JPMorgan Chase Struggling In Adverse Economic Environment

Dow component and financial giant JPMorgan Chase and Co. (JPM) beat Q2 2020 profit estimates by $0.15 last week, reporting $1.43 earnings-per-share on $33.8 billion in revenues. Revenues rose a healthy 14.7% year-over-year but provisions for credit losses lifted to $10.5 billion, offsetting otherwise strong metrics during a period in which many business segments benefited from post-shutdown reopening efforts.

JPMorgan Chase Rising Credit Losses

U.S. banks have performed poorly so far in 2020, with the S&P Banks Select Industry Index dropping more than 34%, despite bouncing off a multiyear low in March. Twin headwinds of plummeting interest rates and slumping business activity have underpinned this weak performance, which may continue well into 2021. The recent surge in U.S. COVID-19 cases has added a third roadblock, renewing fears of a long and deep recession.

JP Morgan Chase CEO Jamie Dimon stressed the challenging environment in the earnings release, admitting “we still face much uncertainty regarding the future path of the economy. However, we are prepared for all eventualities as our fortress balance sheet allows us to remain a port in the storm. We ended the quarter with massive loss-absorbing capacity, over $34 billion of credit reserves and total liquidity resources of $1.5 trillion, on top of $191 billion of CET1 capital, with significant earnings power that would allow us to absorb even more credit reserves.”

Wall Street And Technical Outlook

Wall Street consensus currently rates the stock as a ‘Moderate Buy’, underpinned by 9 ‘Buy’ and 5 ‘Hold’ recommendations. No analysts are recommending that shareholders sell their positions at this time. This optimism seems unwarranted, given the banking sector’s laggard behavior this year, suggesting that downgrades may increase in coming months. Price targets range from a low of $97 to a street high $122 while the stock is now trading just $3 above the low target.

JP Morgan Chase has outperformed its peers since 2009, breaking out in October 2019 and posting an all-time high above 140 at the start of 2020. It then sold off with world markets, dropping to a 3-year low in the 70s in March. Price action has been crisscrossing the 200-week moving average for almost 5 months now, in a neutral position that’s unlikely to stoke long-term buying interest. Ominously, accumulation has been trending lower since the first quarter of 2018, increasing risk that committed sellers will eventually break the March low.

Dixons and Burberry Slide, as ASOS Outperforms, US Banks Remain in Focus

Investors also appeared to be unconcerned that the vaccine prompted some side effects in these early stage trials, however Asia markets were slightly more mixed with the Bank of Japan leaving rates unchanged.

The Nikkei225, and Korean markets pushed higher, however Chinese and Hong Kong markets slid back in the wake of President Trump signing the legislation revoking Hong Kong’s special trade status.

Markets here in Europe have taken their cues from the late rally in the US, opening higher as the tug of war between the bulls and the bears continues with respect to the next significant move.

The DAX is once again trading back close to the highs we saw in early June, while the FTSE100 is once again back above the 6,200 level, having been in a fairly broad 6,000/6,400 range for the past four weeks.

Luxury fashion retailer Burberry has had to contend with a number of challenges over the last 12 months, from the disruption of its Hong Kong business as well as the fallout from weaker Chinese demand and the spread of coronavirus. In May the company reported full-year numbers that saw operating profits slide 57% to £189m Revenues were hit hard by the costs of the disruptions in Hong Kong as well as the closure of various stores due to coronavirus pushing their impairments up to £245m.

This morning’s Q1 numbers are slightly better, with Q1 sales declining 45% while Q2 sales are expected to fall by between 15% and 20%. Retail revenue almost halved from £498m to £257m. This is a little disappointing but not altogether surprising, and given recent news of further restrictions in Hong Kong, could be viewed as being on the optimistic side, which probably helps explain why the shares are lower in early trade.

The improvement in Q1 is mainly down to stores in mainland China and Korea re-opening, however given the recent challenges posed by coronavirus, management appear to be looking towards making some savings in the way the business is run by introducing some changes, taking a restructuring charge of £45m.

Some of these changes, as well as some office space rationalisation could mean a reduction in headcount at its London Head Office, delivering annual savings of £55m.

Electrical retailer Dixons Carphone reported its latest full year numbers, which saw revenues come in around 1% above expectations, at £10.17bn, and down 3% on 2019 levels.

The company posted a loss after tax of £163m, largely down to the impact of Covid-19, which impacted the UK and Ireland mobile operations causing revenues to fall 20%. This was primarily down to the closure of stores at the end of March. All other areas of the business saw revenues increase over the period. While losses have reduced, and the outlook set to remain uncertain, the shares have slipped sharply in early trade, however all other areas of the business performed quite well, which suggests that investors might be overreacting to the losses in the mobile division, which Dixons is pulling away from in any case.

Fast fashion retailer ASOS latest update for the four months to the end of June, has seen the shares push back up towards this year’s high on expectations that profits are likely to be at the upper end of forecasts. Group sales saw an increase of 10% to just over £1bn for the period, with the customer base seeing a rise of 16%. Most of the sales growth came in its EU market, with a rise in sales of 22%. Gross margins were lower to the tune of 70bps, a trend that seems likely to continue given the current environment.

In a sign that fashion companies are becoming increasingly nervous about their brand reputation, ASOS also announced that they were axing contracts to suppliers who were found to be in breach health and safety, as well as workers’ rights regulations.

Homeware retailer Dunelm Group was one of the few success stories in UK retail last year, with the company posting strong operating profits and paying a special dividend. We are unlikely to see anything like that this year. The company closed all of its stores on the 24th March, furloughing employees under the governments job retention scheme, at a cost of £14.5m, and has slowly been reopening the business since late April, when it reopened its on line operations. At the time it said it had enough capital to withstand store closures of up to six months.

Fortunately, that hasn’t come to pass, and the company never had to draw on its £175m financing facilities. All of its stores have now re-opened, with one-way systems and strict social distancing guidelines in place. The in-store coffee shops are expected to reopen by the end of July, while the share price has managed to recover most of its losses for this year. This morning’s Q4 update, has seen total sales for the quarter decline by 28.6%. Online sales more than made up for that with a rise of 105.6% year on year, with the month of May seeing a 141% increase.

In terms of the full year numbers, sales were only down 3.9% on the prior year at £1.06bn, with profits before tax expected to be in the range of £105m to £110m, down from £125.9m the previous year, which given the disruption over the last few months is a pretty decent performance.

In terms of the future, costs are expected to increase to the region of £150k per week, however given how badly coronavirus has affected other retailers, Dunelm has ridden out the storm remarkably well.

The pound is holding up well after a weak session yesterday with the latest inflation numbers showing a modest uptick in June to 0.6%, with core prices rising 1.4%, from 1.2% in May.

Crude oil prices are a touch higher this morning ahead of an online meeting of OPEC+ monitoring committee which could decide whether the group is inclined to maintain the production cuts currently in place, which are due to expire at the end of this month.

US markets look set to open higher, building on the momentum seen in the leadup to last nights close, with the focus once again back on the latest bank earnings numbers for Q2.

Having seen JPMorgan, Citigroup and Wells Fargo collectively set aside another $28bn in respect of non-performing loans yesterday, that number is set to increase further when the likes of Bank of America, Goldman Sachs and Bank of New York Mellon report their latest Q2 numbers later today.

