Week Ahead: EUR/USD to Reach Cloud 9?

To be clear, it’ll be a massive week that extends beyond major central bank decisions (the Bank of England is in action too).

We’ll also see the biggest tech earnings, and even an OPEC+ decision.

In other words, major asset classes are set to be rocked by these major economic data releases and events due in the week ahead:

Monday, January 30

  • NZD: New Zealand December external trade
  • CNH: Mainland China markets reopen after Lunar New Year
  • EUR: Eurozone January economic confidence
  • IMF publishes World Economic Outlook update

Tuesday, January 31

  • JPY: Japan December unemployment, retail sales, industrial production
  • AUD: Australia December retail sales
  • CNH: China December industrial profits, January PMIs
  • EUR: Eurozone 4Q GDP
  • USD: US January consumer confidence
  • Exxon Mobil earnings

Wednesday, February 1

  • NZD: New Zealand 4Q unemployment
  • CNH: China Caixin manufacturing PMI
  • EUR: Eurozone January CPI and manufacturing PMI, December unemployment
  • GBP: UK January manufacturing PMI
  • Brent: OPEC+ meeting
  • USD: Fed rate decision
  • Meta earnings

Thursday, February 2

  • EUR: European Central Bank rate decision
  • GBP: Bank of England rate decision
  • USD: US weekly initial jobless claims
  • S&P 500: Earnings from Alphabet, Apple, and Amazon

Friday, February 3

  • CNH: China January services/composite PMI
  • USD: US nonfarm payrolls report

Here’s what markets currently expect for next week’s Fed meeting:

  • Fed will hike by 25 basis points (bps) on February 1st.
  • Fed will hike again by a further 25 bps sometime after next week’s meeting, but no later than June 2023.
  • Those two hikes would bring US interest rates from the current 4.5% up to around 5%.
  • The Fed will then keep its benchmark rate at around that 5% mark for a while, before cutting interest rates later this year.

On the ECB side of the equation:

  • ECB to hike by 50bps next week – double the expected size of the Fed’s upcoming hike.
  • The ECB is forecasted to have another 75bps in hikes more to go through mid-year.

In fewer words:

Fed = 50 bps hikes total remaining (including next week’s 25bps hike)

ECB = 125 bps hikes total remaining (including next week’s 50bps hike)

This idea that the ECB has more rate hikes in store relative to the Fed is what’s been propelling EURUSD to its highest levels since April 2022.

However, note that EURUSD’s surge is consolidating just below a key Fibonacci level – the 50% line from its January 2021 through September 2022 descent.

The price action suggests that the next move for EURUSD may well depend greatly on what either the ECB or Fed reveals next week.

Potential Scenarios for EURUSD

  • EURUSD could be pushed into “cloud 9” if the ECB persists with its hawkish stance, while the Fed starts warming up to the idea of pausing its own rate hikes (or at least markets do not believe any hawkish tones emanating out of the Fed next week).Such an outcome is also likely to invoke further cheer across other asset classes, from stocks to gold, and even crypto.
  • However, if:
    • the Fed triggers a larger-than-expected 50bps hike next week
    • presses home the message that US interest rates will be sent past the market-forecasted 5% target this year.
    • and markets actually believe the Fed’s hawkish intentions

(or a combo of the above factors)

… that may rapidly unwind some of EURUSD’s recent gains.

Key support/resistance levels for EURUSD

SUPPORT

  • 1.0770 region: previous cycle low, June 2022 resistance zone
  • 1.07365: mid-December cycle high
  • 1.061 region: 38.2% Fib line and around where 50-day simple moving average (SMA) resides

RESISTANCE

  • 1.09426: 50% Fib line
  • 1.112 – 1.114: March 2022 resistance
  • 1.11848: end-March cycle high

At the time of writing, markets are forecasting a 70% chance that EURUSD will trade within the 1.07 – 1.105 range over the next one-week, while the implied-volatility is back to its year-to-date high which saw the latest leg up for EURUSD.

Ultimately, this next big move for the world’s most-traded currency is set to be dictated by what either the Fed or the ECB signals to the markets next week.

Make sure you also check back on Monday (January 30th) for our next Trade of the Week (published every Monday), as we then focus on GBPUSD and how it may react to the upcoming policy signals out of the Fed vs. the BOE.

For more information visit FXTM.

S&P 500 Gains Ground As Exxon Mobil Tests All-Time Highs

Key Insights

  • S&P 500 gained upside momentum at the start of the week as leading energy stocks tested new highs. 
  • NASDAQ Composite was mostly flat in a choppy trading session, although some leading tech stocks were trying to rebound. 
  • A move above 3805 will push S&P 500 towards the resistance at 3835.

S&P 500 Moves Higher Ahead Of Midterm Elections

S&P 500 gained ground at the start of the week as energy stocks moved higher. The tech-heavy NASDAQ Composite was mostly flat in today’s trading session. Apple, Amazon, and Tesla remained under pressure, while Meta continued to rebound from yearly lows.

Today’s trading has been choppy as market participants were somewhat nervous ahead of the U.S. midterm elections.

From a big picture point of view, the market is slowly rebounding after the recent sell-off. It remains to be seen whether election results will have a significant impact on market mood as Fed’s policy remains the key catalyst for S&P 500.

The relative weakness of tech stocks is alarming as it shows that the market is not ready for a sustainable rebound. In the last three months, energy stocks were the only group that managed to move higher. Other market segments have been under pressure.

If tech remains weak while energy stocks enjoy support, the choppy market behavior will continue. For example, leading oil companies like Exxon Mobil and Chevron are testing all-time highs today, while Tesla is trading at multi-month lows.

S&P 500 Is Moving Towards The Resistance At 3805

S&P 500

S&P 500 settled above the resistance at 3760 and is moving towards the next resistance level at 3805. RSI remains in the moderate territory, and there is plenty of room gain additional upside momentum in case the right catalysts emerge.

If S&P 500 settles above the resistance at 3805, it will head towards the next resistance level at 3835. A successful test of this level will open the way to the test of the resistance at 3885.

On the support side, the previous resistance level at 3760 will serve as the first support level for S&P 500. In case S&P 500 declines below this level, it will head towards the support at 3725. A move below the 3725 level will push S&P 500 towards the support at 3690.

