Post-Fed Markets. What To Expect Next?

Fundamental analysis

At the same time, the central bank lifted its growth expectations for 2021 to +7%, an outlook far above the anemic GDP growth rates experienced pre-pandemic. Bulls largely want to stay focused on the economic “boom” ahead, believing it will more than offset any near-term inflation headwinds that companies may face in the second half of the year. And there is evidence money may be shifting back into some of the mega-cap growth stocks.

I just worry that the move might be temporary in nature or perhaps just a knee-jerk and a place to park some money until they figure out their next move. The Fed’s more hawkish shift also seems to be providing a further boost to the U.S. dollar, which shot up nearly a full percentage point against a basket of six other major currencies in the ICE U.S. Dollar Index.

Keep in mind, many big-money players have been forecasting a somewhat softer dollar based on the Fed’s extended supports. Obviously, a stronger dollar is a headwind for commodities and that was on display last week with a sea of red across everything from grains to metals and oil.

Oil markets are also feeling some additional downward pressure from the coronavirus surge happening in the UK, which some worry could ripple across the EU and further delay other re-openings.

Data to watch

Housing is in the spotlight in the first half of the week with Existing Home Sales Tuesday and New Home Sales on Wednesday. The housing market has been sending some mixed signals lately as home prices continue to soar, inventories remain at historic lows, and builders struggle with skyrocketing input prices and labor shortages.

Other data includes Durable Goods Orders and the final estimate of third-quarter GDP on Thursday; and Personal Income & Outlays, and Consumer Sentiment on Friday.

SP500 technical analysis

sp500 analysis fed 20 june 2021

While last week SP500 posted a fresh record top at 4258.5 (4267.5 on Jun), bears have returned to the market, aggressively selling futures on Friday and for sentiment to end a sequence of higher weekly lows with losses of 118 Pts from the top. This is negative and with cycles pointing lower, we can see further decline. 4179.0 is an important level to watch if tested and rejected. The supports 4100.5, the May 20th open, 4046.0, the 5-week base, and 4020.0, May’s low trade.

Keep in mind that this could be just a jerk-reaction after the Fed. Also, cycles forecast a potential rally in 2 weeks.

Precious Metals – Real or Fake Breakout? Sector Overview

The rush of consumer demand mirrors what the manufacturing sector is experiencing and adds to the story that the economy is rapidly heating up. All 18 services industries reported growth in May, led by retailers, wholesalers, construction firms, and entertainment and recreation providers.

Also similar to the manufacturing sector, services businesses are experiencing higher input costs and a backlog of orders, with the latter climbing to a new record.

The employment measure, meanwhile, slipped more than three points, with ISM noting that the labor pool for the services sector is currently even tighter than it is for manufacturing. ISM also predicts that demand for services could continue to outstrip the sectors capacity for the next four-to-six months, citing pent-up consumer demand as people start re-engaging.

Gold analysis

A few weeks ago we had a look into Gold cycles, Intermarket forecasts, and COT. At that moment gold was flagging. As you know it usually follows this pattern very well. But it doesn’t mean always. The current breakout wasn’t qualified as we didn’t have a downclose candle prior to the breakout candle. Moreover, in 2012 we had a similar situation and it was a false breakout. So, I want to see more price action to figure out what is happening.

In case, this breakout turns to be real, the market will target 2600 in 1 – 3 years. With all that in mind, let’s have a closer look into smaller time frames. Last week the price tested the 1856 level. It was previously a strong resistance. So, no surprise price found support there. The 4h MA200 is at 1837. Technically it should be enough to build a base and start a new wave to the upside with targets 1932 and 1960. This pattern is valid till the price holds above 1800. If this level fails, the bears could take control of this market.

Silver forecast

We have a bit different situation in Silver. The flagging formations on the monthly chart failed more compared to Gold. In fact, in 2012 there was a clear depreciation in this market – flagging formation that broke to the downside; tight consolidation followed by the final breakdown. Certainly, it is too early to jump into this market, but in the case, we see a breakup in this market, bulls could target the 38 – 40 range.

Overall a lot depends on the dynamic of key economic indicators. It’s worth noting that inflation is growing quite rapidly in China’s manufacturing sector, which many economists warn could translate to higher costs for a wide range of goods across the globe. If inflation worries spread on major markets, the precious metals sector will shine and deliver amazing returns for qualified traders.

SP500 – Aggressive Breakout on Its Way

It formed a flagging formation in recent weeks. It is not a secret that such long consolidation in a tight range ends with massive breakout.

Moreover, if such consolidation happens near Gann resistance on a daily or weekly chart, the next we see a very aggressive move. In fact, the longer such consolidation takes, the stronger move is. The key question is will it break out to the upside or to the downside?

SP500 analysis

I am not a fan of guessing, especially when tools, like Cycles, Advance-Decline Line, Insider Accumulation, Interest Rates Forecast, Intermarket Forecast are giving different signals. The market needs a fundamental trigger to establish a new trend or more time to build the setup. The FOMC meeting in June could become such a trigger. In case they pull back their purchasing program, we can see massive profit booking in the stock market. But still, it is what might happen.

I believe it is good now to stick more to price action. Based on a daily chart a clear break above Gann resistance 4250, is a bullish breakout with the next target near 4400 – 4500.

The cycles predict establishing a new trend in the coming weeks. So, traders have to get ready for coming opportunities whatever side it breaks. For bearish breakout, use channel up on a daily chart. Based on the historical studies, the best price action identification of reversal on SP500 is channel breakdown + sustaining below MA50 on a daily chart. Additionally, traders can use Insider Accumulation. It will decrease the number of trades but increase winning rates. Consider it an additional filter for breakout trades.

Even if the stock market breaks to the downside, it should be just a pullback. Until the dynamic of major economic indicators stays positive, there is no real reason to talk about the crisis and new recession. Certainly, the situation can change, but it is not going to happen in one day.

Interesting historical data

With the proper investment strategy, the stock market is a game where the odds are massively in your favor.

On average, 9 out of every 10 years shows an increase in returns for the top 500 companies. From 1929 to today, for every year of losses, the market spent nine years gaining, with a long-term average return of 8% a year. The worst crash happened in 1929. The market lost 83% of its value.

The second worst crash happened in 2009. (We were all alive for that. We’re part of history!) In 2009, the market lost 50% of its value. But even so, from 2009 to today, the market has grown by 400%.

ACB Stock, EUR and Crude Oil Forecast

Canada and New Zealand officials also have indicated that their first interest rate hikes could happen in early 2022. Iceland has already hiked rates, while the Bank of England has already slowed its bond buying and aims to end that support altogether later this year.

This more “hawkish” shift is happening across most central bank’s in the West, including the U.S. Federal Reserve with several FOMC members recently indicating their willingness to start “taper” talks. Even as some officials talk about easing supports, they have also been pushing back against the idea that inflation is starting to run out of control, even as consumer demand continues to outstrip the supply of goods and services in several areas of the economy.

But as I was saying last week, this initial spike in demand may not prove to be overly sticky. Perhaps consumers tick a few things off their bucket-lists of places to go and things to see but then might settle back into a new slower-normal.

