Christmas Eve 2018. For those who don’t remember, it was a pretty dark day for those trading in financial markets.

I was in the office, alone, and felt particularly responsible for my clients that day. You see, since October of that year, markets had been in a tailspin lower.

“Fundamentals look good, add some exposure to equities here” I found myself saying, more than once. And just when I thought I would get a break, have a half day in the markets, and take a couple days off – boom. Markets fell 2 to 3 percent on the day .

I still remember the feeling, it was like a gut punch. We were unprepared and had added more equity exposure for most of our clients in the prior few weeks. My boss was furious, as I was responsible for allocating hundreds of millions of dollars and we were having our worst quarter ever. I vowed to never be caught unprepared and foolhardy about markets ever again after that quarter.

It was a great lesson, and one that allowed me to flourish in 2020. While I did not foresee a global pandemic, back in January of 2020, things were looking eerily similar to 2018. Markets were frothy, and it appeared that no downside was possible. And I cut exposure for my family assets significantly.

That allowed me to avoid the worst of the pullback, and in March, with an eye on the long run, I took my family assets and picked up several companies at mouth watering valuations, some we hadn’t seen in years.

So far, so good. My old boss would have been pleased – not that it matters…

And now? Well. We’re falling into the same song and dance lately, aren’t we. I have some tips below for those interested, and if you want to know how my personal portfolios have performed, slip into my DMs.

My goal for these updates is to educate you, give you ideas, and help you manage money like I did when I was pressing the buy and sell buttons for $600+ million in assets. I left that career to pursue one where I could help people who needed help, instead of the ultra high net worth. Hopefully, you’ll find the below enlightening from my perspective, and I welcome your thoughts and questions.

Although stocks closed mildly lower on Thursday (Jan. 14), stocks have overall had a strong start to 2021.

Be that as it may, I am still concerned about overheated valuations for stocks and the return of inflation. The S&P 500 is trading at its highest forward P/E ratio since 2000, and the 10-year treasury is at its highest level since March. The Russell 2000 is also up over 37% from its 200-day moving average for the first time in its history.

Overvalued stocks combined with inflation returning by mid-year is quite concerning for me. I feel that a correction between now and the end of Q1 2020 is likely.

I like how economist Mohammed El-Erian described the market as a “ rational bubble .” But he did caution against four major risks that could cause a downturn.

The first two risks, and the least likely are the Fed pulling back on monetary stimulus and the potential for corporate bankruptcies. As Fed Chair Jay Powell said himself Thursday though, (Jan. 14) “be careful not to exit too early,”

The last two risks could be riskier.

The first is “some sort of market accident” akin to the dot-com bubble popping in 1999. THIS is what concerns me most right now. The IPO market is simply absurd right now. The DoorDash (DASH) and AirBnB (ABNB) IPOs were ridiculous, and other IPOs are looking more and more like a circus. Lender Affirm went public on Wednesday (Jan. 13) and nearly doubled. Shares of Poshmark also surged more than 130% in its debut Thursday (Jan. 14).

The other risk is the bond market and its effect on inflation. According to El-Erian, “If we were to see another 20 basis point move in yields, that would be bad news.”

Despite my concerns, it is clear to me that investors are loving the potential for a $1.9 trillion stimulus package under President-elect Biden.

Although a short-term tug of war between good news and bad news could continue, it seems to me that investors (for now) would just prefer to ride this out for what could be a strong second half of the year. According to CNBC’s Jim Cramer , there appears to be a lack of “people willing to sell”.

Be that as it may, jobless claims surged to their highest levels since August, and the pandemic is still out of control. According to Goldman Sachs’ Chief Economist Jan Hatzius, U.S. stocks and bond markets could possibly “ take more of a breather ” in the near term.

Generally, corrections are healthy, good for markets, and more common than most realize. Only twice in the last 38 years have we had years WITHOUT a correction (1995 and 2017). Because we haven’t seen a correction since March 2020, we could be well overdue.

This is healthy market behavior and could be a very good buying opportunity for what should be a great second half of the year.