In Q1 US banks set aside $25bn in respect of credit provisions, and the key takeaway from yesterday was that while these banks trading divisions were doing well, their retail operations were starting to creak alarmingly. This is why Wells Fargo suffered its worst year since 2008, given that it lacks an investment banking arm, and could well see the bank embark on some significant cost saving measures over the course of the next few months.

The difference between Wells Fargo and JPMorgan’s numbers couldn’t have been starker, with Wall Street trading operations doing well, while Main Street painted a picture of creaking consumer finances.

Dow Jones is expected to open 190 points higher at 26,832

S&P500 is expected to open 15 points higher at 3,212

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

By Michael Hewson (Chief Market Analyst at CMC Markets UK)

U.S. Stocks Mixed As Traders Focus On Banks’ Earnings

The Market Ignores New Virus Containment Measures And Continued Deterioration In U.S. – China Relations

S&P 500 futures are mixed in premarket trading despite California’s decision to introduce new virus containment measures and additional deterioration in U.S. – China relations.

Facing a surge in the number of new coronavirus cases, California decided to shut bars and close indoor dining. In addition, the hardest-hit counties will have to close gyms, hair salons and churches.

Yesterday, this decision led to a massive reversal of S&P 500 during the trading session but this sell-off did not get any continuation.

Meanwhile, U.S. – China relations got a fresh blow after U.S. rejected China’s claims in the South China Sea, calling them “unlawful”. At this point, the market continues to ignore risks of a new round of U.S. – China trade war.

Citigroup, JPMorgan and Wells Fargo Open The Earnings Season For Banks

Banks’ earnings are the main reason for market optimism this morning. Citigroup, JPMorgan and Wells Fargo have just provided their second-quarter reports.

JPMorgan reported earnings of $1.38 per share and increased its reserves by $8.81 billion. Analysts expected earnings of $1.23 per share.

Citigroup’s earnings were much better than expected at $0.50 per share compared to analyst consensus of $0.27 per share. Not surprisingly, Citigroup increased its reserves by $5.6 billion.

Wells Fargo reported a loss of $0.66 per share which was worse than the analyst consensus which called for a loss of $0.10 per share. The bank had to increase its reserves by $8.4 billion. In addition, Wells Fargo decided to cut its dividend by as much as 80%.

Citigroup and JPMorgan shares are up in premarket trading while Wells Fargo is under pressure which is not surprising given the massive dividend cut. The huge increase in reserves was expected given the current market situation. In my opinion, it’s a good start for the earnings season as stronger banks easily exceeded analyst expectations.

Inflation Rate Gets Back To The Positive Territory

The U.S. has just provided Inflation Rate and Core Inflation Rate reports for June. Inflation Rate increased by 0.6% month-over month in June compared to a decrease of 0.1% in May. On a year-over-year basis, Inflation Rate was also 0.6%.

Core Inflation Rate grew by 0.2% month-over-month. On a year-over-year basis, Core Inflation Rate increased by 1.2%.

Both Inflation Rate and Core Inflation Rate were a bit higher than expected which shows that customer activity has likely started to rebound in June.

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

Will US Banks’ Share Prices Suffer as Covid-19 Takes its Toll?

It’s a bumper week for US bank results, with Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase and Wells Fargo all revealing how they fared in Q2. These results are likely to be closely scrutinised for further evidence that US banking chiefs are concerned about setting aside higher provisions in respect of large-scale loan losses, after the $25bn set aside at the end of Q1.

The impact on the US, UK and European banking sectors has been fairly similar in terms of share price performance, with banks a serial drag on all of the major indices. The S&P 500 is now back to slightly negative year-to-date, while the CMC Markets US Banks share basket is down 35%.

CMC bank baskets sector comparison (2020)

Source: CMC Markets

One shouldn’t read too much into this similar performance given that US banks have come down from a much higher baseline. But the declines do highlight where the pressures lie when it comes to the weak points in the global economy, as rising unemployment puts upward pressure on possible loan default rates.

This higher baseline for US banks came about in the aftermath of the financial crisis, when US authorities took much more decisive action to shore up their banking sector in the wake of the collapse of Lehman.

The thought process as the crisis was unfolding was that capitalism needed to take its course in allowing both Bear Stearns, as well as Lehman, to collapse in order to make the point that no one institution was too big to fail. It’s certainly a sound premise, and in most cases allowing a failing business to fold wouldn’t have too many long-term consequences.

Unfortunately, due to the complex nature of some the financial instruments designed by bankers and portfolio managers, it was a premise that was destined to fail. Its failure still scars policymakers’ reaction function when they make policy decisions today.

It soon became apparent in the fall of Lehman, that allowing one big player to fail caused widespread panic in the viability of almost every other financial institution. Like pulling one Jenga block out of a tower of financial complexity, it undermined the stability of the entire construct.

Some institutions continue to be too big to fail, as well as being too big to bail out, meaning that global policymakers only have the tools of annual stress tests to ensure that these institutions have the necessary capital buffers to withstand a huge economic shock.

Since those turbulent times when US authorities forced all US banks to clean up their balance sheets, by insisting they took troubled asset relief program (TARP) money, whether they needed to or not, the US banking sector has managed to put aside most of its problems from the financial crisis.

As can be seen from the graph below, the outperformance in US banks has been remarkable. However a lot of these gains were juiced by share buybacks, as well as the tailwind of a normalised monetary policy from the US Federal Reserve from 2016 onwards, and a US economic recovery that peaked at the beginning of 2019.

US banks’ share price performance

Source: CMC Markets

It should also be noted that while Bank of America has been by far the largest winner, it was also one of the biggest losers in 2008, due to its disastrous decision to purchase Countrywide. The deal prompted the Bank of America share price to plunge from levels above $50 a share to as low as $3 a share, costing the bank billions in losses, fines and aggravation.

UK and European banks shares in similar plight

UK authorities have also gone some way to improving the resilience of its own banking sector, though unlike the US, we do still have one big UK bank in the hands of the taxpayer, in the form of Royal Bank of Scotland. Others have been left to fend for the scraps in fairly low-margin banking services of mortgages, loans and credit cards.

UK banks’ trading operations were also curtailed sharply in the wake of the financial crisis, in the mistaken belief that it was so-called ‘casino’ investment banking that caused the crisis, rather than the financial ‘jiggery-pokery’ of the packaging and repackaging of CDOs of mortgages and other risky debt.

In Europe, authorities have made even fewer strides in implementing the necessary processes to improve resilience. The end result is that the banking sector in the euro area is sitting on very unstable foundations, with trillions of euros of non-performing loans, and several banks in the region just one large economic shock away from a possible collapse.

The current state of the banking sector

While we’ve seen equity markets remain fairly resilient in the face of the massive disruption caused by the coronavirus pandemic, the same cannot be said for the banking sector, which has seen its share prices sink this year.

Nowhere is that better illustrated than through our banking share baskets over the last 15 months.

Banking sector vs US SPX 500 comparison

Source: CMC Markets

Despite their fairly lofty valuations, the share price losses for US banks have seen a much better recovery from the March lows than has been the case for its UK and European counterparts.

This has probably been as a result of recent optimism over the rebound in US economic data, although the recovery also needs to be set into the context of the wider picture that US banks are well above their post-financial-crisis lows, whereas their European and UK counterparts are not.