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

Biden May Raise The Idea Of A Windfall Tax On Energy Producers

Key Insights

  • The U.S. administration continues to battle against high gas prices.
  • The U.S. President Joe Biden is reportedly ready to raise the idea of a windfall tax on the profits of energy producers. 
  • The reports had little impact on commodity prices, while energy stocks have found themselves under some pressure. 

U.S. Administration Remains Focused On High Gas Prices

According to recent reports, U.S. President Joe Biden may soon discuss the possibility of imposing a windfall tax on the profits of energy companies. If the reports are correct, the idea will be floated just days ahead of U.S. midterm elections.

The U.S. administration wants to put pressure on the prices at the pump that fuel inflation, which has settled above the 8.00% level.

Any additional taxes will have to be approved by the Congress, so the future of the idea may depend on the results of the upcoming elections.

Energy Stocks Pull Back From Highs

Typically, higher taxes discourage higher production levels as energy companies’ investments decline.

However, the news did not provide any material support to WTI oil, which continued its attempts to settle below the support level at $86.20. Natural gas gained 9% today, but this move was triggered by higher LNG demand.

Not surprisingly, the news had a bigger impact on energy stocks. Exxon Mobil, Chevron, ConocoPhillips, and other stocks in this market segment moved away from daily highs. Traders worry that higher taxes will cut the profits of energy companies. In addition, the continued focus on energy companies’ dividends may lead to unfavorable legislative moves in the future.

While the market’s worries are understandable, it remains to be seen whether the current administration will have enough time to push the idea through the Congress, especially if Democrats lose their control of the House or the Senate. However, energy stocks may remain under some pressure if the windfall tax idea gains some traction.

Meanwhile, the impact on oil and natural gas prices will likely stay minimal in the near term. Energy projects take months and years to develop so the potential tax will have minimal impact on energy production in the near term, although energy companies may cut their investment plans in response to the tax.

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

Investors Are On Edge Ahead of the US Federal Reserve’s Two-day Meeting

Fed in Details

Most on Wall Street expect the Fed will lift rates by 75-basis points this week but the bigger question is what happens at the December meeting and beyond.

Bulls are hoping the Fed will signal lower rate hikes starting in December. Bears continue to argue that inflation data has not provided any justification for a less aggressive Fed.

The latest PCE Prices Index was unchanged in September at an annualized rate of +6.2%. The report, released on Friday, also showed that the so-called “core rate”, which strips out food and energy, actually climbed higher to +5.1% versus +4.9% in August, another sign that inflationary pressures are still being felt across nearly every corner of the economy.

Inflation has of course been bolstered by oil, fuel, and other commodity price shocks, pandemic-related residuals (China lockdowns, etc.), and global supply chain issues that have been exacerbated by Russia’s invasion of Ukraine.

These issues have made the inflation fight even tougher for the US Fed and other central banks that have hoped to rein in prices before they become embedded.

Labor Market

The most direct route for inflation to become embedded is via wages, which in the US have been rising at an annual rate of more than +5% for the past year. However, that is substantially below the rate of inflation, providing strong motivation for employees to continue seeking higher wages and a key reason why some are worried about a potential “wage spiral.” That’s also why the Federal Reserve is so keen to cool the job market a bit.

There have been a lot of announcements of hiring slowdowns and even outright job cuts by big companies but US employment data has not reflected anything resembling a pullback in the labor market. It’s worth noting that while big businesses may be looking to cut payrolls, nearly half of small businesses still say they are struggling to hire enough workers, and nearly a quarter are still planning to create new jobs in the last quarter of 2022.

Keep in mind, “small businesses” of 500 employees or fewer make up 99.9% of all US businesses and account for nearly half the US workforce.

It’s also worth keeping in mind that the services sector accounts for more than three-quarters of the US job market. If anything, service sector hiring is expected to accelerate in the last quarter of the year as retail, restaurant, and travel businesses add seasonal employees.

The US Labor Department does try to smooth out these seasonal trends in its official data but the bump in seasonal hiring nonetheless tends to help buoy the numbers in the last few months of the year. Meaning the pullback in the labor market that many are expecting, I argue may not be in the near-term cards.

The October Employment Report on Friday is expected to show job gains around +250,000 following a higher-than-expected increase of +263,000 in September. Importantly, Wall Street is looking for a decline in average hourly earnings to +4.7% from +5%.

Data to Watch

The economic data highlight today is the Dallas Fed Manufacturing Survey.

On the earnings front, bulls are hoping for strong earnings from energy sector companies this week will help lift some of the gloom left by mostly disappointing tech earnings last week. Exxon and Chevron, the two biggest US oil companies, both got things off to a solid start on Friday. Exxon’s profit of nearly $20 billion was a new record for any quarter, and +10% higher than the previous record set in Q2. Chevron’s Q3 profit of $11.2 billion was just slightly weaker than last quarter’s record.

Results from key energy companies this week include BP and Phillips 66 on Tuesday; ConocoPhillips on Thursday; and Dominion Energy and Duke Energy on Friday.

Today’s earnings highlights are Aflac, NXP Semiconductors, and Stryker.

There’s a chance the Fed might sound a bit less hawkish or at least leave a small window open for the bulls in its commentary this week. At the same time, next week, we have the mid-term elections finally moving behind us which might also offer the market a bit less uncertainty.

New Lockdowns in China Creating Worry: The Chinese economy is already struggling because of the nation’s “Zero-Covid”, now there are even more shutdowns in the major gambling city of Macau and in Zhengzhou, the home of Apple‘s largest iPhone assembly plants. Keep in mind, Foxconn, which acts as a supplier to US-based Apple, has hundreds of thousands of workers at its Zhengzhou complex.

Also, new lockdowns have surfaced in Wuhan, where the Covid virus is suspected of originating. Also, Guangzhou’s schools and restaurants have been suspended, while Beijing and Shanghai have seen certain districts targeted for lockdowns. Japanese bank Nomura puts the number of Chinese under restrictions at around 232 million, up from 225 million last week. Some 31 cities there are under some form of lockdown as of Oct. 27, restricting one in six people in China and covering 24.5% of its gross domestic product, the Nomura analysis found.