The consensus is that 2021 could be a strong year for stocks. According to a CNBC survey which polled more than 100 chief investment officers and portfolio managers, two-thirds of respondents said the Dow Jones will most likely finish 2021 at 35,000, while five percent also said that the index could climb to 40,000.

Therefore, to sum it up:

While there is long-term optimism, there are short-term concerns. A short-term correction between now and Q1 2021 is very possible. I don’t think that a correction above ~20% leading to a bear market will happen.

Hope everyone has a great day. Best of luck, and happy trading!

S&P 500’s Valuation is its Highest in Years

Figure 1- S&P 500 Large Cap Index $SPX

Conventional wisdom would tell you that the S&P had overheated and valuations are crazy. The index’s forward P/E ratio is the highest it’s been in two decades.

But did you just see JP Morgan ’s (JPM) earnings report?

Wow.

The big bank crushed both top and bottom line estimates, and saw a net income growth of 42% from a year ago.

But look deeper into the earnings call, and there are some things to worry about. JP Morgan reported a net benefit of $1.89 billion in credit reserves and is maintaining a reserve topping $30 billion.

Why is this worrying? According to CEO Jamie Dimon, this is because of “significant near term uncertainty” due to the pandemic.

Dimon further added that despite vaccine and stimulus-related optimism, JP Morgan is holding onto these reserves in order to “withstand an economic environment far worse than the current base forecast by most economists.”

That’s a bit troubling.

The S&P 500 has been trading in a streaky matter as of late and reflects the broader tug-of-war between good news and bad. The index seemingly goes on multiple day winning streaks and losing streaks on a weekly basis. After seeing its worst sell-off since October last Monday (Jan. 4), for example, it went on a four-day win streak and broke past 3800.

We are now back below 3800. Although I always cheer stocks going up and hitting records, I want buying opportunities. I would like to see a drop to around 3600 or below before making a BUY call for the long-term.

For now, my near-term outlook is murky. A short-term correction could inevitably occur by the end of Q1 2021, but for now, I am calling the S&P a HOLD. I would like to see a sharp correction before initiating S&P exposure at a discount. There is clear upside for the second half of 2021, but I would just prefer to maximize the upside from a lower level.

For an ETF that attempts to directly correlate with the performance of the S&P, the SPDR S&P ETF (SPY) is a good option.

Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter – it’s absolutely free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

For a look at all of today’s economic events, check out our economic calendar.

Thank you.

Matthew Levy, CFA
Stock Trading Strategist
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research, and information found above represent analyses and opinions of Matthew Levy, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Matthew Levy, CFA, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Levy is not a Registered Securities Advisor. By reading Matthew Levy, CFA’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading, and speculation in any financial markets may involve high risk of loss. Matthew Levy, CFA, Sunshine Profits’ employees, and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

US Stock Futures Edge Lower as Biden Unveils Stimulus Plan; Major Banks Set to Kickoff Earnings Season

The major U.S. stock index futures are edging lower in the pre-market session on Friday as investors digested the details of President-elect Joe Biden’s $1.9 trillion stimulus plan revealed Thursday evening local time.

In the early trade, futures tied to the benchmark S&P 500 Index were down 21.75 points. Futures associated with the blue chip Dow Jones Industrial Average were off by nearly 200 points and futures connected with the tech-driven NASDAQ Composite Index traded lower by about 45 points.

Biden’s American Rescue Plan

A quick recap of President-elect Joe Biden’s American Rescue Plan, includes increasing the additional federal unemployment payments to $400 per week and extending them through September, direct payments to many Americans of $1,400, and extending federal moratoriums on evictions and foreclosures through September.

The plan also calls for $350 billion in aid to state and local governments, $70 billion for COVID testing and vaccination programs and raising the federal minimum wage to $15 per hour.

Earnings Season Begins

On Friday, investors will get fresh looks at major banks as Wells Fargo, Citigroup and JPMorgan Chase report their fourth quarter earnings.

JPMorgan kicks off fourth-quarter earnings season for big banks on Friday at about 12:00 GMT, followed by releases from Wells Fargo and Citigroup.

Earnings expectations for the fourth quarter have been on the rise, thanks to climbing interest rates and expectations for solid trading and investment banking results.