There is no doubt an ongoing transformation of consumer trends is taking place and it could take a few months for them to find the new baseline. Data yesterday showed Weekly Jobless Claims dipped for a fourth straight week to hit a new pandemic low of 406,000, which is still very high and about double what it was averaging pre-pandemic. All of these things that are still shaking out in the economy explains some of the Fed’s willingness to let inflation run “hot” above its target rate for a while as supply and demand dynamics stabilize, especially with the labor market still weak. So, let’s overview a few markets.

EUR futures

EUR futures found support near 4h MA100. I believe the volatility will come to this market tomorrow after a long weekend. The price is building a new channel up on the 4h chart. With that in mind, we have a trading range of 1.2105 – 1.2290. So, it makes sense to scalp till support or resistance breaks. In general, we are still in a bull trend.

So, if resistance breaks, we can see the wave up to 1.23100 – 1.23500. The most important event this week is NFP on Friday. It can set the trend for the next 2 weeks.

eur futures 31 may 2021

ACB stock forecast

Last year we booked over 200% in ACB trade. This year I was stopped out in a new trade, but bought again later. I am not a big fan of growth stocks like ACB. But a small position makes sense when there is a good setup. Democrats are working hard to push marihuana legalization across the USA. And I believe they will succeed in it.

Also, there are signs of Wyckoff accumulation on the 4h chart. Besides, it closed above MA100 for the first time since the massive sell-off. So, I wouldn’t be surprised to see more upside in the coming 3 – 7 weeks. The neutral magnets for stock are 11.30, 13.50, 19, and 23 in extension. Note, replacing stop loss to be is a must for growth stocks.

acb forecast 31 may 2021

Not much has changed in CL setup since my last overview. However, on the 4h chart, we might get a trade this week. It seems like resistance is broken, but this consolidation looks dangerous. So, a swing failure to break above 67.60 should give a pull-back to 4h MA100 and possibly even lower.

However, the daily chart is still bullish and likely pullbacks will be bought again. So, when price finds support, we may see a rally to $69 – 70 a barrel. Conservative traders should stay on the sidelines till the OPEC meeting as there is a risk of oil output increasing.

crude oil forecast 31 may 2021

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

EUR at Key 4h Level Ahead of GDP Report

Fundamental analysis

With 50% of the U.S. adult population now fully vaccinated and most states close to fully reopened, it seems reasonable to say we are entering the early stages of the post-pandemic era. One of the key themes that has driven bullish momentum in EUR during the pandemic is that we were headed toward a post-pandemic economic boom fueled by cheap and easy money, cheap energy costs, and a lot of available (aka cheap) labor that weakened USD.

In reality, energy is kind of cheap-ish, but labor is not so readily available or cheap, and the “cheap and easy” money provided by the Federal Reserve may not last as long as some expected. In fact, money could get more expensive if inflation starts running even hotter and the Fed is forced to raise interest rates. The landscape is of course still evolving so the “trifecta” of cheap and easy energy, labor and money could still happen but investors are definitely reassessing, which is partially reflected in this long consolidation period that stock market has recently been stuck in.

The labor market has been one of the biggest puzzlers and investors hope the May jobs report next Friday will provide more clarity. Many economists are dialing back their expectations for the labor market, including some Federal Reserve officials. St. Louis Fed president James Bullard said this week that +500,000 jobs a month is a realistic expectation versus the +1 million some had been hoping for.

Dallas’s Robert Kaplan warned that a rate closer to last months gain of +266,000 could be repeated in May. Typically, a weak labor market would mean an accommodative Federal Reserve. Instead, that weakness along with numerous supply chain issues and materials shortages has been contributing to inflation pressures that some fear could be long-lasting.

It’s hard to overstate the extreme level of uncertainty this has created for investors.

Technical analysis

The 4h MA50 is the consolidation zone now. If the current range holds, the bulls will target new higher highs between 1.231 and 1.235. A lot depends on today’s data. I will not be surprised to see increased volatility. And if current support fails, bears will target 4h MA200. Ahead of the GDP report it makes perfect sense to reduce your exposure and trade after the market digests the news.

Stocks Continue To Chop Around Just Below All-time Highs

Big money players still seem a bit uncertain in regard to betting more money on the reopening and stronger demand or taking some bets off the table fearing higher inflation, companies struggling to find good help, and supply chain shortages that could make meeting stronger demand next to impossible.

Fundamental analysis

Earnings season is nearly wrapped up with over 95% of S&P 500 companies having reported. Key releases today include American Eagle, Dick’s Sporting Goods, Nvidia, Snowflake, and Williams Sonoma. Average S&P 500 earnings growth for Q1 is now over +51%. Average earnings growth estimates for Q2 are around +50%. This means there’s not much room for error at current valuations.

As I mentioned above, some believe those lofty expectations could face headwinds from labor shortages, higher inflation, supply chain dislocations and/or reduced support from the Fed.

Federal Reserve Vice Chair Richard Clarida was among several other Fed officials yesterday that pushed back against worries of runaway inflation. Clarida did admit that the latest CPI read was “a very unpleasant surprise” but he mostly echoed the Fed’s official stance that current inflationary trends will be “transitory.” He also acknowledges the “risk case” that inflationary pressures could end up being more persistent than expected but said the Fed has the tools necessary to “offset” that if necessary.

Most Fed officials have publicly echoed similar sentiments, although Philadelphia Fed President Patrick Harker and Dallas Fed President Robert Kaplan have both indicated they think it is appropriate to begin talking about “scaling back” the Fed’s asset purchases. With so much uncertainty surrounding the central bank’s next move, bulls may be unwilling to add more risk ahead of the Fed’s upcoming meeting on June 15-16. In the meantime, investors will continue mining Fed comments and economic data for clues.

There was quite a bit of data to unpack yesterday but the overall theme was “higher prices” with housing data dominating. Home prices continued to accelerate in April with the median price for a new home sold climbing more than +11% to $372,400, while the average sale price hit a new record high of $435,400, up +8.7% from March.

At the same time, New Home Sales fell nearly -6% in April with the familiar culprits being blamed – surging material costs and low inventories. Builders unfortunately are struggling to increase new home supplies because of the exact same reasons, with shortages and higher costs extending to everything from lumber to new appliances.

It’s also worth noting that Consumer Confidence pulled back a bit in May, the first decline in six months with worries growing around inflation and future job prospects.

There is no significant economic data today but investors will hear from Federal Reserve Vice Chair of Supervision Randal Quarles. During a Senate Banking Committee hearing yesterday, Quarles said the Fed along with the FDIC is in “a sprint” to research and develop a regulatory framework for cryptocurrencies and digital assets pertaining to banks, noting they are still in the early stages.

Technical analysis

ES 26 may 2021 forecast

In the absence of a swing signal in SP500 futures, it makes sense to stick to day trading. Advanced Decline Line is bullish, while Insider accumulation is weak. At the same time, the Interest rate Forecast and Fed Funds Forecast are neutral. In other words, SP500 is a mixed bag in terms of swing trading.

For today, the neutral zone is 4155.75 – 4220.50. Middle-strength level within this range – 4188; weak levels – 4172 and 4204.25. If the price holds above 4220.50, look for 4236.75 (weak level) and 4253 in extension (middle-strength level). If 4155.75 breaks, the magnets are 4139.75 and 4124 accordingly. Note, mentioned levels should turn into support/resistance before taking a trade.