Key Oil Company And PCE Prices Index To Set a Tone Today

Earnings Season

Wall Street is again digesting somewhat disappointing big tech earnings, this time from Amazon and Apple. While Amazon’s Q3 earnings and sales were in line with Wall Street expectations, the company disappointed with less-than-expected growth in its Amazon Web Services cloud business.

Maybe more importantly, Amazon’s projected sales growth for Q4 came in far below analyst expectations. Apple’s Q3 earnings and revenue results topped analyst estimates but Wall Street is worried about slower growth in its business services category as well as iPhone sales, both of which missed estimates.

It’s worth noting that Apple CEO Time Cook said supply issues had no significant impact on the company’s Q3 results, a turnaround from recent quarters and a welcome sign that supply chain headwinds are mostly in the rearview.

Analysts that are bearish on the tech sector believe growth will continue to deteriorate, however, because a lot of demand for big tech products and services was pulled forward by the pandemic. Meaning the loss of pandemic-fueled demand and stimulus dollars will now leave a “demand vacuum” that could weigh on the sector in the quarters ahead.

Today, big oil giants Exxon and Chevron are expected to post outstanding Q3 results, though weaker than Q2 due to the retreat in oil prices. Still, both companies are expected to deliver their second-highest profits ever, behind only Q2 2022.

There is some concern on Wall Street that big profits might attract unwelcome attention, however. The UK has slapped windfall taxes on energy companies and the EU is working on a similar plan, which has raised fears the US might follow suit.

AbbVie, Colgate Palmolive, Mobil, and NextEra Energy also report results today. On the data front, investors have all eyes on the PCE Prices Index due out this morning and expected to show year-over-year gains for both headline and “core” inflation (strips out food and energy).

Data to Watch

Wall Street is looking for a headline PCE Prices read of +6.3%, and a “core” rate of +5.2%. If the numbers come in lower than expected, that will obviously boost the bulls’ belief that the Federal Reserve is preparing to ease up on its rate hikes.

At its two-day meeting next week on November 1-2, the Fed is widely expected to lift its benchmark rate by +75-basis points. The big debate is what the Fed will do in December and bulls have high hopes that officials will signal a less aggressive hike of perhaps 50-basis points.

The European Central Bank delivered its second straight 75 basis point interest rate hike yesterday. However, many are interpreting ECB President Christine Lagarde’s follow-up comments as “dovish” because she put a lot of stress on the importance of upcoming data which many expect will show the EU economy is in or near recession.

Next week, the economic data highlight will be the October Employment Situation on Friday.

Inflation reads from ISM Manufacturing on Tuesday and ISM Non-Manufacturing on Thursday will also be in the spotlight. Q3 earnings continue next week with a wide range of sectors represented. Key results include Aflac, NXP Semiconductors, and Stryker on Monday; Advanced Micro Devices, Airbnb, BP, Eli Lilly, Pfizer, Phillips 66, and Uber on Tuesday; Allstate, CVS, Humana, Novo Nordisk, Nutrien, Qualcomm, Trane, and Yum Brands on Wednesday; Amgen, Cigna, ConocoPhillips, Corteva, Moderna, Monster Beverage, Nintendo, PayPal, Starbucks, and Zoetis on Thursday; and Berkshire Hathaway, Dominion Energy, Duke Energy, and Hershey on Friday.

S&P 500 (SPY) Gains Ground As Rebound Continues

Key Insights

  • S&P 500 moved higher as traders continued to buy beaten stocks.  
  • The strong report from Netflix provided additional support to S&P 500 in the post-market session. 
  • A move above 3730 will push S&P 500 back towards the recent highs near 3760.

S&P 500 Gained More Than 1% In Broad Rebound

S&P 500 lost momentum after testing the resistance level at 3760 and pulled back towards the 3720 level. However, stocks were still able to record healthy gains for the day.

Industrial Production report, which indicated that Industrial Production increased by 0.4% month-over-month in September, provided material support to stocks. However, it looks that continuation of the technical rebound was the main driver for the stock market today.

Cruise stocks were among the biggest gainers today. Carnival Corporation, Norwegian Cruise Line Holdings, and Royal Caribbean Cruises were up by 7-11% today.

Lockheed Martin gained 8% after beating analyst estimates on earnings and increasing stock buyback. Salesforce was up by more than 4% after Starboard Value acquired a stake in the company.

Interestingly, leading energy stocks like Exxon Mobil and Chevron did not move lower despite the strong sell-off in the oil markets.

From a big picture point of view, the rebound was broad, and all market segments moved higher. Traders continued to hunt for bargains and bought beaten stocks.

In the post-market session, Netflix stock rallied towards $275 after releasing its earnings report. The company reported revenue of $7.48 billion and earnings of $3.19 per share, exceeding analyst expectations on both earnings and revenue. Talking about the fourth-quarter guidance, Netflix noted that strong dollar remained a significant headwind. In the last quarter of this year, Netflix expects to report revenue of $7.8 billion.

United Airlines report beat analyst estimates, pushing the stock towards $40 in the post-market session. The company noted that strong COVID recovery trends would continue to overcome the recessionary pressures. Previously, traders were worried that recession fears may hurt consumer activity, but it looks that demand for air travel remains strong.

S&P 500 Moves Higher After Netflix Beats Expectations

S&P 500

The strong report from Netflix provided support to S&P 500 futures and pushed them above the resistance at 3730. RSI remains in the moderate territory, so S&P 500 has plenty of room to gain additional upside momentum in the upcoming trading sessions.

In case S&P 500 manages to settle above 3730, it will move towards the next resistance, which is located near the recent highs at 3760. A move above this level will open the way to the test of the resistance at the highs of the previous rebound at 3805.

On the support side, a move below 3730 will push S&P 500 towards the support at 3700. In case S&P 500 declines below this level, it will head towards the next support at 3675. A successful test of the support at 3675 will open the way to the test of the support at 3640.

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

S&P 500 (SPY) Rebounds From Session Lows As Energy Stocks Rally

Key Insights

  • S&P 500 failed to settle below the support level at 3725 and moved back towards the 3775 level. 
  • Energy stocks enjoyed strong support as WTI oil tested new highs. 
  • A successful test of the resistance at 3775 will push S&P 500 towards the next resistance level at 3800.