The biggest U.S. banks (with the exception of Wells Fargo) all saw per-share earnings estimates jump by at least 8% in the past month, according to Barclays analysts Jason Goldberg.

Thursday US Stock Market Recap

Wall Street closed lower on Thursday after turning down late in the session as reports emerged about U.S. President-elect Joe Biden’s pandemic aid proposal following earlier data that showed a weakening labor market.

Of the 11 major S&P sectors, only four closed higher with economically-sensitive energy, up 3%, showing the biggest percentage gains as oil prices rose. The biggest percentage decliner on the day was the information technology sector.

The domestically-focused small-cap Russell 2000 Index closed up 2%, while the Dow Jones Transports Index ended up 1% after both sectors, which are seen as big beneficiaries of stimulus, scaled all-time highs during the day.

Helping the transport index was a 2.5% rise in shares of Delta Air Lines after Chief Executive Ed Bastian forecast 2021 to be “the year of recovery” after the coronavirus pandemic prompted its first annual loss in 11 years.

The S&P 1500 Airlines Index closed up 3.4%.

The Philadelphia Semiconductor Index also hit a record high with a big boost from Taiwan Semiconductor Manufacturing Co Ltd. The chip manufacturer’s U.S. shares closed up 5% after it announced its best-even quarterly profit and raised revenue and capital spending estimates.

For a look at all of today’s economic events, check out our economic calendar.

U.S. Stock Market Overview – Stocks Consolidate Ahead of Biden Speach

U.S. stocks moved lower on Thursday. Sectors in the S&P 500 index were mixed, led by gains in Energy, the interest-rate sensitive utility sector underperformed. Rates moved higher and the dollar was flat along with gold. President-elect Joe Biden is expected to unveil details on his proposed spending package to support the U.S. economy. Many investors are counting on additional stimulus to help make ends meet, given the pandemic’s damaging impact. Unemployment claims an unexpected rose. Blackrock delivered better than expected financial results, ahead of Friday’s bank earning release deluge. Jerome Powell was on the tape today, saying he won’t raise rates to combat higher grain and energy prices.

Unemployment Claims Unexpected Rose

According to the Labor Department, U.S. jobless claims rose by 181,000 to 965,000 last week. That was the most significant weekly increase since March 2020 and put initial jobless claims at their highest level since mid-August. It also put weekly claims well above the roughly 800,000 a week they have averaged in recent months. Additionally, continuing claims rose to nearly 5.3 million for the week ended January 2, from 5.1 million a week earlier. That marked the first weekly increase since November.

Blackrock Delivers on Top and Bottom Line

BlackRock’s financial results showed profits rose 19% as investors turned to the money-management giant’s funds through election uncertainty. The investment company posted Q4 profit of $1.5 billion, or $10.02 a share, up from $1.3 billion, or $8.29 a share, a year earlier. BlackRock’s revenue rose 13% to about $4.5 billion in Q4.

Powell Takes Dovish Tone

Federal Reserve Chairman Jerome Powell affirmed his commitment to keeping interest rates low. Powell said the Fed is nowhere near a point where they could consider raising interest rates. During the discussion, Powell spoke about how the Fed handled the challenges brought on by the Covid-19 pandemic.

E-mini Dow Jones Industrial Average (YM) Futures Technical Analysis – Trade Thru 30638 Changes Trend to Down

March E-mini Dow Jones Industrial Average futures are trading nearly flat shortly before the cash market close in a narrowly traded session.

Helping to keep prices in check is the anticipation of President-elect Joe Biden’s speech on Thursday night, where he is widely expected to announce his stimulus plan that could exceed $1.5 trillion, a weakening jobs market and Fed Chairman Jerome Powell’s reassurance that an interest rate cut would not be coming anytime soon.

At 20:39 GMT, March E-mini Dow Jones Industrial Average futures are at 30971, up 12 or +0.04%.

After Biden’s speech, the focus will shift to earnings season, which is expected to kick into full swing with results from JPMorgan, Citigroup and Wells Fargo slated for Friday.

Daily March E-mini Dow Jones Industrial Average

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 31148 will signal a resumption of the uptrend. The main trend will change to down on a move through 30638.