Another reason for this outperformance on the part of US banks (black line) is they still, just about, operate in a largely positive interest rate environment, and also have large fixed income and trading operations, which are able to supplement the tighter margins of general retail banking. They have also taken more aggressive steps to bolster their balance sheets against significant levels of loan defaults.

In Q1, JPMorgan set aside $8bn in respect of loan loss provisions in its latest numbers, while Wells Fargo set aside $4bn. Bank of America has set aside $3.6bn, while Citigroup has set aside an extra $5bn. Goldman Sachs also had a difficult first quarter, largely down to setting aside $1bn to offset losses on debt and equity investments.

With New York at the epicentre of the early coronavirus outbreak, Bank of New York Mellon’s loan loss provision also saw a big jump, up from $7m a year ago to $169m. Morgan Stanley completed the pain train for US banks, with loan loss provisions of $388m for Q1, bringing the total to around $25bn.

What to look out for as US banks report Q2 figures

As we look ahead to the US banks Q2 earnings numbers, investors will be looking to see whether these key US bellwethers set aside further provisions in the face of the big spikes seen in unemployment, and the rising number of Covid-19 cases across the country.

Another plus point for US banks will be the fees they received for processing the paycheck protection program for US businesses. It’s being estimated that US banks that are part of the scheme have made up to $24bn in fees, despite bearing none of the risk in passing the funds on from the small business administration.

In the aftermath of the lockdowns imposed on the various economies across Europe, the Eurostoxx banking index hit a record low of 48.15, breaking below its previous record low of 72.00 set in 2012 at the height of the eurozone crisis. It’s notable that UK banks have also underperformed, though it shouldn’t be given the Bank of England’s refusal to rule out negative rates, which has helped push down and flatten the yield curve further.

This refusal further suppressed UK gilt yields, pushing both the two-year and five-year yield into negative territory, and eroding the ability of banks to generate a return in their everyday retail operations.

It’s becoming slowly understood that negative rates have the capacity to do enormous damage to not only a bank’s overall probability, but there is also little evidence that they can stimulate demand. If they did, Japan, Switzerland and Europe would be booming, which isn’t the case.

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

By Michael Hewson (Chief Market Analyst at CMC Markets UK)

U.S. Stocks Set To Open Higher As Traders Increase Their Bets On Economic Recovery

The Earnings Season Begins

Finally, the stock market optimism will be tested by quarterly earnings data from U.S. – listed companies. This week marks the real start of the earnings season.

The most interesting reports will come from banks whose stocks were hit hard by the coronavirus pandemic. This week, Citigroup, JPMorgan Chase, Wells Fargo, Goldman Sachs and Morgan Stanley will provide their second-quarter results.

Most likely, the market will focus on the banks’ earnings outlook since the second-quarter is expected to look bad.  For example, Citigroup’s earnings are expected to decline from $1.06 per share in the first quarter to just $0.27 per share in the second quarter.

While traders wait for the upcoming earnings reports, S&P 500 futures are gaining ground in the premarket trading session, and the U.S. stock market is set to continue its upside trend.

China Announces Sanctions Against U.S. Senators

In the previous week, the U.S. has sanctioned high-ranked Chinese officials for alleged human rights abuse against Uighur minority in China. China promised to introduce counter-measures but did not provide any details about such measures at that time.

Today, these counter-measures were revealed. China decided to announce sanctions against U.S. Senators Marco Rubio and Ted Cruz. U.S. Representative Chris Smith as well as U.S. Congressional-Executive Commission on China were also put on sanctions list.

This move marks another increase in U.S. – China tensions which have unnerved the market for quite some time. While these sanctions will not have a direct impact on day-to-day business life, they show that both U.S. and China are ready to take new steps in their battle against each other, which is a major risk factor as the world economy tries to recover from the hit dealt by the coronavirus pandemic.

Inflation Is Expected To Return Back Into The Positive Territory

Tomorrow, the U.S. will provide Inflation Rate and Core Inflation Rate reports for June.

Inflation Rate is expected to grow from -0.1% to 0.5% on a month-over-month basis as consumer activity increased.

Any weakness in Inflation Rate will likely be interpreted as a sign that consumers are still anxious about their financial perspectives and that more stimulus is needed to improve the situation.

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

Traders in Risk-on Mode as Stocks and Metals Rise

The drug in question has been tipped as a potential treatment for the coronavirus for several months, and the findings from the latest study boosted market sentiment. BioNTech and Pfizer are working on a potential vaccine for Covid-19, and at the back end of last week, BioNTech announced that it is possible that its drug might receive approval from the FDA by December.

The pandemic will continue to dominate the headlines. On Sunday, the WHO said that another record was set for the number of daily cases. For the fourth day in a row, the US registered over 60,000 new cases. Countries like India and Mexico are seeing a rise in the number of new cases too.

Overnight, stock markets in Asia pushed higher despite the deteriorating health situation. This week US earnings season will kick-off and tomorrow big banks such as JPMorgan, Wells Fargo and Citigroup will reveal their numbers.

The latest jobs data from Canada showed that the economy is turning around. The unemployment rate fell from 13.7% in May to 12.3% in June, which was encouraging to see, but it is worth noting that economists were expecting a reading of 12%. The employment change reading showed that 952,900 jobs were added last month, and that comfortably topped the 700,000 consensus estimate. The May update showed that nearly 290,000 jobs were created, so last month’s report was a big improvement.

The finer details of the update showed that 488,100 full-time jobs were added, while 464,800 part-time jobs were created. Average wages fell to 6.8% from 9.96%, and that was likely down to the return of lower-income earners back to the jobs market. Typically, a decrease in earnings would be seen as negative as workers who earn less typically spend less, but in these circumstances, it could be seen as positive as it is a sign that more people are going back to work.

Demand at the factory level in the US continues to be weak as the headline PPI remained at -0.8% in June, while economists were expecting it to rebound to -0.2%. The core reading, which strips out commodity prices, fell to 0.1% from 0.3%. The core report is considered to be a better reflection of underlying demand. PPI is often a front-runner for CPI, because if demand at the factory level is falling, it will probably fall at the consumer level too. The headline CPI rate is currently 0.1%, and in the months ahead it is likely to remain under pressure.

The US dollar index fell on Friday as traders turned their backs on the currency as they were in risk-on mode. In the past few months, the greenback has acted as a flight-to-quality play, and it typically slides when dealers are keen to take on more risk.

Metals performed well last week. Gold hit a level last seen in September 2011, silver hit a 10-month high, and copper reached a level last seen in April 2019. The weaker greenback was a factor in the positive run in the metals market. Copper is often seen as a good proxy for demand, so its rally suggests the traders are banking on a continuation in the rebound of the global economy.

Oil gained ground on Friday as the overall sense of optimism boosted the energy market. The Baker Hughes report showed the number of active oil rigs in the US fell by four to 181, its lowest since 2009. The rig count is falling but it is falling at a slower pace. The number of active gasoline rigs in the US fell by one to 75, matching its lowest level on record. One report over the weekend claimed that Saudi Arabia are keen to raise production and retreat from the record production cuts that were announced in April.

Andrew Bailey, the governor of the Bank of England, will take part in a webinar at 4.30pm (UK time).

EUR/USD

Since early May it has been in an uptrend, but it has been trading sideways recently. If it holds above the 1.1168 zone, it could target 1.1495. A break below the 1.1168 area might pave the way for 1.1049, the 200-day moving average, to be targeted.