Insider accumulation warns Tesla, Apple and Dollar investors

Tesla stock forecast

The price action looks very interesting. TSLA stock shows signs of depreciation. But as you know I like to trade a mix of fundamental and technical analysis to have a higher chance of winning trade. The Insider Accumulation is just screaming on a weekly chart. It shows what smart money is doing. No matter what they say, the fact is they don’t buy Tesla. The Insider Accumulation is very low.

At the same time, Sentiment Index and Cycle Forecast show potential consolidation. It makes perfect sense – the price has broken below the trendline of the bearish flag. So, if we see a successful retest of that trendline, consider hedging your $TSLA investments (if you have one) with options or futures. The natural magnet in that case is 400 at least.

TSLA forecast 23 may 2021

Apple stock forecast

AAPL is flagging as well. However, unlike Tesla, it didn’t break down. But Insider Accumulation and Cycle Forecast are very bearish. On the other hand, the Seasonal Forecast is bullish, while the Sentiment Index indicates a coming bounce up. With all that in mind, I want to add Apple to my watchlist as a short candidate if the trendline breaks to the downside. If that happens, bears will target $80 at least.

Moreover, we have clear signs of Wyckoff distribution on the weekly chart. However, we need more price action to confirm all events and phases before considering shorts.

AAPL forecast 23 may 2021

DX (dollar index) forecast

Dollar bears are not done yet. Cycle Forecast and Seasonal indicate potential breakdown below weekly support. However, the commitment of the trader report is neutral. It disturbs a bit. So, we better stick to price action. In case of a breakdown below last week’s low bears will target 88.50. If that support fails as well, we have all the chances to see a free fall to 84.5. It is not going to happen very fast.

But in the middle-term, it seems the most realistic scenario based on the indicators mentioned above. As I mentioned last week in one of the posts, the FOMC meeting next month can shake markets and create amazing opportunities for swing traders. So, keep an eye on it.

DX forecast 23 may 2021

EUR at Key Resistance – What is Next?

Fundamental analysis

Some of the recent pressure on EUR stems from the possibility of slower growth ahead as the U.S. economy enters the new post-pandemic normal.

The Federal Reserve and its policies play strongly into those growth worries, too, as the central bank’s easy money spigots are eventually going to get dialed back as the economy improves.

While the Federal Reserve has said it won’t reign in its supports until the labor market returns to full employment, bears argue the central bank may have to act sooner rather than later to head off runaway inflation.

Dollar bears and most Federal Reserve officials remain largely unconcerned about “sustained” inflation as they expect the issues and dislocations causing higher prices will resolve themselves in the second half of the year.

Atlanta Fed President Raphael Bostic and Dallas Fed President Robert Kaplan are both scheduled to speak today so we should learn a bit more. Don’t forget, tomorrow we get the Fed minutes from the most recent FOMC meeting.

Economic data includes E-Commerce Sales and Housing Starts and Permits.

Technical analysis

The EUR futures are close to the 1.2240 resistance which has been bulls swing target. The market is far from being overbought. In other words, if price breaches resistance, we can see 1.2310 in extension. Today we have important data ahead. So, its advised to reduce exposure. Rejection from mentioned resistance, can bring the price down to ma50 and ma100 on the 4h chart.

SP500 Traders are Trying to Shift Through a Lot of “Noise”

The coronavirus situation in the U.S. is a clear bright spot with several health experts believing the country is close to reaching so-called “herd immunity” and expect to soon see a dramatic drop in new coronavirus cases.

Fundamental analysis

The good news is most people are getting back to normalcy and the economic activity is looking robust. That’s despite many businesses having a difficult time hiring help. As companies are having to offer higher and higher wages there is increasing worry about rising inflation. There is also more talk about the possible implications of looming tax hikes that are expected to pay for some of President Biden’s ambitious economic plans.

An investor note from Goldman Sachs warned that the planned corporate tax hike to 28% could decrease earnings for some of the mega-cap technology companies as much as -9% next year, while S&P 500 earnings overall could take an -8% hit.

The analysts also warned that the “FAAMG” stock complex (Facebook, Apple, Amazon, Microsoft and Google) could be at risk of a year-end selloff if the President’s capital gains tax hike is implemented.

These stocks account for nearly 30% of the S&P 500’s market cap gains over the last five years, meaning investors have earned close to $5 trillion over that time.

Investors may look to take some of those gains in 2021 to lock in the lower tax rate.

Some of the big money players and large funds have shifted to value and more traditional inflationary type plays. While the younger Robinhood and Wall Streets Bets crowd that was once pumping the high-flying tech sector are now looking at buying airline and concert tickets.

As always, you have to pay attention to money-flow and ask yourself who will provide the next round of big buying?

Today’s key economic data will be the Labor Department’s JOLTS report, which could provide a deeper look at what’s going on in the job market. Federal Reserve officials are also making the rounds today with at least five central bankers scheduled to speak, including Federal Reserve Governor Lael Brainard. Earnings on tap include Electronic Arts, Honda, Palantir, Toyota, and Vodafone

Continued Talk of Commodity Supercycle

The price of iron ore hit a record high on Monday in the latest sign of booming commodity markets, which have gone into overdrive in recent weeks as large economies recover from the pandemic. The steelmaking ingredient, an important source of income for the mining industry, rose 8.5 per cent to a record high of almost $230 a ton fueled by strong demand from China where mills have cranked up production. Other commodities also rose sharply, including copper. Keep in mind, in the past 12-months, corn and crude oil prices are up +95%, soybean oil up +125%, silver up +75%, lean hogs up +54%, cotton up +47%, sugar up +57%, lumber up +350%, stock market up +43%, Bitcoin up +215%.

Technical analysis

Yesterday’s levels played very well. SP500 is trading in a bearish zone now. The upper range is 4156. Middle-strength levels within this zone – 4124, 4092 and 4060. Weal levels – 4140, 4108 and 4076. Neutral zone 4156 – 4221. Middle strength level – 4188.5. Weak levels – 4172.25 and 4204.75. Keep in mind SP500 is close to first daily support around 4100. In order to place a trade, always watch price action at mentioned levels. Once level turns into support/resistance, consider going long/short.

Why is “Bad News” is “Good News” for SP500?

Investors start this week still digesting the April Employment Report which delivered a big miss on Friday, showing a gain of just +266,000 jobs versus expectations for close to +1 million. The unemployment rate ticked up slightly to +6.1% while average wages and workweek saw unexpected increases.

Again, this was a moment on Wall Street when “bad news” was digested as “good news” as it keeps the Fed from raising rates.

Fundamental analysis

There is a lot of debate as to why the April jobs data was so sluggish with many blaming enhanced unemployment benefits. The report also showed leisure and hospitality added some +331,000 jobs while manufacturing payrolls actually fell, led by a decline in autoworkers. Economists believe those declines are probably related to the global chip shortage. ISM data last week indicated that some losses in April are related to other various supply chain constraints that are curbing manufacturing output and has forced companies to cut both hours and workers.