The minor range is 31148 to 30638. Its 50% level or pivot at 30893 is acting like support.

The second minor range is 29760 to 31148. If the main trend changes to down then its 50% level at 30454 will become the first downside target, followed by another 50% level at 30233. The selling could start to open up to the downside if 30233 fails as support.

Short-Term Outlook

The direction of the March E-mini Dow Jones Industrial Average into the close will be determined by trader reaction to the pivot at 30893.

Bullish Scenario

A sustained move over 30893 will indicate the presence of buyers. This could lead to a test of 31148 and a potential acceleration to the upside through this level.

Bearish Scenario

A sustained move under 30893 will signal the presence of sellers. Taking out 30638 will change the main trend to down, but this could lead to a labored break with potential support levels at 30454 and 30233.

Side Notes

We’re expecting an initial volatile reaction to Biden’s pledge for more stimulus, but after that, prices are likely to remain rangebound until the earnings reports are released shortly before the cash market opening.

For a look at all of today’s economic events, check out our economic calendar.

Intel Hits 6-Month High After CEO Announcement

Dow component Intel Corp. (INTC) rallied to the highest high since July on Wednesday after the company took a big step toward recovery, appointing former VMWare CEO Pat Gelsinger to the CEO slot. Current CEO Bob Swan will retire on Feb. 15, leaving behind a battered tech giant forced to treat a series of self-inflicted wounds. The company guided Q4 results above prior guidance at the same time, with both catalysts setting off a 7% rally.

Multiple Upgrades After the News

The news generated a flurry of upgrades, with Cowen, Morgan Stanley, Atlantic Equities, and BMO Capital Markets issuing upgrades and new price targets. Even so, the company faces a long road to higher prices after multiple missteps triggered an exodus to NVIDIA Inc. (NVDA), Advanced Micro Devices Inc. (AMD) and other well-positioned rivals. And, while all three manufacturers should prosper in coming years, Intel has probably lost permanent market share.

Cowen analyst Matthew Ramsay upgraded the stock to ‘Outperform’ with a $75 price target after the news, noting, “We have long believed Intel has the engineering talent, product breadth, access to capital, political backing and scale to eventually reinvigorate its competitiveness — both in products and manufacturing. Bringing former CTO Pat Gelsinger back from VMWare as CEO has the potential to galvanize Intel behind a more credible forward strategy and roadmap.”

Wall Street and Technical Outlook

Wall Street consensus failed to improve overnight, continuing a cautious ‘Hold’ rating based upon 10 ‘Buy’ and 13 ‘Hold’ recommendations. More importantly, five analysts still recommend that shareholders close positions and move to the sidelines. Price targets currently range from a low of $40 to a Street-high $80 while the stock opened Thursday’s U.S. session just $1 above the median $57 target. This placement suggests that Intel is fully-valued at this time.

The stock sold off to the March low in October and bounced to resistance in the low 50s. A secondary decline found support above the prior low in December while this week’s rally has completed a double bottom reversal and filled the July gap. Buying volume posted about three times the 60-day moving average, which wasn’t enough to set off strong buy signals. Taken together with other headwinds, it makes sense to wait for Wednesday’s gap to get filled before getting on board.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

FedEx Aims for +20% Target Despite Strong Decline

The FedEx Corporation (FDX) has recently retraced to and bounced at the 38.2% Fibonacci retracement level.

This analysis reviews the potential wave and chart patterns connected to a 38.2% Fib bounce. We also pinpoint the best target for the upcoming few trading weeks.

Price Charts and Technical Analysis

Fedex 14.01.2021 daily chart

The FDX daily chart has retraced down to the 38.2% Fibonacci and 144 ema zone. But the overall trend is strongly up. We can see this simply by adding long-term moving averages (blue box).

The quick pace of the decline, however, does indicate that the retracement is likely to be lengthy or deeper than usual for a wave 4 (grey). Here is what to expect, starting with the most likely:

  • An ABCDE triangle chart pattern (as shown in the image)
  • An ABC bull flag pattern
  • An ABC zigzag pattern

Although price action made a strong decline, a bullish bounce back towards the deep Fibonacci levels and previous top is likely to occur within a wave B (orange). The main target zone is therefore around $292-$305 for the short-term.