GBP/USD

Since late June it has been in an uptrend, and should the positive move continue, it might target 1.2690, the 200-day moving average. A move through that level should put 1.2813 on the radar. Thursday’s candle has the potential to be a gravestone doji, and a move lower could see it target 1.2436, the 100 day moving average. A drop below 1.2251, might bring 1.2076 into play.

EUR/GBP

Last Tuesday’s daily candle was a bearish reversal, and if it moves lower it might find support at 0.8881, the 100-day moving average. A retaking of 0.9067 could see it target 0.9239.

USD/JPY

The USD/JPY been drifting lower for the last month and support could come into play at 106.00. A rebound might run into resistance at 108.37, the 200-day moving average.

FTSE 100 is expected to open 55 points higher at 6,150

DAX 30 is expected to open 151 points higher at 12,784

CAC 40 is expected to open 55 points higher at 5,025

By David Madden (Market Analyst at CMC Markets UK)   

Conagra Brands Forecast 13% jump in Q1 Organic Sales; Shares Jump 6%

Conagra Brands Inc, an American packaged foods company headquartered in Chicago, said that it predicts more than 10% rise in organic net sales this quarter after the company beat Q4 revenue projections on solid demand for frozen foods and snacks amid coronavirus-led lockdowns, sending shares of the processed and packaged foods maker up 6%.

The company’s fourth-quarter net sales increased 25.8%; organic net sales increased by 21.5%, with double-digit growth in each of the Company’s three retail segments. Fiscal 2020 net sales increased by 15.9%, and organic net sales increased 5.6%, the company said.

Diluted earnings per share from continuing operations (EPS) for the fourth quarter grew 57.7% to $0.41, and adjusted EPS more than doubled to $0.75. EPS for fiscal 2020 grew 12.4% to $1.72, and adjusted EPS grew 13.4% to $2.28. The Company projected first-quarter fiscal 2021 of organic net sales growth in the range of 10% to 13%, adjusted operating margin in the range of 17.0% to 17.5%, and adjusted EPS in the range of $0.54 to $0.59.

Following this announcement, Conagra Brands shares climbed 6% premarket after earnings beat past estimates.

Although several U.S. states have started to ease lockdowns, the demand for packaged foods remains high in the current quarter, since consumers prefer to cook by themselves rather than venturing out as fears of coronavirus remain high.

Sean Connolly, president and chief executive officer of Conagra Brands, said in a press release, “Our business clearly benefited from increased at-home eating in the fourth quarter, as the elevated retail demand outweighed the reduced foodservice demand. In retail, many consumers tried our modernized products for the first time and then returned for more.”

“While we are optimistic about the long-term implications of recent consumer behaviour shifts, given COVID-19 uncertainties, we are only providing guidance for the first quarter of fiscal 2021. We intend to provide an update on our fiscal 2021 outlook next quarter,” he added.

Conagra Brands outlook and price target

Ten analysts forecast the average price in 12 months at $36.00 with a high of $41.00 and a low of $32.00. The average price target represents a 6.82% increase from the last price of $33.70, according to Tipranks. From that ten, four analysts rated ‘Buy’, six rated ‘Hold’ and none rated ‘Sell’.

Morgan Stanley target price is $32 with a high of $44 under a bull scenario and $22 under the worst-case scenario. JP Morgan raised price target to $39 from $34 and Deutsche Bank raised the target price to $32 from $31. On the technical chat, 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Analyst comment

“Exposure to frozen, opportunity to turnaround the refrigerated business, and snacking growth should sustain LSD org sales growth,” wrote Pamela Kaufman, equity analyst at Morgan Stanley in his last month’s note.

“We see solid HSD EPS growth but limited potential for mid-term target upside: Opportunity to close gross margin gap vs peers but see downside risk if topline/synergy estimates fall short of optimistic F22 targets,” she added.

E-mini Dow Jones Industrial Average (YM) Futures Technical Analysis – Straddling Key Pivot at 25938

September E-mini Dow Jones Industrial Average futures are trading higher shortly after the opening on Tuesday after trade advisor Peter Navarro clarified that the U.S.-China trade deal is not over. During the pre-market session, the Dow broke sharply after investors misinterpreted Navarro’s comments about U.S.-China trade relations.

“My comments have been taken wildly out of context”, Navarro said in a statement. “They had nothing at all to do with the Phase I trade deal, which continues in place.”

President Trump also tweeted that the existing trade deal remains in place.

At 13:46 GMT, September E-mini Dow Jones Industrial Average futures are trading 26164, up 211 or +0.81%.

Helping to boost the Dow early in the session are components Apple and JPMorgan Chase. Tech giant Apple is up about 1.7% and JPMorgan Chase gained more than 2%.

Daily September E-mini Dow Jones Industrial Average

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. However, momentum has been trending lower since the formation of the closing price reversal top on June 9.

A trade through 27466 will negate the closing price reversal top and signal a resumption of the uptrend. The main trend will change to down on a trade through 22640.

The minor trend is down. This also confirms the downside momentum. A trade through 26658 will change the minor trend to up.

The minor range is 27466 to 24409. Its 50% level or pivot is 25938.

The short-term range is 22640 to 27466. Its retracement zone at 25053 to 24484 is support.

The main range is 29467 to 18053. Its retracement zone at 25107 to 23760 is the major support. This zone is controlling the longer-term direction of the Dow.

Daily Swing Chart Technical Forecast

Based on the early price action, the direction of the September E-mini Dow Jones Industrial Average the rest of the session on Tuesday is likely to be determined by trader reaction to the minor pivot at 25938.

Bullish Scenario

A sustained move over 25938 will indicate the presence of buyers. If this creates enough upside momentum then look for a surge into the minor top at 26658. Taking out this level could trigger an acceleration into the main top at 27466.

Bearish Scenario

A sustained move under 25938 will signal the presence of sellers. This could trigger a break into a series of levels including a minor bottom at 25230, a main Fibonacci level at 25107 and a short-term 50% level at 25053.

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

E-mini S&P 500 Index (ES) Futures Technical Analysis – 3156.25 Next Target, Breakout Trigger Point

September E-mini S&P 500 Index futures are trading higher shortly before the cash market opening on Tuesday after White House trade advisor Peter Navarro clarified that the U.S.-China trade deal is not over.

Earlier in the session, the benchmark index plunged after White House trade advisor Peter Navarro made comments about U.S.-China trade relations that were misinterpreted. The market turned around after Navarro clarified that the U.S.-China trade deal is not over.

At 13:02 GMT, September E-mini S&P 500 Index futures are trading 3142.50, 31.75 or 1.02%.

Ahead of the opening, Apple was among the best-performing stocks, gaining 1.7%. That advance put the tech giant on pace to hit a fresh record high at the open.

Banks stocks rose broadly. JPMorgan Chase, Citigroup, Wells Fargo and Bank of America all gained more than 2%. Retailers such as Gap, Kohl’s and Nordstrom – which are directly linked to the economy reopening – were all up at least 2%. MGM and Wynn Resorts gained more than 2% each.

Daily September E-mini S&P 500 Index

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 2923.75 will change the main trend to down. A move through 3220.50 will signal a resumption of the uptrend.

The minor trend is down. A trade through 3156.25 will change the minor trend to up. This will also shift momentum to the upside.