Employers also continue pointing to a skills mismatch, a problem many faced well before the pandemic. Bottom line, there are about -8 million fewer Americans in the workforce now versus February 2020. There seem to be a lot fewer women coming back and a lot fewer over the age of 55. Over the last five months total employment is only up by +1.5 million workers. So the Fed seems somewhat correct in their statement and forecast that it’s going to take time to get the U.S. workforce back to pre-pandemic levels and a big reason they are not going to rush to raise rates.

Despite the weaker than expected employment numbers, bears still believe inflationary price pressures are a mounting threat to the recovery, and signs of rising wages, particularly for low-skilled jobs, continue to fan the flames on inflation worries.

That will put a spotlight on inflation gauges due this week, with the Consumer Price Index on Wednesday followed by the Producer Price Index on Thursday. There is no major economic data today.

The height of earnings season is behind us with 88% and 86% topping estimates by an average of more than +22%.

The leading sectors have been Consumer Discretionary, Financials, Materials, and Communication Services, while Utilities and Industrials are the only two sectors reporting year-over-year declines.

Earnings this week include Tyson (TYSN) Roblox (RBLX), Palantir (PLTR), Electronic Arts (EA), Disney (DIS), Airbnb (ABNB). Other earnings results today are due from Affirm, Duke Energy, Marriott International, Novavax, Occidental Petroleum, Simon Properties, and Virgin Galactic. Other big names this week will include Compass, Sonos, Tencent, and Wendy’s on Wednesday; Alibaba, Applied Materials, Coinbase, DoorDash, Luminar, and Yeti on Thursday; and Siemens on Friday. Another area of increasing interest this week will be in the crypto space… Bitcoin, Ethereum, Doge, and Maker are all in my daily mix of things I track and trade. What a crazy ride!

Technical analysis

SP500 is close to weekly resistance at 4250. We talked about this number for a few weeks. On an intraday basis, the neutral zone is 4200 – 4265. Middle-strength level within this range – 4232.50, weak levels – 4248.75 and 4216.25.

Break up above 4265, will bring the price to 4281, 4298. If price sustains below 4200, look for 4184 and 4168. Note, mentioned levels should offer support/resistance before you consider entering the trade.

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

Wall Street Worries About Interest Rates – What Does It Mean for SP500?

Fundamental Analysis

Treasury Secretary Janet Yellen taking a somewhat opposing stance to Fed Chair Jerome Powell. In case you missed the headline, Yellen is saying we might need a modest rise in interest rates to blunt some of the government spendings we are seeing hit the street.

Later in the day, Dallas Fed President Robert Kaplan reiterated the need for the Fed to begin a conversation about scaling back its bond-buying in an interview with MarketWatch. Kaplan says that’s largely because he has greater confidence in the economy than he had a few months ago, but noted a “fog” around labor market participation rates that will take a while to clear.

Kaplan also noted that the Fed could remain “highly accommodative” without keeping rates pegged at zero. According to his assessment of the economy, Kaplan anticipates the Fed raising rates sometime in 2022, which is ahead of the timeline forecast by most Fed officials who don’t see the benchmark being lifted until 2023.

The moral of the story, talk that the economy could “overheat” and push interest rates higher seems to be a bit more worrisome now on Wall Street. I don’t think this anything most of us didn’t see coming, but the question of how the Fed reduces liquidity and tapers is still the big question?

If the Fed can nail the dismount then no harm no foul, but if you believe the market is currently “priced to perfection” then there is absolutely no room for Fed error.

Some of the bigger and more experienced investors won’t even like the thought of being this high up if the Fed is going to start unwinding.

A growing number of Wall Street traders expect the Fed’s June 15-16 policy meeting could begin outlining plans for such moves.

Economic data

Investors today are anxious to see ADP’s Employment Report for April which is expected to show around +850,000 jobs added. ADP’s numbers can vary widely from the official Labor Department numbers, which are due out on Friday and expected to show close to +1 million jobs were added during April.

The ISM Services Index for April is also due today. The gauge hit a new pandemic high as well as an all-time record high in March.

Wall Street will be paying particular attention to the employment and price components, which rose to pandemic highs last month as well.

Services activity accounts for about 75% of U.S. GDP so what’s happening in the sector has broad implications for the overall economy. Earnings will likely be the main focus today with several big names reporting, including Allstate, Barrick Gold, Cerner, Etsy, General Motors, GoDaddy, Hilton Worldwide, HubSpot, MetLife, Paypal, Redfin, Rocket Companies, Scotts MiracleGro, Twilio, Uber, Volkswagen. And Wynn Resorts.

SP500 technical analysis

Yesterday’s breakout levels played very well. For today, the neutral zone is 4131 – 4195.5. Middle-strength level within this zone – 4163.25, weak levels – 4179.25, 4147.

In case of a bullish breakout above 4195.5, look for weak level 4211.5 and middle-strength level – 4228. A bearish breakout below 4131 will target for 4115 – weak level and in extension 4098 – middle-strength level. Based on the intraday cycles, there are more chances for trading within the neutral zone today.

Important Note! For qualified breakout entry breakout level should turn into support/resistance. Don’t enter the trades without this price action confirmation.

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

SP500 at Key Daily Support – Break It or Make It

Fundamental analysis

The U.S. is actually moving pretty close to having most Covid restrictions lifted across the country on businesses like restaurants, amusement parks, theaters, museums, music venues, etc.

There are social gathering capacity limits in some states and cities still, but those are mostly scheduled to phase out by this summer, assuming no major setbacks in getting and keeping the virus under control.

Data yesterday showed the ISM Manufacturing Index unexpectedly slid in April though the gauge remained in expansion territory for the 11th month in a row. The read of 60.7% is considered very healthy but the slowdown reveals underlying struggles to meet demand.

The supply-demand imbalance pushed the backlog of orders component to a record-high while customer inventories plunged to an all-time low. The Prices component jumped to its highest level since 2008 with all 18 industries reporting they paid higher prices for raw materials for the fourth straight month. This reflects two main competing narratives on Wall Street right now.

Bullish vs bearish expectations

Bulls believe pent-up consumer demand, underpinned by generous fiscal and monetary supports, will usher in an economic boom not experienced in a generation, which will pull corporate profits up along with it.

Bears, on the other hand, believe higher prices will continue building and eventually put a dent in the rosy expectations for growth. Federal Reserve officials continue to make the case that the current inflation trends are transitory and will ease as supply chain kinks get ironed out.

Many Wall street bears argue that higher prices will be more sticky than anticipated, particularly those that are already being passed on to consumers. Today brings both the Trade Balance Report and Factory Orders for March.

First quarter earnings also continue to flow with Pfizer among today’s highlights. Pfizer’s vaccine, developed with BioNTech, is one of the three authorized for use in the U.S. Along with Moderna,

Pfizer stands apart from rival vaccine makers Johnson & Johnson and AstraZeneca because they are selling their Covid-19 vaccines for profit. Pfizer reports before markets open. Today I am closely watching Zillow, Activision Blizzard, Corteva, CVS, Ferrari, Marathon, and Virgin Galactic.

Technical analysis

I have mentioned swing setup in my weekly outlook. So, today I want to focus on intraday levels. SP500 is approaching key Gann level at 4160. If price sustains below, expect to see a sell-off. On the other hand, 4225 is a bullish breakout level. It seems not easy to get there.