Traders Buy Stocks After The Pullback At The Start Of The Trading Session

S&P 500 received support near 3725 and moved away from session lows as traders were willing to buy the intraday pullback.

Today’s ADP Employment Change report indicated that private businesses added 208,000 jobs in September, mostly in line with the analyst consensus of 200,000. Tomorrow, traders will focus on the Initial Jobless Claims report, which is expected to show that 203,000 Americans filed for unemployment benefits in a week. The market will remain extremely sensitive to job market data as it has a material impact on Fed’s decisions.

Energy stocks are leading the intraday rebound. OPEC+ decision to cut production by 2 million bpd provided significant support to oil markets. Schlumberger, Exxon Mobil, and Halliburton are among the biggest gainers today.

Higher Treasury yields have put significant pressure on REITs like Vornado Realty, Boston Properties, and Ventas. REITs will remain extremely sensitive to changes in yields. Traders are worried that higher yields will hurt the whole REITs segment, and many REITs are testing new lows.

Leading tech stocks like Apple, Microsoft, and Amazon are losing some ground in today’s trading session, but it should be noted that these stocks have mostly closed the gap and are trading near daily highs.

From a big picture point of view, the market received strong support after the initial wave of selling which was triggered by profit-taking. S&P 500 has a decent chance to finish the trading session in the positive territory.

S&P 500 Tests Resistance At 3775

S&P 500

Currently, S&P 500 is trying to settle back above the resistance at 3775. In case this attempt is successful, it will move towards the next resistance level at the 20 EMA at 3800. A move above the 20 EMA will push S&P 500 towards the resistance at 3830. If S&P 500 climbs above this level, it will head towards the resistance at 3885.

On the support side, S&P 500 needs to get back below 3775 to have a chance to gain downside momentum in the near term. The next support level for S&P 500 is located at 3750. A successful test of this level will push S&P 500 towards the support at 3725.

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

S&P 500 (SPY) Tests Support At 3850

Key Insights

  • S&P 500 is moving lower as Treasury yields are testing new highs. 
  • Traders remain nervous ahead of the Fed Interest Rate Decision. 
  • A move below the support at 3850 will push S&P 500 towards the next support level at 3825.

Ford Retreats As Traders Fear That Guidance Will Be Cut

S&P 500 declined towards the 3850 level as traders sold stocks ahead of the Fed Interest Rate Decision, which will be released tomorrow.

Ford declined by more than 10% in today’s trading session after the company revealed that it faced parts shortages. According to Ford, the company “expects to have about 40,000 to 45,000 vehicles in inventory at end of third quarter lacking certain parts presently in short supply”. Ford reaffirmed its full-year adjusted EBIT guidance of $11.5 billion – $12.5 billion. However, the market is worried that the company will be forced to cut its guidance in the upcoming months.

Gold stocks have found themselves under material pressure as gold markets moved closer to yearly lows. One of the leading gold stocks, Newmont Corporation, declined by more than 4% in today’s trading.

Energy stocks are also moving lower as WTI oil managed to get below the $84 level. Exxon Mobil, Chevron, and Schlumberger are down by more than 1%.

Leading tech stocks are mostly moving lower. However, Apple and Tesla are up by more than 1%.

From a big picture point of view, the current pullback is broad, and all market segments are under pressure. Traders reduce their risks ahead of the Fed Interest Rate Decision as they are worried that a 75 bps rate hike may be accompanied by hawkish commentary from Fed Chair Jerome Powell. Bond traders also fear that Powell will be hawkish, so Treasury yields test new highs.

Another Test Of The Key Support At 3850

S&P 500

S&P 500 continues its attempts to settle below the strong support level at 3850. If S&P 500 settles below this level, it will move towards the next support at 3825. A move below the support at 3825 will push S&P 500 towards the support at 3800. In case S&P 500 declines below 3800, it will head towards the next support level, which is located at 3780.

On the upside, S&P 500 needs to settle above the resistance at 3885 to have a chance to gain upside momentum in the near term. The next resistance level is located at 3900. A successful test of this level will open the way to the test of the next resistance at 3920.

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

S&P 500 (SPY) Remains Mixed In Choppy Trading

Key Insights

  • Stocks are swinging between gains and losses at the start of the week. 
  • Healthcare stocks got hit after Joe Biden declared that pandemic was over. 
  • Energy stocks rebound from session lows as oil markets recover after sell-off. 

Healthcare Stocks Dive After Biden’s Comments On The Pandemic

S&P 500 continues its attempts to settle below 3850 as Treasury yields keep moving higher ahead of the Fed Interest Rate Decision. Traders prepare for an aggressive Fed, and the yield of 2-year Treasuries is trying to settle above the 3.95% level.

It should be noted that today’s pullback is not broad. Healthcare stocks are the worst performers today as U.S. President Joe Biden said that pandemic was over. Moderna stock was down by almost 10% while Pfizer lost 2% in today’s trading.

Big tech stocks show mixed performance. Apple rebounds after the recent setll-off, while Microsoft is testing new lows.

Energy stocks rebounded from session lows together with oil markets. However, leading energy stocks like Exxon Mobil and Chevron have not managed to get back to the positive territory.

Trading will likely remain nervous ahead of the Fed decision. Markets have probably priced in a 75 bps rate hike, and the key question is whether Fed Chair Jerome Powell sends a hawkish signal.

At this point, traders are worried that aggressive rate hikes will push the economy into a real recession, which is accompanied by job losses and reduced profits for corporations. In this light, the market will be extremely sensitive to Powell’s comments.

Support At 3850 Stays Strong

S&P 500

S&P 500 settled below the 3885 level and continues to test the support at 3850. RSI remains in the positive territory, so there is plenty of room to gain additional downside momentum in case the right catalysts emerge.

If S&P 500 mananges to settle below 3850, it will head towards the next support level at 3825. A successful test of this level will open the way to the test of the next support at 3800.

On the upside, the nearest resistance level for S&P 500 is located at 3885. If S&P 500 climbs back above this level, it will head towards the next resistance at 3900. A move above 3900 will push S&P 500 towards the resistance at 3920.