At the moment, a bearish bounce is expected at the target zone to create a wave C (orange). Eventually a new high is expected at around $350 once the triangle is completed (blue arrow).

On the 1 hour chart, we already see blue Elliott Wave candles emerge. This is indicating the potential start of the bullish run in wave B (orange).

The first target is the 38.2% Fib zone and long-term moving averages. Here we expect a bounce down and a higher low before a new bullish swing up again.

Fedex 14.01.2021 hourly chart

Good trading,

Chris Svorcik

For a look at all of today’s economic events, check out our economic calendar.

The analysis has been done with the indicators and template from the SWAT method (simple wave analysis and trading). For more daily technical and wave analysis and updates, sign-up to our newsletter

 

Atlanta Fed’s Bostic Lays Groundwork for Earlier than Expected Rate Hike

Fed speakers have grabbed the headlines this week with some supporting the recent rise in Treasury yields to their highest levels since March 2020 and other making comments that weighed on yields. All of this is taking place ahead of Thursday’s speech by Federal Reserve Chairman Jerome Powell and the central bank’s first policy announcements of the year later in the month.

Why are we talking about Treasury yields now after nearly a year of ignoring their movement? Because with the rollout of the vaccine and brighter days ahead, the Federal Reserve and other major central banks will start addressing their exit strategies from policies that put rates at historically low levels while leading to a record amount of bond buying to prop up the economy.

Furthermore, the promise of more fiscal stimulus from the government is very likely to be inflationary and higher rates will be needed to prevent rapid price increases of basic goods and services.

Keep in mind that interest rates are the fuel that drive the financial markets, not the headlines, not the speculators and Treasurys are the instruments that set the tone in the global market place including the dollar, foreign currencies, gold and stocks. With rates moving since the first of the year, it is important to know what Treasury yields are doing every day before you pull the trigger on a trade.

The words of the Fed policymakers will tell us what is important to watch and react to, not the news headlines.

Atlanta Fed’s Bostic: U.S. Recovery Hinging on Vaccine, Virus Control

The U.S. recovery will not get up to full steam until vaccines are distributed widely enough to end the pandemic, Atlanta Federal Reserve President Raphael Bostic said last Monday and Reuters reported.

“At heart it is a public health crisis first. All the economic fallout has been a function of how we responded to the public health crisis,” Bostic said. “Until that gets settled the economy is going to play out in a slower way.”

Fed’s Bostic Sees Possible Interest Rate Hike as Soon as the Second Half of Next Year

Interest rates could rise sooner than forecast as the economy recovers more quickly than expected from the throes of the COVID-19 damage, Atlanta Federal Reserve President Raphael Bostic said Monday.

While most of his colleagues don’t see a rate hike coming through until at least 2023, Bostic said he thinks the emergency measures the Fed has taken to combat the pandemic can start to be rolled back within the next two years if not sooner.

“I do think there is some possibility that the economy could come back a bit stronger than some are expecting,” he said during a virtual Q&A session before the Atlanta Rotary Club. “If that happens, I’m prepared to support pulling back and recalibrating a bit of our accommodation and then considering moving the policy rate.”

“But I don’t see that happening in 2021. A whole lot would have to happen to get us there,” he added. “Then we’ll see into 2022. Maybe the second half of 2022 or even 2023 where that might be more in play.”

Bostic Has Three Data Points for Fed Roll Back of Policy Shifts

Those metrics include temporary versus permanent job losses, the health of small businesses, and consumer confidence. Overriding all three, though, will be the path of the virus and the success of the efforts to control it, he said.

For a look at all of today’s economic events, check out our economic calendar.

Strong Performances in Utilities, Real Estate Sectors Lift Benchmark S&P 500 Index

The major U.S. stock indexes finished mixed on Wednesday as investors seemed to be distracted by the impeachment hearings in Congress ahead of Thursday’s speech by Federal Reserve Chairman Jerome Powell and the start of earnings season on Friday. Investors are also anticipating a speech by President-elect Joe Biden on Thursday night where he is expected to announce his COVID-19 economic relief plan.