Neutral zone 4225 – 41160. Middle-strength level within this area – 4129.5, weak levels – 4209 and 4176.5. In case of bearish breakout, look for 4128, 4096 (middle-strength levels) and 4144, 4112, 4180 (weak levels).

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

Will Earnings Season Bring Volatility To The Stock Market?

The Commerce Department last week reported that the U.S. economy grew at a +6.4% annual rate in the first quarter, slightly below estimates but still strong. If it would have come in real hot and much higher bears would have pointed to fanning the inflation flames even further.

This mindset of “bad-news-could-be-good-news” is helping to keep the stock market at or near all-time highs. If economic data somewhat disappoints it means the Fed stay dovish and accommodative for longer.

Fundamental analysis

That might be important to keep in mind as April data starting this week is expected to be extremely good. The April Employment Report is due next Friday and with upper-end of Wall Street estimates look for upwards of +1 million new jobs being added. Other key April data next week includes the ISM Manufacturing Index on Monday, and the ISM Non-Manufacturing Index on Wednesday.

employment

If the data comes in better than expected the bears will win the nearby battle and have the upper hand when talking higher inflation and the Fed perhaps tightening sooner than anticipated. So this week could be a bit tricky whereas “disappointing-data” could actually be digested as a win for the bulls and “strong data” a win for the bears.

The earnings calendar is packed again next week with big names including Activision Blizzard, Adidas, AllState, Cerner, Cigna, CVS, Dominion Energy, Enbridge, Etsy, Hilton Worldwide, Moderna, Monster Beverage, Nintendo, PayPal, Peloton, Pfizer, Rocket Companies, Square, TMobile, Wayfair, and Zoetis.

COVID-19

Checking in on U.S. progress against Covid-19, the number of adults that have received at least one dose is around 60%-65%, depending on the source. Global cases continue to rise led by India, where new infections have been hitting new record highs every day for weeks now. The country reported a staggering 380k new infections and 3,645 new deaths on Thursday while less than 10% of the population has been vaccinated.

Bottom line, the global restart will not be synchronized like many bulls had hoped would be the case and global growth may continue to struggle. At the moment the U.S. market doesn’t seem to care. It will be interesting to see if increasing inflation and continued global headwinds will eventually come home to roost.

SP500 technical analysis

SP500 earnings season

Earnings season can bring volatility to the stock market. At the beginning of May, cycles turn to the downside. Note, this is only a timing tool and it never shows the amplitude or strength of the move. When cycles are topping, it means we can expect a move down or choppy trading. This is it.

But relying on cycles only is not a good idea. Insider Accumulation Index shows bearish divergence on a daily chart. At the same time, Advanced Decline Line is still strong. The key resistance is around 4250 at the moment. I believe earning season can bring a profit booking to the stock market. If that happens, watch 4000 – 39500. It was a massive resistance and now it might turn into support. Intermarket Forecast is neutral. But if it turns to the downside, we will finally see a pullback in SP500.

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

What Does Biden’s Tax Hike Proposal Mean for SP500?

The proposal has not been officially announced but details reported by Bloomberg include raising the top marginal tax rate to 39.6% from 37% while lifting the capital gains rate from 20% currently to 39.6% for people earning $1 million or more.

Fundamental analysis

Democrats planned a tax hike for a long time. So, it wasn’t that big surprise. A big question is when the rate hikes might go into effect, which would likely impact decisions on when or if to book profits from the market. And that’s what we all want to pay attention to. Meaning, if a big tax hike is coming next year, could we see a selloff this year with investors looking to ensure the lower tax rate?

And what if the timing is different? Stock bears have been warning for a while that investors were not pricing in higher taxes ahead. The market reaction last week was relatively mild, with markets down overall but the major indexes all lost less than a full percentage point.

tax biden

Congress has to approve the tax high. And I believe it will be not that easy. It will likely find no support from Republicans and possibly many Democrat defectors. So the early consensus in Washington seems to be that these tax increases stand little chance of passing at the levels being suggested. It will be interesting to see if Wall Street agrees as more details are revealed.

President Biden is expected to unveil the proposal next Wednesday, April 28. Keep in mind, the White House has already announced a plan to raise corporate taxes to 28%.

Economic reports

Economic data last week was a sort of a mixed bag. Initial jobless claims posted another decline to hit the lowest levels of the pandemic. However, there are some signs of headwinds for the housing market with Existing Home Sales falling for the second straight month but inventory levels are at record lows, so it’s tough to draw a negative conclusion. Housing supply did climb nearly +4% last month but it was still more than -28% lower than 2020 levels.

The Wall Street Journal pointed out that, nationally, there were more real estate agents than there were homes listed for sale in March. At the same time, the median home sale price rose to a new record high of $329,100, marking a +17.2% gain over last year as supply constraints have led to the fastest selling pace on record.

What to look for next week?

Things kick into high gear next week though with announcements from some of America’s largest companies, including Tesla on Monday, followed by tech giants Alphabet and Microsoft on Tuesday, Apple and Facebook on Wednesday, and Amazon on Thursday.

Other big names reporting next week include AbbVie, Agco, Altria, Amgen, AstraZeneca, BASF, Boeing, Boston Scientific, BP, Bristol Myers Squibb, Caterpillar, Charter Communications, Chevron, Chubb, Clorox, CME, Colgate Palmolive, Comcast, Dominos, Ebay, Eli Lilly, Exxon, Ford, General Electric, Gilead Sciences, GlaxoSmithKline, Intercontinental, Keurig Dr. Pepper, Kraft Heinz, Mastercard, McDonalds, Merck, MGM Resorts, Mondelez Int., Moody’s, Nio, Norfolk Southern, Northrop Grumman, Novartis, O’Reilly Automotive, Phillips 66, Qualcomm, Royal Dutch Shell, Shopify, Spotify, Starbucks, Texas Instruments, Thermo Fisher, Twitter, UPS, Visa, Yum Brands, …among many others.

Data to watch

Nearly every sector will get some coverage which will help analysts and investors get a better sense of what to expect from the rest of this earnings season. It will also help shape expectations for the quarters ahead as more companies provide full-year guidance.

Next week also brings the Federal Reserve’s two-day policy meeting on April 27-28, which comes amid a busy economic data schedule that includes Consumer Confidence Tuesday; the first read on first quarter GDP and Pending Home Sales on Thursday; and Consumer Sentiment, Chicago PMI, PCE inflation reads, and Personal Income and Spending on Friday.

SP500 technical analysis

tax hike sp500

SP500 futures found support near 4100 last week. In the absence of big news, we can expect it to hold. However, Biden’s tax proposal can shake the market. So, I wouldn’t rely on that support much. Advanced Decline Line shows signs of weakness. However, there is no clear divergence. If the price sustains above last week’s high, 4250 is the next magnet. But as I mentioned above we may see big volatility next week. So, I don’t trust those levels much.

The range 3950 – 4000 is technically more important and more reliable. However, with cycles turning to the downside and ADL showing signs of weakness, tax proposals may be catalysts for sell-off. Yet, in the absence of clear signal, I think traders have to stick to Gann levels on an intraday basis.

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

What is next for US stock market and dollar?