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

S&P 500 (SPY) Declines Towards 3900 As Treasury Yields Rise

Key Insights

  • Higher Treasury yields put material pressure on stocks today. 
  • Energy stocks declined amid a strong sell-off in the oil and natural gas markets. 
  • A move below 3900 will push S&P 500 towards the support at 3885.

S&P 500 Is Moving Towards September Lows

S&P 500 is losing ground today as Treasury yields continue to move higher ahead of the Fed Interest Rate Decision, which will be released on September 21.

Energy stocks have found themselves under pressure amid sell-offs in the natural gas and oil markets. As a result, leading energy stocks like Exxon Mobil and Chevron are down by about 2% in today’s trading.

Leading tech stocks, including Apple, Microsoft, Alphabet, and Amazon, are also down by 1-2% today. NVIDIA is testing new lows. Higher interest rates are bearish for tech stocks.

From a big picture point of view, traders remain worried that Fed will hurt economic growth by raising rates aggressively. The FedWatch Tool indicates that there is a 60.2% probability that Fed’s target rate will reach 375-400 bps in November, up from the current 225 – 250 bps.

Aggressive rate hikes may put significant pressure on economic activity and hurt companies’ profits, so it’s not surprising to see that traders are worried about this scenario.

S&P 500 Is Ready To Test The Support Level At 3900

S&P 500

S&P 500 managed to get below the support level at 3920 and is trying to get to the test of the next support, which is located at 3900. If S&P 500 manages to settle below this level, it will head towards the support at the recent lows at 3885. A successful test of the support at 3885 will push S&P 500 towards the support at 3850.

On the upside, the previous support level at 3920 will serve as the first resistance level for S&P 500. In case S&P 500 manages to settle above this level, it will head towards the resistance at 3950. A move above the resistance at 3950 will open the way to the test of the next resistance level at 3980.

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

S&P 500 (SPY) Rebounds As Buyers Emerge After Sell-Off

Key Insights

  • Traders buy stocks after yesterday’s major pullback, but some market segments remain under pressure. 
  • Energy stocks enjoy strong support today as energy markets continue to rebound. 
  • A move above 3950 will push S&P 500 towards the resistance at 3980.

Stocks Rebound After Yesterday’s Sell-Off

S&P 500 moved towards the 3950 level as stocks rebounded after yesterday’s huge pullback.

Today’s PPI report, which showed that PPI declined by 0.1% month-over-month in August, provided some support to stocks today. However, it should be noted that Core PPI increased by 0.4% month-over-month, compared to analyst consensus of 0.3%, as inflationary pressure remained strong.

Treasury yields tested new highs today, and the yield of 10-year Treasuries made an attempt to settle above 3.80%. Treasury yields keep moving higher as traders bet that Fed will be forced to raise rates aggressively, which could ultimately put more pressure on tech stocks.

Today, leading tech stocks are trying to rebound after yesterday’s nightmare. Tesla is up by 4%, while Apple is gaining 1%. Meta remains under strong pressure and is testing yearly lows, trying to settle below the $150 level.

Energy stocks outperform other market segments as WTI oil continues to rebound. Schlumberger is up by 4%, while Exxon Mobil is gaining 3% in today’s trading.

It should be noted that today’s rebound is not broad. The real estate segment is under notable pressure due to rising Treasury yields. The basic materials segment is also moving lower. For example, shares of the leading copper producer Freeport-McMoRan are down by 3.5% today.

Today’s trading action shows that traders remain nervous after yesterday’s sell-off. Hawkish Fed is the main risk for markets, so trading will likely stay choppy until the Fed Interest Rate Decision, which will be released on September 21.

S&P 500 Tries To Settle Above 3950

S&P 500

S&P 500 is currently trying to settle above the resistance at the 3950 level. In case this attempt is successful, S&P 500 will move towards the next resistance level, which is located at 3980. A move above this level will push S&P 500 towards the resistance at 4000.

On the support side, the nearest support level for S&P 500 is located at the recent lows at 3920. If S&P 500 manages to settle below this level, it will head towards the next support at 3900. A successful test of this level will open the way to the test of the support at 3885.

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

S&P 500 (SPY) Tests 4100 As Commodity Markets Rally

Key Insights

  • S&P 500 is up by almost 1% today amid growing appetite for risk.  
  • Silver-related stocks enjoy strong support as silver is testing the $20.00 level. 
  • A move above 4115 will push S&P 500 towards the resistance at 4150.

Traders Stay Optimistic

S&P 500 continues its attempts to settle above the 4100 level as the strong rebound continues.

S&P 500 faced resistance near 4115 and pulled back towards the 4100 level, but there are no signs of a serious sell-off, which could be triggered by profit-taking after the strong rally.

While the markets have priced in an almost 90% probability of a 75 bps rate hike at the next Fed meeting, stock traders remain in a bullish mood. Treasury yields are mostly unchanged today, but weaker dollar provides additional support to stocks.

S&P 500

S&P 500 is trying to settle back above the 4100 level. In case this attempt is successful, it will move towards the next resistance level, which is located near daily highs at 4115. A move above 4115 will push S&P 500 towards the resistance at 4150. If S&P 500 gets above this level, it will head towards the resistance at 4180.

On the support side, a move below the 4100 level will open the way to the test of the support at 4080. In case S&P 500 manages to settle back below this level, it will head towards the next support at the 50 EMA at 4050.

Commodity-Related Stocks Rally

Commodity-related stocks enjoy strong support at the start of the week as commodity markets rally.

Silver miners like First Majestic Silver, Endeavour Silver, and Pan American Silver, are up by 5-7% in today’s trading.

Major oil-related stocks like Exxon Mobil and Schlumberger are also gaining ground as WTI oil is up by more than 2%.

Leading tech stocks are mostly moving higher in today’s trading. Apple is the clear leader as the stock is up by more than 3% amid reports about strong pre-order demand for iPhone 14.

From a big picture point of view, the current upside move is broad, and all market segments are moving higher. While S&P 500 is up by about 5% in just four trading sessions, traders’ appetite for risk remains strong.

Traders will need to monitor the developments in currency markets today as the weak dollar provides significant support to S&P 500. In case the U.S. Dollar Index manages to settle below the 108 level, stocks will have a good chance to finish the trading session near daily highs.