The minor range is 3220.50 to 2923.75. Its 50% level or pivot is 3072.00.

The short-term range is 2751.50 to 3220.50. Its 50% level support is 2986.00.

The main retracement zone support is 2926.25 to 2781.00. This zone is controlling the longer-term direction of the index.

Daily Swing Chart Technical Forecast

Based on the early price action, the direction of the September E-mini S&P 500 Index the rest of the session on Tuesday is likely to be determined by trader reaction to 3072.00.

Bullish Scenario

A sustained move over 3072.00 will indicate the presence of buyers. The next upside target is the minor top at 3156.25. Taking out this level could trigger an acceleration into the main top at 3220.50.

Bearish Scenario

A sustained move under 3072.00 will signal the presence of sellers. This could trigger a break into the minor bottom at 3027.25, followed closely by the 50% level at 2986.00.

Longs are likely to get nervous if 2926.25 to 2923.75 fails as support. This could trigger the start of an acceleration to the downside.

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

American Airlines Plans to Secure $3.5 Billion in New Financing

American Airlines Group Inc, a publicly-traded airline holding company headquartered in Fort Worth, Texas, announced that it is planning to secure $3.5 billion in new financing to enhance the company’s liquidity position as the coronavirus and related travel restrictions have led to a collapse in air travel demand.

American Airlines Group, the largest in the U.S., proposed a private offering of $1.5 billion aggregate principal amount of secured senior notes due 2025. The notes will be guaranteed on a senior unsecured basis by American Airlines Group Inc.

The company also stated that it intends to enter into a new $500 million Term Loan B Facility due 2024 concurrently with the closing of the offering of the Notes, American Airlines Inc reported.

Debt Terms

According to Bloomberg’s June 19 report, the junk bonds were expected to carry a yield of 11%. However, the company said that the final terms and amounts of the notes and the Term Loan are subject to market and other conditions and may be different from expectations.

The Company intends to grant the underwriters of the offerings a 30-day option to purchase, in whole or in part, up to $112.5 million of additional shares of Common Stock in the Common Stock Offering and a 30-day option to purchase, in whole or in part, up to $112.5 million aggregate principal amount of additional Convertible Notes in the Convertible Notes Offering, in each case solely to cover over-allotments, if any, the company said.

The Company expects to use the net proceeds from the Common Stock Offering and the Convertible Notes Offering for general corporate purposes and to enhance the Company’s liquidity position. The closing of neither the Common Stock Offering nor the Convertible Notes Offering is conditioned upon the closing of the other offering, the airline added.

Goldman Sachs & Company LLC, Citigroup, BofA Securities and J.P. Morgan will act as the joint active book-runners and as representatives of the underwriters for the Common Stock Offering and the Convertible Notes Offering.

Stock Outlook

American Airlines Group closed nearly 3% lower at $16 on Friday. It has plunged about 45% so far this year, still outperforming every peer. Fourteen analysts forecast the average price in 12 months at $13.78 with a high of $27.00 and a low of $7.00.

The average price target represents a -13.88% decrease from the last price of $16.00, according to Tipranks.

It is good to sell at the current level as 150-day Moving Average and 100-200-day MACD Oscillator signals a selling opportunity.

The Lockdown, The Fallout and the RoadMap to Recovery

Global Lockdown

In an abrupt and unprecedented manner, the world witnessed a mass halt to global activities due to the pandemic. Governments and central banks rushed in to intervene and support the global economy with unconventional measures to cushion the impact of the coronavirus on their economies and ease market strains.

As the virus spread quickly across the globe, the world forcing employers and employees to work remotely and rethink how to operate in a new ‘virtual reality’. Similarly, investors are faced with a new normal and are at an inflection point where there is a pressing need to reshape their investing strategies.

Oil Crash

The oil price war is over for now and the OPEC+ group has also agreed to a historic production cut in early April; though . Aa little too late considering how the situation unfolded during the month. Oil demand took the biggest hit seen in years at a time where production was reaching new highs.

The world is running out of spare room to store the fast-expanding glut that the pandemic has created. The damage initially caused by the price war was irreversible during such pandemic. The lack of storage capacity triggered a big plunge in crude oil prices.

Crude oil futures markets were in chaos, triggered by the inability of investors or traders to take on physical deliveries of oil barrels. The storage problem is so dire that investors or traders holding oil contracts are willing to sell their contracts at a loss, causing crude oil futures to turn negative for the first time in history.

A situation of more sellers than buyers.

On April 2020, WTI futures for May delivery traded at around negative 37 for the first time ever, reflecting the urgency of sellers to offload their contracts to avoid taking physical deliveries given the pandemic-induced circumstances.

Source: Bloomberg

What to expect in the coming months?

There is no quick fix for rebalancing the oil market. In such volatile markets, it is hard to predict what will happen with the June contract as the storage capacity will remain a primary source of concern.

Oil future prices took another blow when one of the largest oil funds, the United States Oil (USO), filed an SEC filing and revised its investment in oil future contracts to concentrate on contracts that are further out in the future.

Crude oil prices have remained under heavy selling pressure throughout the month. The near-term outlook for the oil market remains grim but investors are hopeful some recovery will take place when:

  • Production cuts will slow down the speed at which storage tanks are being filled; and
  • Major economies will ease lockdowns and activities will gradually pick up.

In the last few days, WTI for June delivery lost more than 15% and is trading at $14.26 a barrel while Brent recovered from earlier losses for June settlement and is trading at $21.42 a barrel.

GDP Contraction

The International Monetary Fund (IMF) has predicted in its 2020 World Economic Outlook that the economic impact of the COVID-19 pandemic might result in the “worst recession since the Great Depression”. The IMF expects the world economy to contract by 3% in 2020 due to the magnitude and speed of the collapse in activity following the various forms of lockdown seen across the globe.

Attention was on the GDP figures of the world’s two largest economies!

Earlier this month, China reported a deep contraction of 6.8% in GDP in the first quarter. It was not surprising given that China exercised strict lockdown measures and put a halt to activities throughout most of the quarter.

China has slowly resumed activities since the beginning of the month as the worst of the pandemic appears to be over. Manufacturing and trade data has been more upbeat which has risen expectations of a gradual return to normal if China avoids another wave of the virus.

Investors will be ending the month with the US GDP report that will show the first wave of the impact of the pandemic. After more than a decade of expansion, the US economy was expected to contract by 4% with a steeper contraction in the second quarter.

As of writing, the preliminary figures show a worse-than-expected contraction of 4.8%, which is the first sharpest decline since the Great Recession.

The figures echoed the IMF warnings!

Earnings Season

Earnings results were widely expected to highlight the pain inflicted by the coronavirus-induced crisis. Even though investors were expecting a tough earnings season with withdrawn forecasts, confusion and uncertainties about the 2020 outlook, the quarterly results are also meant to reveal how certain industries are affected by the virus and how those insulated from the virus are managing the pandemic.

Everything about the pandemic is unpredictable and therefore, companies in every sector are facing the challenges to communicate their guidance. Companies within certain sectors will perform worse than others.

Financials

The earnings season kickstarted with major US banks. As widely expected, banks like JP Morgan, Wells Fargo, Citigroup, Bank of America, Goldman Sachs and Morgan Stanley all reported a significant drop in profits. Overall, the banks made significant provisions for credit losses and saw major declines in asset management revenues.