SP500 index is now up more than +9% year-to-date, while the Dow is up +9.5% and the Nasdaq is up more than +7%. Bulls remain committed to their outlook for an economic boom, all of which is underpinned by the U.S. Federal Reserve’s continued easy monetary policies.

Fundamental analysis

Federal Reserve and monetary policy

Federal Reserve Chairman Jerome Powell reiterated last week that the Fed would continue to remain extremely accommodative until the economy has further recovered. Speaking during an IMF event, Powell pointed out that while parts of the economy are recovering strongly, “there’s a very large group of people who are not.”

The Fed Chair acknowledged the better than expected job gains in March and said the Fed would consider a string of similar monthly gains to progress. Also, Powell again pointed to the weak labor market participation rate as a disinflationary force that will keep temporary price spikes under control. What Powell seems more concerned about is the ongoing pandemic and rising infections across many parts of the world, noting that the “world economy” can’t return to normal until the virus is under control everywhere.

Vaccination

Keep in mind, many of our largest U.S. businesses get +40% or more of their revenue from the global economies. Obviously, it is going to take more widespread vaccination and better efforts in other countries to orchestrate a global recovery. The U.S. remains one of the leaders in vaccinations but there might be a little hiccup the next week or two, as Johnson & Johnson has run into some manufacturing snafus. The CDC said -85% fewer doses of the company’s vaccine will be shipped to states next week, though they did not provide a reason.

Around 15 million J&J doses had to be destroyed because of an ingredient mix up at a factory late last month. Traders are also keeping an eye on developments surrounding AstraZeneca’s Covid-19 vaccine which has been suspended in several country’s due to a possible link to blood clots. Unfortunately, the AstraZeneca drug is the dominant vaccine in use across the globe because of its lower cost and easier distribution. Most advanced economy countries that are using AstraZeneca’s drug also have vaccine supplies from other drug makers but the suspension will still mean a slowdown for vaccine rollouts in many parts of Europe and Asia.

AstraZeneca’s safety issues could mean no vaccine supplies at all for some developing countries where it’s the only option. An underlying concern is that these compounding safety issues, shot suspensions, and other hiccups could lead to an overall “crisis of confidence” in vaccine campaigns, meaning fewer people getting inoculated and delaying the global end to the pandemic.

News and data to watch

Next week brings the Consumer Price Index on Tuesday; Import/Export Prices and the Fed’s Beige Book on Wednesday; Empire State Manufacturing, Retail Sales, Industrial Production, Business Inventories, and the NAHB Housing Market Index on Thursday; and Housing Starts on Friday.

The main focus next week will likely be on Q1 earnings, with the season “unofficially” kicking off with results from big Wall Street banks Goldman Sachs, JPMorgan Chase, and Wells Fargo on Wednesday, followed by Bank of America, Citigroup, and U.S. Bancorp on Thursday.

SP500 technical analysis

sp500 technical analysis

So far SP500 futures still didn’t break above Gann’s resistance. Yet the weekly closing looks very strong. But we can consider longs at this stage only if this resistance turns into support. In that case, 4250 is the natural magnet. However, I am a bit skeptical it may happen.

I like to trade SP500 when Advance Decline Line and cycles give the same signal. At the moment, it is better to pay attention to commodities. There are few markets ready for big moves. At the same time, SP500 cycles turned to the downside, while ADL is very bullish. If we will see a divergence in ADL in coming week or two, I will look for a sell signal. But at the moment, nothing is clear yet.

Dollar Index (DXY) technical analysis

dollar forecast

Overall, the Federal Reserve policy remains bearish for American currency in the long run. But we don’t have a strong fundamental setup to establish swing trades. So, I want you to pay attention to the smaller time frame. The dollar index (DXY) respects 4h MA50 and MA200 quite well. So, we can take advantage of that.

If the price breaks and sustains under 91.90, the price will reach 91.5 and 91 in extension. On the other hand, breaching the 4h MA50, the dollar will target the 93 – 93.5 zone.

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

Will SP500 Pullback?

The U.S. hit a new vaccine record over the weekend, administering +4 million doses in 24-hours. Several states have expanded vaccine eligibility to all U.S. adults, something state is expected to do by the end of April. One-third of the country has now received a shot!

Fundamental analysis

A tracker from Jeffries shows activity across the country is at nearly 95% of the pre-pandemic level. United Airlines told staff it will soon begin hiring hundreds of pilots. The Chicago-based airline is the first of the large U.S. carriers to announce it will resume pilot hiring, the latest sign it’s preparing for a large economic recovery.

Labor market

The Labor Department on Friday reported a much stronger-than-expected gain of +916,000 jobs in March with the unemployment rate ticking to sub-6%. January and February jobs data was also revised upward, adding +156,000 to the totals. March gains were strongest in the leisure and hospitality sector with +280,000 new jobs being added, while education added +190,000, and construction added +110,000 new hires. I should also note, data released late last week showed manufacturing expanding at the fastest pace since December 1983.

Bears argue that the big jump in jobs and manufacturing raises more concerns and questions about inflation and that the Federal Reserve may pull back on its asset purchases and raise its benchmark interest rate earlier than Wall Street is currently anticipating. Bulls, however, point to the fact there are still nearly 8 million fewer employed Americans than there were pre-pandemic, which they argue will help keep a lid on inflation.

Interestingly, the share of long-term unemployment rose again last month to 43.4%, approaching the all-time high of 45.2% reached during the Great Recession. The labor force overall is down by almost -4 million, meaning those workers have dropped off the unemployment rolls and given up looking for work.

News to watch

Economic data today includes Factory Orders and the ISM Services Index. Other key data this week includes JOLTS tomorrow, International Trade and Consumer Credit on Wednesday; and the Producer Price Index on Friday. PPI will likely draw a lot of scrutiny with investors looking for signs of building inflation pressures.

This week also brings the release of the Fed’s “minutes” from its March policy meeting. Fed President Jerome Powell speaks at an event on Thursday. There is also some international data this week that investors are interested in, including PMI numbers for France, Germany, and the Eurozone on Wednesday.

China releases consumer inflation data on Friday.

Also on the agenda this week, the International Monetary Fund and World Bank’s Spring meetings begin today and run through Sunday. The IMF will release its updated World Economic Outlook tomorrow (Tuesday), which is expected to lift the forecast for global growth to around +5.5%, up from +4.9% projected in January. Just a couple of weeks ago, IMF Managing Director Kristalina Georgieva raised the alarm bells about a possible debt crisis brewing in emerging market economies, which accounts for roughly half the world economy. IMF’s update is likely to highlight the issue in more detail and will be of interest to the larger macro traders. The trade is also growing more interested in the escalating tensions between China and Taiwan so we must continue to pay close attention.

SP500 technical analysis

sp500 forecast

As we expected SP500 reached massive Gann resistance. I am not sure if it tests the upper range (4100) within this wave. This move was news driven. And, as you likely know in most cases it offsets within the next few sessions. Let’s see how it plays this time. My biggest concern is mixed signals. You know I like to follow cycles and they are about to turn to the downside and possibly bottom at the beginning of June. However, Advance Decline Line is very bullish. So, I decided to stick to price action at key levels.