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

S&P 500 (SPY) Rebounds As Tech Stocks Move Higher

Key Insights

  • Lower Treasury yields provided support to tech stocks. 
  • The rebound in leading tech stocks pushed S&P 500 towards the 3950 level. 
  • Energy stocks found themselves under strong pressure amid sell-off in oil markets. 

Tech Stocks Rebound After Recent Pullback

S&P 500 gained upside momentum and moved towards the 3950 level as leading tech stocks rebounded.

Treasury yields declined, while the U.S. dollar pulled back from yearly highs, which served as an additional positive catalyst for tech stocks. It should be noted that some tech stocks, like Apple, Meta, and NVIDIA, lack positive momentum today.

Meanwhile, energy stocks were among the worst performers as WTI oil broke through the key support level and moved towards $83. Major energy stocks like Exxon Mobil, Chervon, and Schlumberger are down by about 2% in today’s trading.

Previously, we have discussed that a rebound in tech stocks was needed to push the market higher. Today’s market action indicates that S&P 500 may gain strong upside momentum even when the previous leader (energy stocks) is under pressure, in case leading tech stocks enjoy strong support. In this light, the continuation of the current rebound will depend on the dynamics of leading tech stocks, which remain the key catalyst for S&P 500.

S&P 500 Tests Resistance At 3950

S&P 500

 

S&P 500 found support near 3885 and moved above the resistance level at 3915. Currently, S&P 500 is trying to settle above the resistance at 3950.

In case this attempt is successful, S&P 500 will move towards the next resistance level, which is located at 3980. A move above this level will open the way to the test of the resistance at 4000. If S&P 500 climbs above 4000, it will head towards the resistance at 4015.

On the support side, the previous resistance level at 3915 will serve as the first support level for S&P 500. In case S&P 500 declines below this level, it will head towards the next support at the recent lows at 3885. A successful test of this level will push S&P 500 towards the support at 3830.

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

S&P 500 (SPY) Futures Show No Reaction To OPEC+ Oil Production Cut

Key Insights

  • S&P 500 futures are swinging between gains and losses while markets are closed in observation of the Labor Day. 
  • WTI oil is gaining ground as OPEC+ decided to cut production targets by 100,000 bpd in October. 
  • A move below 3915 will push S&P 500 towards the 3875 level. 

S&P 500 Futures Stay Close To The Support At 3915

S&P 500 futures are mostly flat in electronic trading while the U.S. markets are closed for the Labor Day holiday.

On Friday, S&P 500 suffered another sell-off as tech stocks remained weak. The FedWatch Tool indicates that there is a 60% probability of a 75 bps rate hike at the next Fed meeting, so traders prepare for the hawkish Fed.

S&P 500

From a technical point of view, S&P 500 found support near the 3915 level. This level has been tested several times and proved its strength. To gain additional downside momentum, S&P 500 must settle below 3915. In this scenario, it will head towards the next support level at 3875.

On the upside, the nearest resistance level for S&P 500 is located at 3950. In case S&P 500 manages to settle above this level, it will head towards the resistance level at 3980. A move above 3980 will open the way to the test of the resistance at 4000.

Energy Stocks May Be In Focus Tomorrow

WTI oil is up by more than 2% today as OPEC+ members agreed to cut production targets by 100,000 bpd in October. This is a symbolic cut as OPEC+ is currently producing below its quotas as some members have production problems.

However, the decision sends an important signal to the market. OPEC+ is worried about the slowdown of the world economy and is ready to act if necessary.

Major oil stocks like Exxon Mobil, Chevron, and Schlumberger have enjoyed support in recent weeks. These stocks may continue to move higher if OPEC’s attempts to put a floor under oil prices are successful.

It should be noted that a sustainable rebound of S&P 500 will be impossible without a broad rebound of tech stocks. Apple, Microsoft, Amazon and other big names have been under significant pressure in recent trading sessions.

The dynamics of tech stocks will remain dependent on the market’s evaluation of Fed’s next steps. If markets believe that the Fed will be hawkish, and Treasury yields continue to move higher, tech stocks will likely move lower. In this scenario, S&P 500 will likely settle below the 3900 level and develop additional downside momentum.

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

S&P 500 (SPY) Dives Below The 4000 Level

Key Insights

  • S&P 500 is moving lower as traders focus on potential aggressive moves from the Fed. 
  • The strong pullback in commodity markets has led to a sell-off in energy and basic materials stocks. 
  • The current pullback is broad, and there are no market segments that can move against the selling wave. 

S&P 500 Remains Under Strong Pressure

S&P 500 gained additional downside momentum and moved below the 4000 level after CB Consumer Confidence report beat analyst expectations.

Good news is bad news for markets right now as healthy consumer activity increases chances for an aggressive rate hike at the next Fed meeting.

There is another catalyst that must be watched closely. In September, the Fed will ramp up its quantitative tightening program. Each month, the Fed will reduce the size of its balance sheet by $60 billion of Treasuries and $35 billion of mortgage-backed securities. Instead of selling them, the Fed will let them mature.

The reduction of Fed’s balance sheet has already begun. However, the pace of this reduction was modest. Starting from September, markets will face tighter liquidity, which may serve as an additional bearish catalyst for stocks.

S&P 500

S&P 500 has recently managed to get below the 4000 level and is trying to develop additional downside momentum. Interestingly, RSI remains in the moderate territory, so there is plenty of room to gain additional momentum in case the right catalysts emerge. Traders should expect significant volatility as S&P 500 moved from 4200 to 4000 in just three trading sessions.

Energy Stocks Lead The Sell-Off

Energy stocks have suffered a strong sell-off today as WTI oil is down by about 6%. Exxon Mobil, Chevron, Schlumberger and other leading energy stocks are down by 3-4% today.

Basic materials stocks are also under strong pressure amid a broad sell-off in commodity markets. For example, the leading copper producer Freeport-McMoRan is down by about 6% today.

Tech stocks are also moving lower. All leading tech names, like Apple, Microsoft, and Alphabet are losing ground today. There is nowhere to hide, as all market segments are under pressure.