Banks like Goldman Sachs and Morgan Stanley have flared better and their share price is currently up by 15% or more.

Communication Services

Our attention move to the big tech giants like Alphabet, Facebook and Netflix which have been reclassified to the communications sector in the last few years.

Netflix was among the first few to report its quarterly results. The company reported a $5.8B in revenue with a year-on-year growth of 27.6%. The number of subscribers came above estimates and more than double its target with 15.77 million paid subscribers. The substantial growth came in March when the lockdown and social distancing measures forced many more households to join the TV and movie-streaming service.

However, the company warned that revenue and growth might decline mostly due to probable lift of the confinement measures, a stronger US dollar that is impacting international revenue growth and the lack of high-quality content following the pause in production. Its share price reached a high of around $440, but as of writing, it is currently trading at $411.

Alphabet, Google’s parent company, issued its quarterly results after the bell on Tuesday. The company reported an increase of 13% in revenue for Q1 2020, compared to a 17% increase for the same quarter a year ago and earnings of $9.87 per share. Based on expectations, it was a miss on earnings. However, the company has performed well given the challenges and is cautiously optimistic tones for the second quarter. Alphabet’s share price rose by almost 9% on Wednesday.

Facebook – The social networking giant reported earnings of $4.9B or $17.10 per share for Q1 2020 compared to earnings of $2.43B or $0.85 per share in Q1 2019. The company doubled its earnings. Similarly to its peers, Facebook warned of the unprecedented uncertainty and withdrew its revenue guidance for the rest of the year. Its share price jumped by 6% to trade at $194.20.

Both Google and Facebook have seen a significant reduction in demand for advertising, but the companies still managed to stay massively profitable and adapt in a coronavirus-fueled environment.

Tech Sector

Microsoft released strong results in the third quarter of its fiscal year 2020. Overall, COVID-19 has had a minimal net impact on total revenue. As people around the world shifted to work and learn from home, there was a significant increased in demand for Microsft’s Cloud business to support remote works and learning scenarios. Compared to the corresponding period of last fiscal year:

  • Revenue was $35.0 billion and increased 15%
  • Operating income was $13.0 billion and increased 25%
  • Net income was $10.8 billion and increased 22%
  • Diluted earnings per share were $1.40 and increased 23%

Microsoft did not only top revised COVID-19 estimates but also the earnings that were expected back in January before the coronavirus crisis.

All eyes will be on Apple Inc. which will report earnings on Thursday, April 30, 2020 after market close. Apple’s conference call to discuss second-quarter results will be held on the same say at 2:00 p.m. PT / 5:00 p.m. ET.

Consumer Discretionary

Unlike the consumer staples sector which includes companies that produce or sell essential products, consumer discretionary stocks are mostly companies that do not manufacture or sell essentials. The various forms of lockdowns have left many people without employment. For example, the US economy lost around 20 million jobs over the last few months. It took the US like a decade to add those jobs in the economy.

Amazon.com Inc has always stood out from the lot because of its status as a leading e-commerce retailer. Investors will closely watch its earnings reports for guidance. The company Amazon.com, Inc. will hold a conference call to discuss its first quarter 2020 financial results on April 30, 2020 at 2:30 p.m. PT/5:30 p.m. ET.

Stock Market

Worldwide sharp contractions in the manufacturing sectors, warnings of economic contraction and fears of a recession in the month of April have created panic and volatility in the financial markets.

A look at the All-Country World Index shows that global equities are poised for their biggest monthly gain since the Great Recession. The biggest driver is the unprecedented and unconventional actions by central banks combined with massive fiscal stimulus.

Global equities are surging even though economic data is painting a different picture.

Towards the end of the month, some positive developments on the novel coronavirus cases and the possibilities of earlier opening plans of certain major economies has driven markets higher. Mega-cap stocks like Microsoft, Amazon, Facebook and Google have also contributed to lifting sentiment and drove the rally while smaller-cap companies are bearing the brunt of the pandemic.

The Reopening Plans

There is still hope for the economy despite the tough circumstances. V-shaped or U-Shaped Recovery? New infections have slowed down but there is still no vaccine and economies are at risk of a new wave of infection.

A vaccine could have increased expectations of a swift recovery like a V-shaped immediate recovery in the third quarter or a U-shaped recovery with stability more towards the second half of the year.

However, at the moment, governments are easing lockdown restrictions and investors will be back to a New Normal to replace the current “normal”. The economy is trapped in an unusual type of recession created by the novel coronavirus.

The roadmap to recovery will be progressive and dependent on the governments approaches towards easing lockdowns. It will be different across the globe depending on how governments feel about the situation and the risk of a second wave of the virus.

The path to recovery will be a learning process given the unknown territory!

Follow us and keep up to date with the latest market news and analysis.

Deepta Bolaky, Market Analyst at GO Markets.

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Gold Fundamental and Technical Outlooks are Bullish

The S&P500 chart shows that the recovery been heavily overbought and probably due for more downside correction. The market is not going to recover to previous highs any time soon, and with deflationary pressures in the economy, it is more likely to have a larger move down over the next year to 18 months.

Companies are sitting on mountains of debt that is likely to be downgraded as damaged Q2 earnings reports begin to print this summer. Right now stocks are in a sideways, though highly volatile, lull until we learn the true damage that the shutdowns had on cumulative US production and the supply chain. Early winners are online retail shopping, due to closed shops in the 50 states, while early losers are the hospitality and airline industries. However, the damage will likely run much deeper than this in core pools of economic output.

Source: Census.gov

We expect to see creeping damage in the commercial and residential real estate sectors. All of those millions of lost jobs will eventually result in rising evictions. Those evictions will lead to spiking defaults on real estate loans, causing lenders to beg for more bailouts from the Fed.

All of the above factors will lead to much more easing by the Fed to support a deflating economy. Lenders are beginning to tighten credit, leading to a squeeze on banks desperate to avoid escalating loan defaults that are threatening share holder equity.

Balance sheet gearing of 12-1 and much higher of bank liabilities to shareholder equity means that either the government prints trillions to bail banks out of the credit contraction cycle, or face a financial catastrophe that very well could be many times worse than what we witnessed in 2008-09.

Source: Alasdair Macleod

Downstream, brick and mortar food stores will begin to come under much more pressure. The cash handouts to small business owners and hourly workers is a pittance compared with earnings. Part time workers don’t qualify for unemployment benefits in many states, though the CARES act does adjust who can apply for them.

While people are stockpiling supplies now, they will run out of money for food after they default on rent and mortgage payments if the economy doesn’t fully reopen immediately and the jobs are restored. The consumer had no savings to start off with, and the shutdowns are exacerbating existing problems with late cycle credit peak for businesses with falling revenues who cannot take on new employees due to debt service.

Economy Will Turn Up Before Beginning Stronger Contraction

We live in Texas, and our governor began a partial reopening of retail last week by allowing drive-up service. The governor is also expected to announce more reopenings this week, with other states like Georgia and Oklahoma participating.

State governments are somewhat timidly approaching business as usual while watching the COVID infection numbers published in the media. Should they begin to spike again, it is likely we will see some states tighten restrictions and implement new laws on use of masks and gloves in public.