Rejection at any range within Gann’s resistance can give a start for a pullback. Other than that, the range between 4000 and 3960 (previous resistance) can turn into support. Also, pay special attention to daily MA50. As you see on the chart above it provides a great buying opportunity every time price tests it. In any case, I will stick to small targets till cycles and ADL generate the same signal.

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

Suez Canal Blockage. What Does it Mean for SP500?

Fundamental analysis

Suez Canal Blockage

The Suez Canal is still blocked by the enormous “Ever Given” cargo ship, with over +350 vessels now waiting to pass through the channel. Authorities are hoping higher tides over the next couple of days may allow salvage teams to further dislodge the ship. However, if that fails, it sounds like the next option is to start unloading containers to lighten the load and in theory allowing the ship to be freed.

Some shippers began rerouting ships. But, these alternative routes will add time as well as higher costs, especially for the oil sector which is under pressure to get critical supplies delivered. Thus, the blockage is also further stretching the global supply of shipping containers which was already compromised. The container shortage alone has been causing shipping bottlenecks at critical U.S. West coast ports which companies have said is delaying restocking by as much as three to four weeks.

The longer the Suez Canal remains blocked, the worse the global shipping snarl is going to become. Moreover, it will take days to move the vessels that are blocked with further delays expected at destination ports as they absorb the backlog.

More uncertainly

There is also the global semiconductor shortage that has been compounded by a factory fire in Japan. And those are just the snags grabbing the biggest headlines. There are shortages being caused by supply chain problems for everything from lumber to oilseeds to petrochemicals right now, all with varying timeframes for when they might be corrected, many not till later this year. Eventually, things will return to some aspect of “normal” but it is causing an extra layer of uncertainty right now with investors still unclear how these multiple issues may impact earnings in the quarters ahead.

On the pandemic front, the U.S. is starting to take very big steps with roughly 1 out 3 U.S. adults now having at least one shot of the vaccine in the arm and a record +3.4 million doses given this past Friday. And, it looks to me like there is soon to be a glut of vaccines available. Georgia has now fully opened eligibility to ages 16 and older. Kansas, Oklahoma, Texas, Ohio, and North Dakota follow by opening up to everyone 16 and older today. Indiana on Wednesday. Montana and California on Thursday. Connecticut, Michigan, Tennessee, Florida, and Missouri next week.

Other nations are not progressing nearly as well, Brazil and other parts of South America are imposing new restrictions as the virus surges. In fact, there are growing worries that supply chain problems could worsen in South America if more workers fall ill as some local authorities are already pushing talks about temporarily shuttering port operations. The Philippines is reporting a fresh record number of new cases. Also, Poland sees a massive resurgence. India reports virus numbers escalating back to levels not seen in months.

Economic data

As for economic data, investors this week are anxious to see the March Employment Report on Friday. Wall Street insiders are looking for the unemployment rate to be around 6% with a gain of between +650,000 to +1 million new jobs. Remember, if we see more jobs being created and more people going back to work at a faster pace than expected, bears will again starting pointing towards inflation and the associated headwinds, which could perhaps spark another rally in bond yields and put downward pressure on stock prices. The yield on the 10-year Treasury note has risen from under 1% in early January to over 1.6% currently. Inflation is also in the spotlight on Thursday with the ISM Manufacturing Index expected to show some costs continuing to rise.

Today, the Dallas Fed Manufacturing Survey is the only economic data on the calendar. Earnings I am interested in this week include FactSet, Chewy and Lululemon all reporting tomorrow, Micron reporting Wednesday, and Walgreens and Carmax on Thursday.

SP500 technical analysis

suez canal blockage sp500

Not much has changed since my last SP500 forecast. However, Easter is coming… It’s not a 100% rule, but usually, we see strength in the stock market before this holiday. So, we can expect upthrust and test of Gann resistance between 4000 – 4100. Besides, based on the cycles we still have time till pullback starts. I am patiently waiting for the sell signal. But, guys, as I mentioned last week don’t expect it will be the beginning of the bear market. There is no fundamental reason for that. The labor market is strong enough and the federal reserve is doing its job well.

Also, we may get an interesting trade at the begging of June. Based on cycles and Intermarket forecast we can expect the market to bottom and begin a new wave to the upside at that time. But let’s take it step by step. In the coming weeks, I will be looking for swing shorts in SP500. How deep could the market drop? Unfortunately, cycles don’t forecast an amplitude. And, we have to observe price action to set targets. In general, I believe 8 – 15% pullback is realistic.

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

SP500 Investors Worry About Interest Rates

Rates on the 10-year note breached +1.7% for the first time in over 15-months. The sharply higher interest rates are again weighing on growth stocks, particularly tech companies.

Fundamental analysis

Housing market

Investors are also getting a little nervous about the pressure higher rates might be putting on the housing market, as well, with rates on the 30-year benchmark hitting a 9-month high this week. Today’s 3.09% is still not “high” but analysts fear if they keep rising, more buyers will be priced out of the market and we will see a lot less refinancing and pulling money out.

Keep in mind, the housing sector has played a significant role in the economic recovery, really defying all odds to deliver some of the strongest gains of any asset class in 2020.

Far more Americans benefit from climbing home prices than surging stock prices, with homeownership the top contributor to household wealth. Higher home prices also contribute to the “wealth effect”, where consumers feel more financially confident when their houses and stock portfolios increase in value, therefore are more willing to spend and borrow money.

Of course, when those gains begin to fade, it can have the opposite effect on consumer behavior. Data so far shows February was a rough one for the sector, largely due to winter storms.

But home builders are also getting hammered by record-high lumber prices and rising costs for other inputs, including labor, which has been pushing the builder outlook down since November.

Supply constraints also mean new home construction is moving at a snail’s pace. More would-be sellers of existing homes are thought to be holding off and even changing their minds, too, both due to elevated prices for their next purchase as well as slim inventory to pick form.

Next week brings February data for Existing Home Sales on Monday and New Home Sales on Tuesday.

Transportation industry

Crude oil got crushed last week, tumbling -8%, despite surging gasoline demand as the economy fully reopens in several states. Keep in mind, however, gasoline demand compared to last year, right before the pandemic lockdown, is still down by double-digits. Let’s also extrapolate out a bit and consider how much money Americans have been saving by not having to drive or commute for work or travel to as many kids and family events. Meaning how much and where will most American families have to tapper back consumer spending as their monthly transportation expense starts to rise?

You then have to ask yourself who will most likely be the people getting to stay and work from home? I suspect it’s more of the higher wage-earning families who will have even more expendable income and time as they are not forced to come back to the workplace.

So the lower end probably sees their budget get tighter as they have to again start spending more on transportation, while the very upper end might take some type of hit with higher corporate, investment, and individual taxes coming.

One could argue it’s that group that will get to stay working from home that will see the greatest slack in the budget and room for additional spending.

News and data to watch

Economic data next week includes Durable Goods Orders and IHS Manufacturing and Services PMIs on Wednesday; the final estimate of fourth-quarter GDP on Thursday; and Personal Income and Outlays on Friday. The latter report will also have the latest PCE Price Index, an inflation gauge the Fed tracks closely.

The pandemic itself continues to create waves, with things in Europe just an all-around mess that seems to get more convoluted every day. Covid cases are again spiking and some countries are reimplementing business restrictions and lockdowns, while the countries are also having a vicious fight over vaccines and travel passes.