However, there are some bright spots in the market. The discount retailer Big Lots is up by more than 7% after a better-than-expected earnings report. It should be noted that Big Lots stock has been under pressure for months, so the reaction to the report is a typical relief rally as the company’s performance was not as bad as expected.

Avid Technology is up by roughly 12% as the stock joined the S&P 500 SmallCap 600 index. The inclusion in an index is always a positive catalyst as it forces index funds to buy the stock.

From a big picture point of view, traders are worried that aggressive Fed will hurt economic growth. If these worries persist, stocks will remain under pressure.

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

S&P 500 (SPY) Rebounds From Session Lows As Energy Stocks Rally

Key Insights

  • Tech stocks are losing ground as Treasury yields are moving higher. 
  • Energy stocks stay strong as WTI oil rallies amid protests in Iraq. 
  • The strong rally in energy stocks may provide more support to the broader market.

Stocks Remain Under Some Pressure

S&P 500 declined below the 4050 level as traders remained focused on Powell’s hawkish comments.

The yield of 10-year Treasuries has climbed back above the 3.10% level, so it was not surprising to see that tech stocks were the worst performers today. Apple, Microsoft, Tesla, NVIDIA, Meta and other big tech names remained under significant pressure.

In Dow Jones, 3M Company was the main laggard. The stock remains under significant pressure as traders are worried that the company may face up to $100 billion of losses from combat earplug lawsuits. On Friday, a judge ruled that bankruptcy of 3M Company’s subsidiary could not prevent lawsuits against the parent company.

Energy stocks is the leading market segment today. WTI oil rallied amid violent protests in Iraq, providing additional support to leading energy stocks like Exxon Mobil and Chevron. The rally in the energy segment may push S&P 500 to higher levels at the end of today’s trading session.

Will The Sell-Off Continue?

Traders fear that Fed’s aggressive rate hikes will put significant pressure on the economy. Tech stocks remain sensitive to Treasury yield dynamics as many shares in this market segment are trading at high valuation levels. For example, NVIDIA, which is down by about 45% year-to-date, is still trading at 35 forward P/E.

While Fed’s potential rate hikes and rising Treasury yields are strong bearish catalysts, it would be naive to expect that S&P 500 will move lower day after day. There are no signs of serious liquidity problems in the world, and there should be a sufficient number of buyers who are waiting for pullbacks to establish their positions in U.S. stocks. The rally in energy stocks may provide additional support to the broader market.

S&P 500

S&P 500 failed to settle below the 4000 level and is trying to get back above the resistance at 4040. In case this attempt is successful, S&P 500 will move towards the 50 EMA, which is located near the 4080 level. A move above the resistance at the 50 EMA will open the way to the test of the resistance at 4115.

On the support side, S&P 500 needs to settle back below 4040 to have a chance to gain additional downside momentum. The next support level for S&P 500 is located at 4000. If S&P 500 manages to settle below this level, it will head towards the support at 3975. A move below 3975 will push S&P 500 towards the support level at 3945.

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

S&P 500 (SPY) Rebounds Towards The 4,150 Level

Key Insights

  • Stock traders enjoyed a technical rebound today. 
  • It was a rather slow day as traders were waiting for the Jackson Hole Symposium, which starts tomorrow. 
  • Peloton stock jumped after the company launched products in Amazon’s U.S. stores. 

S&P 500 Moves Higher Ahead Of The Jackson Hole Symposium

S&P 500 gained some ground and moved towards the 4,150 level as traders scooped up shares after the recent strong sell-off. The rebound was broad, and most market segments moved higher today.

The breadth of the upside move highlights the technical nature of this rebound. There were no specific catalysts for the move.

The rebound was not strong as traders were not ready to make big moves ahead of the Jackson Hole Symposium, which starts tomorrow.

The news from Jackson Hole will have a significant impact on markets, so traders should be prepared for volatility in the remaining trading sessions of the week.

S&P 500

From a technical point of view, S&P 500 has once again failed to settle above the 20 EMA, which remains a significant resistance level. S&P 500 must get above this level to have a chance to gain sustainable upside momentum.

On the support side, the 50 EMA at 4080 should serve as the main support level for S&P 500. A move below this level will signal that S&P 500 may be ready to start a new downside trend.

Energy Stocks Stay Strong As WTI Oil Moves To New Highs

WTI oil rebounded from session lows and gained upside momentum, which was bullish for leading energy stocks like Exxon Mobil and Chevron.

Peloton stock gained 20% today after the company announced that it would launch products, apparel and accessories in Amazon’s U.S. stores. Peloton is scheduled to report earnings on August 25, before market open, so the stock will remain volatile tomorrow.

Bed Bath & Beyond stock was up by 18% as a WSJ report indicated that it had secured a loan deal. There are many traders who are underwater in this stock after its fast rally to the $30 level and the subsequent pullback towards the $8.50 level, so such traders may use the rebound to get out of their positions. Thus, it remains to be seen whether Bed Bath & Beyond will be able to gain additional upside momentum in the upcoming trading sessions.

Among losers, Nordstrom stock was down by 20% after the company released a disappointing quarterly report and lowered its guidance.

Generally, it was a rather slow day. The market behaviour will likely change tomorrow, when traders will react to the first news from Jackson Hole.

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

S&P 500 (SPY) Moves Lower As Traders Focus On Weak Economic Data

Key Insights

  • Weak Services PMI report and disappointing New Home Sales data pushed S&P 500 to new lows. 
  • Energy stocks enjoyed healthy demand amid strong rally in the oil markets. 
  • Twitter retreated as a whistleblower suggested that the company misled regulators about spam accounts. 

S&P 500 Remains Under Pressure

S&P 500 moved lower today as traders reacted to the disappointing Services PMI report and weak New Home Sales data. Dow Jones finished the day below the 33,000 level.

Interestingly, the market made an attempt to gain upside momentum after the release of the Services PMI report as some traders were ready to bet that the Fed would be more dovish due to problems in the services sector.

However, Treasury yields have quickly started to move higher, putting additional pressure on stocks. At this point, traders are not ready to increase purchases of stocks. Most likely, trading will stay choppy and volatile ahead of the Jackson Hole Symposium, which starts on August 25.

S&P 500

S&P 500 managed to settle below the 20 EMA at 4160. Today’s attempt to get back above this level was not successful, which is a bearish sign.