The economies will begin to turn around a bit, but not after the damage has been done. We expect that the late cycle credit bubble has been pricked by the coronavirus, and deleveraging will start in earnest in the financial sector. The Fed will try to backstop the economy, but it would have to print trillions to do so and eventually that game ends. Other nations have already begun de-dollarizing and purchasing up their gold stocks to support central bank balance sheets with the tier 1 asset. The forces are already in place moving the world into a multi-polar economic model.

Gold Technical

All of the foregoing is bullish for gold from a fundamental standpoint. Now we look at where gold is trading on the charts and what we expect to happen in the next year.

After the 2008-09 recession, gold rose very strongly and became overbought in 2012, as shown by the stochastic indicator. Gold has been in a bull since 2000 and had returned better than the S&P, DOW, or Wilshire stock indices in that time frame. There was likely to be some profit taking, and that occurred starting in 2011 after gold reached an all time peak.

What we see now in the gold chart is one of two things, and possibly both. We have upside momentum on recent financial fears that started with a rough Q4 of 2018 when the stock markets saw a healthy 20% correction. Since then, gold has been on an impressive run from $1200 up to its current perch in the mid-$1700s.

While the stochastic is flashing overbought, this signal is different than in 2011 when gold had been running up for over a decade. Since 2011, gold has been declining or sideways in all but two and a half of those years, forming the bottom of a cup. This indicates the market building some momentum on the downside which will propel gold forward.

For instance, we see a small head and shoulders form between 2015 to 2017, indicating gold’s run was not over. And during that time the average daily range readings don’t suggest high volatility or an over-extension in trading. In other words, gold has been quietly building momentum when coronavirus came along and provided a reason for gold to run to the upside again. Have we already fired our last shot with gold, or are we premature to the bigger move?

One may think that gold is overbought again and due for correction. Let’s examine why a short term correction in gold is still bullish. If the Fed’s plan works and their easing has a short term supportive effect, we could see banks ease up on tightening credit and businesses will begin to employ again. Anyone who thinks this will not take months for job remediation to occur; however, are banking on the government being able to push button start the economy for the first time in US history. This has never been done before.

If gold corrects, it forms a multi-year cup-and-handle formation which makes the chart immediately more bullish for the next 3-5 years. Given weakening economic fundamentals upon a deflationary wave stretching across the world economy, I expect more gold accumulation on any gold price correction. Upside momentum in gold will continue until the credit cycle resets, likely after a large number of bankruptcies and defaults. Whether that happens now, or 3-5 years from now, is just a matter of timing.

This article was written by Robert Kientz, the editor and publisher of Gold Silver Pros.com.

U.S. Stocks Set To Open Higher As Some European Countries Start Reopening Their Economies

Spain And Austria Let Some Businesses Get Back To Work

S&P 500 futures are gaining more than 1% in premarket trading action as investors cheer the first signs of the end of the lockdown nightmare.

Spain has allowed some workers to get back to their jobs after a multi-week lockdown. According to data from Johns Hopkins University, the country has accumulated 172,541 coronavirus cases and ranks second behind the U.S. which has 582,594 cases.

Austria also decided to let some businesses open as the virus appeared to be in control. The country will start by reopening smaller shops, and then proceed to shopping centers from May 1. It is possible that restaurants and hotels will reopen from mid-May.

In the U.S., Donald Trump indicated that the plan on how to reopen the U.S. economy would be ready soon. Currently, the country is expected to live with strict virus containment measures until the end of April, and the pace of reopening the economy will depend on the virus data.

The Earnings Season Begins

As I wrote earlier, the market is set to digest bank earnings this week. JPMorgan has just reported its first quarter results, missing analyst estimates on both earnings and revenue.

The bank reported profit of $0.78 per share compared to analyst consensus estimate of $2.20 per share as the bank increased its reserves by $6.8 billion in preparation for the negative impact of coronavirus.

Wells Fargo also missed analyst estimates for the same reason – the bank decided to increase its reserves by $3.1 billion. Clearly, we will see roughly the same picture in the subsequent reports of other banks.

Oil Continues To Move Lower

Oil prices are once again under pressure despite the historic oil production cut deal. While many other asset classes are in a rally mode, oil has to deal with real-life consequences of virus containment measures.

While major banks like JPMorgan and Wells Fargo point to a higher open in premarket trading action and support broader market strength, the weakness in oil could have a negative impact on the general market later in the trading session.

It will be interesting to see whether major oil stocks like Chevron or Exxon Mobil will be able to sustain their recent gains at times when oil prices are near lows.

Watch the Financial Sector for the Next Topping Pattern

Remember how in 2008-09, the Financial sector and Insurance sector were some of the biggest hit stock sectors to prompt a global market crisis?  Well, the next few weeks and months for the financial sector are setting up to be critical for our future expectations of the US stock market and global economy.

Right now, many of the financial sector stocks are poised near an upper price channel that must be breached/broken before any further upside price advance can take place.  The current trend has been bullish as prices have rallied off the December 2018 lows.  Yet, we are acutely aware of the bigger price channels that could become critical to our future decision making.  If there is any price weakness near these upper price channel levels and any downside price rotation, the downside potential for the price is massive and could lead to bigger concerns.

Let’s start off by taking a look at these Monthly charts…

This first Monthly Bank Of America chart is best at showing the price channel (in YELLOW) as well as a key Fibonacci price level (highlighted by the MAGENTA line).  We’ve also highlighted a price zone with a green shaded box that we believe is key support/resistance for the current price trend.

As you can see from this chart, since early February 2018, the overall trend has shifted into a sideways bearish trend.  The price recovery from December 2018 was impressive, yes, but it is still rotating within this sideways/bearish price channel.  Our belief is that this YELLOW upper price channel level MUST be broken in order for the price to continue higher at this point.  Any failure to accomplish this will result in a price reversal that could precipitate a 30% price decline in the value of BAC.  In other words, “it is do-or-die time – again”.

This Monthly JPM chart shows a similar pattern, yet the price channel is a bit more narrow visually.  We have almost the same setup in JPM as we do in BAC.  The same channels, the same type of Fibonacci price support level, the same type of sideways price support zone (the shaded box) and the same overall setup.  As traders, we have to watch for these types of setup and be aware of the risks that could unfold with a collapse of the financial sector over the next few weeks.

We believe the next few weeks could be critical for the financial sector and for the overall markets.  If weakness hits the financial sector as global growth continues to stagnate we could enter a period where the global perception of the future 12~24 months may change.  Right now, perception has been relatively optimistic in the global stock markets.  Most traders have been optimistic that the markets will recover and a US/China trade deal will get settled.  The biggest concern has been the EU and the growth of the European countries.

What if that suddenly changed?

We are not saying it will or that we know anything special about this setup.  We are just suggesting that the Monthly charts, above, are suggesting that price will either break above this upper price channel or fail to break this level and move lower.  We are suggesting that, as skilled traders, we need to be acutely aware of the risks within the financial sector right now and prepare for either outcome.

This last chart, a Weekly FAS chart, shows a more detailed view of this same price rotation and sideways expanding wedge/channel formation.  Pay very close attention to the shaded support channel shown with the GREEN BOX on this chart.  Any price rotation within this level should be considered “within a support channel” and not a real risk initially.  We want to see price break above the upper price channel fairly quickly, within the next 2 to 5+ weeks, and we can to see it establish a new high (above $78 on this chart) to confirm a new bullish price trend.  Once this happens, we’ll be watching for further price rotation and setups.  If it fails to happen, then the RED DOWN ARROW is the most likely outcome given the current price setup.