It’s causing a great deal of confusion as well as uncertainty about the timeframe for the global economic recovery and is likely going to weigh on revenues for companies doing business in those countries. It’s also not the best news for the travel sector and it’s definitely not bullish for oil.

Again, a lot of moving parts for investors to track as they try to figure out how and when it’s all going to come together as the world transitions to the post-pandemic “normal.”

Technical analysis

We have a small divergence on a daily chart between Advance Decline Line and SP500 price. It is not very strong and clear. So, I think there is still a chance we will see a test of important Gann range 4000 – 4100. Besides, SP500 usually tests psychological levels. It is not a rule, but taking into account cycles we likely still have time till the next sell-off. Besides, psychological levels in most cases cause massive profit booking.

Also, we have multiple support levels – 3860, 3830, 3770. In any case, we are in the bull market till SP500 holds above 3600. With that in mind, I am waiting for a strong swing signal to short this market. Till that moment I will engage only on intraday and short-term trades.

SP500 Forecast: Are Cyclical Stocks the Next Best Asset?

When the economy grows, prices for cyclical stocks tend to go up. Cyclical stocks represent companies that make or sell discretionary items and services that are in demand when the economy is doing well.

They tend to include restaurants, hotel chains, airlines, high-end clothing retailers, auto manufacturers, etc… So it’s not that the big cap tech is doing bad but rather we are simply seeing a rotation of investing dollars out of stocks that have had a massive run higher and into the stocks that have been beaten up but might now show a big rebound when the consumer comes back into a more wide-open economy.

The big question is how long will money flow in that type of direction?

Fundamental Analysis

Some Wall Street insiders argue that big cap tech could remain out of favor until the economy fully restarts, gets back on its feet, we move back closer to full employment, and the Fed starts to give off a more hawkish vibe.

Fed officials have been very outspoken in their belief that prices may be higher for some things as we first ramp back up the economy but persistent inflation is not seen as a threat, particularly with unemployment numbers still so high.

Adding to investor anxieties on the inflation debate is the fact that longer-term interest rates continue to push higher. Fed Chair Jerome Powell didn’t have much luck calming the market or taking away the inflationary worries during his question-and-answer session but he really only repeated what the Fed has said for months – that the central bank will maintain low-interest rates and its bond purchases while also keeping inflation in check.

Wall Street investors are wanting to hear more specifics on how the bank plans to keep long-term borrowing rates from pushing higher and inflation from running hot.

Perhaps one curveball delivered last week that made inflationary concerns even worse was the surprise decision from OPEC to keep output “unchanged” which pushed crude oil prices higher.

Keep in mind, some energy market insiders had been forecasting a +1 million barrel per day increase coming down the pike .

Next week brings updates for two key inflationary metrics with the Consumer Price Index on Wednesday and the Producer Price Index on Friday. Headline CPI climbed in both December and January. However, core CPI, which strips out food and energy was unchanged during both months.

Investors also continue to monitor the U.S. vaccination campaign that seems to be gathering good momentum. The country is now on track to supply enough doses to every adult that wants one by May. From what I understand, the U.S. is now vaccinating an average of +2 million people a day, up from 1.3 million in early February, and steadily moving higher.

Technical analysis

As we previously discussed there is no clear direction based on cycles, seasonals, and Advance Decline Line. Nothing changed yet. However, we have 2 interesting ranges to watch. Breaking and holding below 3720 will signal deeper pullback. At the same time, if the price sustains above 3935, we can expect a new wave to the upside.

After the Senate passed a $1.9 trillion coronavirus relief package on Saturday I will not be surprised to see a gap up or short-term rally in SP500. Overall, till the price continues to trade in the neutral range 3720 – 3935, we can stick to day trading. Personally, I use Gann levels to identify sell and buy points on an intraday basis.

SP500 Forecast – Time for a Heavy Rotation?

Fundamental analysis

Another steep rise in 10-year Treasury yields is attracting a lot of blame for recent market weakness. There’s also an awful lot of money shifting and sloshing around right now as traders try to position themselves for the “reopening” economy, and these moves may actually be causing some of the spikes in bond yields as well as swings in other markets this week.

The current worry on Wall Street is that when the economy fully fires back up and local and state governments lift restrictions consumer spending habits are going to shift and change. People will start spending more money on fuel, daycare, more flights will be booked, more money spent at restaurants, concerts, etc… This money will have to flow out of somewhere. Will it be out of things like Zoom, Peloton, and other stay-at-home stocks?

Who really knows for sure, but we are seeing some fairly heavy rotation out of stocks that saw enormous growth in the “pandemic economy,” particularly tech companies and other crowded trades pushing steep valuations. Moreover, a lot of that money appears to be shifting into slower-growing “value” stocks where investors see greater potential for growth as the economy reopens. There’s also a lot of talk amongst old traders who had to work through the dot.com bubble bursting and the associated fallout. It’s not so much the fact we are referencing similarities between the tech companies but the fact the 911 terrorist attacks and massively higher fuel cost really exasperated that fallout in the market.

In other words, at this lofty level in the tech market what happens if we catch a couple of unforeseen negative macro events? I’m not saying anything negative will happen. But the bears are worried about a new administration in Washington some countries might try to flex their muscles or see if we are going to call any bluffs. With the market, this high bears like to point out how bad it will hurt if we take a big tumble. The economy itself continues showing signs of improvement with weekly jobless claims hitting the lowest levels since November. In other words, it is indicating the labor market is recovering from the brutal winter coronavirus surge that forced many businesses and cities to shut down again.

The big test comes next Friday with the Labor Departments February Employment Report. Moreover, the next week is actually packed with economic data, with other key releases including ISM Manufacturing and Construction Spending on Monday; ADP’s February Employment Report, ISM Non-Manufacturing, and the Fed’s Beige Book on Wednesday; Factory Orders on Thursday; and Consumer Credit on Friday.

On the earnings front, investors are eager to see results from Berkshire Hathaway. Most investors are even more excited to see the company’s annual shareholder letter, which is penned every year by legendary investor and Berkshire founder Warren Buffett. The 90-year old famously shares his thoughts on the year behind and ahead and passes along his well-earned wisdom.

It’s considered required reading by many of the world’s top investors. Also, earnings next week will bring several big names, including Zoom and Nio on Monday; AutoZone, Hewlett Packard, Kohls, Nordstrom, Ross Stores, and Target on Tuesday; Dollar Tree, Snowflake, and Vroom on Wednesday; and Broadcom, Burlington Stores, Costco, Gap, and Kroger on Thursday.

SP500 Forecast and Technical Analysis

Despite the sell-off, SP500 still trades in channel up. Taking into account the new stimulus package, I will not be surprised to see a gap up or bounce up at the beginning of this week. Also, the price touched MA50 on the daily chart. In other words, it is another indication of a possible bounce. However, that rally likely will be short-lived. Cycles, Advance-Decline Line, and Intermarket Forecast still point to the downside. So, we are not looking for swing longs yet. I want to pay your attention they are timing tools and don’t give any idea about amplitude or momentum. That is to say, we can see a deeper pullback or very choppy trading till May. I think the coming few sessions will form a pattern for short-term traders. So, let’s trade following basic price action.