The nearest support level for S&P 500 is located at the recent lows at 4115. In case S&P 500 declines below this level, it will head towards the 50 EMA at 4080. A move below the 50 EMA will open the way to the test of the support at 4040.

On the upside, a successful test of the resistance at the 20 EMA will push S&P 500 towards the next resistance level at 4190. If S&P 500 manages to settle back above this level, it will head towards the resistance at 4220.

Energy Stocks Outperform As Oil Moves To New Highs

It’s a good day for energy stocks, which were led by big names like Exxon Mobil, Chevron, and Occidental Petroleum. Traders look ready to bet that WTI oil has bottomed, so they increase purchases of leading energy stocks.

The basic materials sector also moved higher today. Strong copper markets provided significant support to shares of copper producers like Freeport-McMoRan, Teck Resources, and Hudbay Minerals.

Tech stocks had a mixed session. However, it looks that market sentiment towards tech stocks remains bearish due to higher yields and disappointing news from Zoom and Twitter.

Zoom released an earnings report which indicated that the company’s growth was slowing down. The market was merciless, and the stock lost more than 15% of its value.

Twitter found itself under significant pressure after a whistleblower complained that the company misled regulators about spam accounts and defenses against hackers. The news is great for Elon Musk who is using the topic of spam accounts as he tries to walk away from his deal to buy Twitter.

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

No Tap to Turn for More Crude Oil

Supply side problems

On 22 June 2022, Crude Oil WTI Futures retreated to $104 a barrel – a month-low. But with all things considered, the first half of 2022 still saw oil prices climbing from around $70 to a high of $122 – which is roughly a 70% increase. Due to high oil prices, fuels and transportation costs are higher, so is the general price level.

When Russia is being sanctioned by the US and European countries, they have to seek new sources for crude oil. Naturally, they have turned to OPEC+, the Organization of the Petroleum Exporting Countries, asking its members to increase production. However, there were only negligible changes in total quantity produced in the months passed.

How come it is so difficult to increase oil production? In order to answer this question, one must have a basic understanding of the oil industry. Oil producers come in all shapes and sizes, from nationally owned enterprises (National Iranian Oil Company), multinational corporations (ExxonMobil), to small-sized private companies.

99 problems for oil producers

Nationally owned enterprises primarily follow the nation’s interest, which goes further than basic financial gains, geopolitics and diplomatic relations played significant roles in their business decisions. The blatantly obvious example would be Russia and Iran, though they have a developed production system with huge production rates, clashing political interest dissuades the west from trading with oil companies in both nations.

Although multinational corporations do not have to answer to any government in particular, they still have to work for the shareholder’s (or investor’s) interests. Since the oil crash in 2015, oil companies have been suffering deficits, increasing production also translates to higher operating costs, such as hiring more workers, purchasing and maintaining new machines etc.

Even for oil giants like ExxonMobil, a major decline in oil prices can easily cancel out the revenue brought by hiking production. As a result, major private oil companies became more prudent in expanding their production.

As for small-sized oil producers, their concerns and hardships are often greater than the larger companies mentioned above. A smaller size greatly increases risks, e.g. a hurricane might completely destroy the only oil facility, ceasing the sole source of income.

Moreover, the oil industry in general suffers from labor shortage, companies were unable to re-hire workers laid off in the 2015 oil crash, long hours and harsh conditions do not make a welcoming recruiting message. When it comes to smaller producers, a single worker can make a huge difference.

Other than labor shortage, all oil producers also faced shortage in equipment parts, which in turn diminished maximum production capabilities. The functional spare machines were often dismantled for repairing those that are currently in use, recent supply shocks have limited the availability of new parts and pushed up prices. Over time, fewer operational machines produce less oil.

Even if all the previous issues are addressed, it takes time to train new workers, repair idle oil wells and machines, requiring several months to pump barrels of oil again. Although it is considerably faster than exploring and drilling at a new source. In short, oil producers lacked the proper motivation and resources to increase production. When it comes to response time, the supply side is not as nimble as the demand side. Check the latest crude oil price here.

Best ETFs To Buy In 2022

Key Insights

  • QQQ will gain strong upside momentum in case the broader market starts to rebound. 
  • XLE has a good chance to continue its strong move as demand for energy increases during the summer season. 
  • GDX could serve as a defensive asset if markets find themselves under pressure in the second half of the year and demand for gold increases. 

Global markets remain volatile, and many investors are searching for safer options to protect their funds. ETFs offer an easy way to get exposure to indexes or market segments without picking individual stocks. In this article, we’ll take a look at several ETFs which could provide interesting opportunities this year.

Invesco QQQ Trust

Invesco QQQ Trust has been under significant pressure since the start of this year as traders moved away from higher-PE stocks. As a result, QQQ is down by more than 20% year-to-date.

QQQ dynamics are driven by the dynamics of leading tech stocks like Apple, Microsoft, Amazon, and Tesla, which are trading at a discount to their recent price levels.

In case the general market mood improves in the second half of the year, money would flow back into these stocks, which will be bullish for QQQ.

Energy Select Sector SPDR Fund

Energy Select Sector SPDR Fund enjoyed strong upside momentum this year as energy prices increased.

XLE is heavily focused on Exxon Mobil and Chevron, although it also has services stocks like Schlumberger and refiners like Marathon Petroleum among its holdings.

While Exxon Mobil and Chevron are trading at all-time highs, they are valued at roughly 12 forward P/E and have a good chance to gain additional upside momentum in case WTI oil spends this summer above the $120 level.

VanEck Gold Miners ETF

Gold has lost a lot of ground after touching highs near $2070 in March, so it’s not surprising to see that VanEck Gold Miners ETF has been under pressure in recent months.

GDX is a good bet on the gold price rebound which would be useful in case gold starts to move back towards its yearly highs due to increased uncertainty.

It should be noted that gold prices have moved lower due to rising Treasury yields, but it remains to be seen whether rates will continue to rise at a fast pace as the economy would face material problems if the 10-year Treasury yield settles above the 3.50% level. If Treasury yields settle in the 3.00% – 3.50% level, gold will have a good chance to gain upside momentum.

To keep up with the latest earnings updates, visit our earnings calendar.