Any downside price move in the Financial sector would have to be associated with some decreased future expectations by investors.  Thus, our bigger concern is that something is lurking just below the surface right now that could pull the floor out from under this sector.  Is it a surprise Fed rate increase?  Is it some news from the EU?  Is it a sudden increase in credit defaults?  What is the “other shoe” – so to say.

Be prepared.  If all goes well, then we’ll know within a few more weeks if the upside price rally will continue or if we need to start digging for clues as to why the support for the financial sector is eroding.  This really is a “do or die” setup in the financial sector and we urge all traders to pay very close attention to this sector going forward.  We believe it will be the leading sector for any major price weakness across the global markets.

Please visit TheTechnicalTraders.com to learn how we can help you prepare for the big moves in the global markets and find better opportunities for greater success in the future.

Chris Vermeulen

Asian Markets Rise On Earnings Expectations, Brexit Vote Weighs On EU, US Equities Volatile In Early Trading

Asian Markets Rise On Earnings, Brexit Outlook

Asian equity markets rose broadly in Tuesday trading as participants await on earnings from the US, key data, and a Brexit vote that is largely expected to fail. The Chinese markets led the advance with gains of 1.36% in Shanghai and 2.02% in Hong Kong.

Citigroup had reported earnings on Monday with mixed results driven by weakness in trading-related revenue. The report was taken with a grain of salt, core business was robust, and shares were able to move substantially higher by the close of the trading session. Today’s news includes reports from JP Morgan and Wells Fargo which are expected to echo that of Citigroup.

The UK Parliament Brexit Vote Weighs On EU Equity Markets

In the EU markets were cautious on the expectation the UK Parliament would not accept Theresa May’s contentious Brexit deal. The vote is scheduled for 2PM ET and could spark major moves within equity and currency markets despite the expected outcome. If no deal is reached the UK could face hard-Brexit and risk destabilizing the entire region.

On the economic front data from Germany confirms GDP growth is slowing in the EU’s strongest economy. The 4th quarter GDP read came in at 1.5%, down from 2.2% in the previous quarter, and the slowest rate in five years. The mitigating factor is the data is as expected. Conversely, the EU trade balance expanded more than 35% in the last month versus an expected contraction. The data shows demand for EU goods that is likely caused by the US/China trade impasse.

EU equity indices were up in the earliest portion of Tuesday’s session but gave up those gains by midday. At midday the German DAX was leading the declining markets with a loss near -0.25% while the French CAC and UK FTSE were both trading with gains near 0.05%.

US Equities Volatile On Earnings And Data

US Equities markets were a bit volatile in the early pre-market session. The major indices were indicated to open higher to start but quickly gave up those gains after the release of earnings from JP Morgan. JP Morgan reported a miss on both the top and bottom lines that was driven by weakness in trading revenue. While bad, the news was mitigated by strength in core business and the outlook for 2019 core business.

Results from Wells Fargo were a bit better. Wells Fargo reported a top and bottom line beat of earnings expectations that helped the equity markets regain their footing before the opening bell.

PPI news, released at 8:30 AM, came in cooler than expected. The data, -0.10% headline and -0.10% core, shows a contraction of inflationary pressures that increase the odds the FOMC will not hike rates this year. The Dollar Index had been higher in early trading but retreat to break-even after the inflation data.

There is a slew of economic reports due this week but most will be delayed by the government shutdown. The shutdown is now in its fourth week and experts have begun to estimate its impact on US GDP. Jamie Dimon of JP Morgan says GDP for the first quarter could be reduced to zero if the shutdown does not end soon.

Bitcoin is Evolving Just Like Amazon

Volatility, however, is an indicator that a potentially powerful force is coming into its own. In this regard, one might think of Bitcoin as a new Amazon: navigating some growing pains but developing innovative solutions to help solve them.

At this point, it’s safe to say that Amazon has achieved retail dominance, and while Bitcoin’s story is in a much more formative phase, its monumental upward trajectory points to its increasingly dominant role in the global financial landscape.

bitcoin amazon 1

Amazon’s Early Struggles Mirror Bitcoins

Amazon, established in 1994, was originally born out of Jeff Bezos’ vision to establish “the world’s most consumer-centric company, where customers can come to buy everything they want online.” Given Amazon’s larger-than-life presence in the retail landscape today, it can be hard to remember the company in its infancy, when it was merely an online bookseller. Like most companies intent on scaling their vision, Amazon faced its fair share of growing pains and challenges in the early days, as many customers were initially wary of online shopping and additional shipping costs. While Amazon Prime, a subscription-based service offering free two-day shipping alleviated some of these concerns, it still took time for the company to gain steam and build credibility at the global level.

Meanwhile, Bitcoin, which was born in 2009 out of the financial crisis and established in order to “create a purely peer-to-peer version of electronic cash that [would] allow online payments to be sent directly from one party to another without going through a financial institution,” has also encountered its share of obstacles scaling its vision. Particularly, the legacy Bitcoin blockchain that powers Bitcoin transactions faces slow transaction processing times and high transaction fees.

But much like the developers at Amazon working tirelessly to develop new, innovative solutions, a passionate group of developers in the crypto community have been actively involved in refining old platforms and building new ones in order to present a growing number of solutions to meet a wide range of technical issues.

Amazon Pivoted to Succeed and Bitcoin Is Too

Amazon may have begun as an e-tailer marketplace, but the company quickly expanded its range of offerings by creating many of its own niche products and services, ranging from the Amazon Kindle to personal assistant Alexa. The company has also demonstrated its desire to tap into other sectors, whether by acquiring Whole Foods and reimagining the experience of shopping at a grocery chain or working with Berkshire Hathaway and JPMorgan to control costs and reduce spending on health insurance.

Similarly, the cryptocurrency community has also been hard at work implementing platform changes to meet a growing array of user needs. The Lightning Network, a decentralized network that uses an “off-blockchain” solution in order to enable instant payments across a network of participants, is expected to launch sometime in the new future, solving the legacy Bitcoin blockchain’s scalability problem.

Furthermore, just as Amazon staked its claim as a company with versatile offerings that far surpassed its e-commerce platform, the cryptocurrency community has been actively developing technical platforms with offerings that stretch far beyond alternative payment systems. Two particularly noteworthy examples? Ethereum and Ripple.

Ethereum And Ripple Are Evolving Like Amazon’s Alexa

While Amazon may be leading the charge in cutting-edge fields like artificial intelligence, Ethereum is paving the way for a new relationship with Amazon as well as smart contract technology and decentralized applications.

Ripple, too, which has two primary products for banks (xCurrent and xRapid), has demonstrated its wide range of capabilities that far exceed its function as native cryptocurrency XRP.

Indeed, the constant innovation and implementation in the cryptocurrency community ensures that, much like Amazon, the digital currency space is continuing to grow, improve, and reshape business and commerce as we know it.

The New Amazon: Bitcoin Moving Past Its Infancy

The fact that Bitcoin has moved from a mere concept in a white paper drafted during the 2008 financial crisis to one of many influential digital currencies over 10 years later is a testament to the fact that cryptocurrency is more than just a fad. Like Amazon, it will demonstrate that disruption of an industry is never without its speed bumps along the way.

This article was written By Chris Kline, Co-founder, and COO at BitcoinIRA.com