In the cash market on Wednesday, the benchmark S&P 500 Index settled at 3809.84, up 8.65 or +0.26%, the blue chip Dow Jones Industrial Average finished at 31060.47, up 8.22 or +0.03% and the tech-based NASDAQ Composite closed at 13128.95, up 56.52 or +0.51%.

Sectors in Focus

Seven of the 11 major S&P sectors gained ground. The S&P growth index, climbed 0.5% to outperform the value index, which fell 0.05%.

Utilities rose 1.9% and real estate advanced 1.4%, leading the percentage gains, while the biggest losers were the more economically sensitive sectors such as materials and industrials, which fell about 1%.

Stocks on the Move

Intel Corp was the biggest percentage gainer in the S&P, advancing 7% after the chipmaker said it would replace its Chief Executive Officer Bob Swan with VMware Inc CEO Pat Gelsinger next month. Shares of VMware fell 6.8% after the Intel news.

Regeneron Pharmaceuticals Inc’s shares climbed 1.2% after the U.S. government said it would buy 1.25 million additional doses of its COVID-19 antibody cocktail for about $2.63 billion.

Earnings Move to the Forefront

Earnings reports from big U.S. banks including JPMorgan and Citigroup were also on investors’ minds as they will mark the unofficial start to the fourth-quarter earnings season on Friday.

Earnings for S&P 500 companies are expected to have dropped 9.8% year-over-year in the final quarter of 2020, according to IBES data from Refinitiv, but they are expected to rebound in 2021, with a gain of 16.4% projected for the first quarter.

US Economic Reports

U.S. consumer prices increased in December, with households paying more for gasoline, though underlying inflation remained tame as the economy battled a raging COVID-19 pandemic, which has weighed on the labor market and the services industry.

U.S. economic activity increased modestly in recent weeks and a growing number of the Federal Reserve’s districts saw a drop in employment as a surge in coronavirus cases led to more shutdowns of businesses, the U.S. central bank’s Beige Book showed on Wednesday.

“Although the prospect of COVID-19 vaccines has bolstered business optimism for 2021 growth, this has been tempered by concern over the recent virus resurgence and the implications for near-term business conditions,” the Fed noted in the report.

The report was the first since last May to report outright declines in activity in some of the Fed’s districts.

For a look at all of today’s economic events, check out our economic calendar.

US Stock Market Overview – Stock Close Mixed as House Moves Toward Impeachment

U.S. stocks were mixed on Wednesday, as the House of Representatives Prepared to impeach President Donald Trump for the second time. This impeachment will make Donald Trump the only President in U.S. history to be impeached twice. Despite this effort, there will not be a trial while Donald Trump is in office. Senate leader McConnell said he wouldn’t convene Senate early for a trial. This means the Senate will not come back into session until the day before President-Elect Biden’s inauguration. Sectors in the S&P 500 index were mixed, led higher by interest-rate sensitive Utility and real estate, and energy shares were the worst-performing sector. CPI rose in line with expectations. Oil prices moved lower following the Energy Departments’ report on inventories. U.S. interest rates declined for the first time this week.

U.S. CPI Rises In Line with Expectations

U.S. consumer prices rose in December, driven by gains in gasoline, though underlying inflation remained tame. According to the Labor Department, its consumer price index increased 0.4% last month after gaining 0.2% in November. On a year over year basis, the CPI advanced 1.4% after rising 1.2% in November. Both the month over month and year over year reports were in line with expectations. Excluding the volatile food and energy components, the CPI edged up 0.1% after climbing 0.2% in November. The core CPI was restrained by decreases in the prices of used cars and trucks, recreation, airfares and health care. The core CPI gained 1.6% year-on-year, matching November’s rise. It increased by 1.6% in 2020 after rising 2.3% in 2019.

The House Prepares for Impeachment Vote

The House of Representatives started debating whether the United States President should be impeached for a second time. House Speak Nancy Pelosi said that the President must go. He is a clear and present danger to the nation. Pelosi went on to say that she believes the Senate must convict the President, a constitutional remedy that will ensure that the republic will be safe from this man who is so resolutely determined to tear down the bedrock of the United States.