‘Follow the Money’: Major Players Betting on Vaccinations to Keep Global Economy Afloat

The coronavirus is in the news again, not last year’s pandemic fueling COVID-19 version, but the fast-spreading Delta variant. While dominating the mainstream news in the United States (See CNN and FoxNews), and globally on business website such as CNBC, Reuters and Bloomberg, to name a few, we’re not really seeing a major impact on the financial markets.

This is interesting to note because the mainstream story is centered on rising infection numbers, the slow pace of vaccinations and what is likely to happen if countries don’t start clamping down on the spread of the virus. In other words, people’s health. Some experts are even calling it a “life or death” situation.

In the financial markets, obviously we’re not seeing the same reaction as we did in 2020 with stocks dropping 20% in a matter of weeks and crude oil testing prices below $20 a barrel. Instead we’re seeing a relative calm.

Is this telling us to “follow the money?” Is this telling us that since the situation is not as bad as last year, there is no need to panic? Are the financial markets indicating there is not enough information yet to understand the impact of this new outbreak? Do we wait for the bad economic numbers or do we anticipate them?

The answer is all of the above.

Of course, I don’t recommend putting your finances ahead of your health. I don’t think anyone is doing that. Traders are making their decisions on what they know at this time. Some are even basing their decisions on their belief in the vaccinations.

In this case, they feel that enough people are vaccinated so major economic shutdowns are warranted at this time. But we’ve seen different reactions all around the globe, which could be adding to the confusion over what to do. Lighten up on the long side? Buy more, start selling? Move to the sidelines?

I don’t think I am going to be able to answer any of these questions in this article, but if I had to center on one, I’d have to say “follow the money”. But I should add that I am vaccinated, so I may be biased.

Here’s What Others are Saying and Doing

Fed’s Powell Downplays Delta Variant’s Threat to the Economy

The spread of the COVID-19 delta variant is raising infections, leading some companies and governments to require vaccinations and raising concerns about the U.S. economic recovery, according to the AP.

But on Wednesday, Federal Reserve Chair Jerome Powell injected a note of reassurance, suggesting that the delta variant poses little threat to the economy, at least so far.

“What we’ve seen is with successive waves of COVID over the past year and some months now,” Powell said at a news conference, “there has tended to be less in the way of economic implications from each wave. We will see whether that is the case with the delta variety, but it’s certainly not an unreasonable expectation.”

“Dining out, traveling, some schools might not reopen,” he said. “We may see economic effects from some of that or it might weigh on the return to the labor market. We don’t have a strong sense of how that will work out, so we’ll be monitoring it carefully.”

More Corporations are Requiring Workers to Get Vaccinated ~ Axios

The federal government in May said that it is legal for companies to require employees to get vaccinated for coronavirus.

Google CEO Sundar Pichai sent an email to employees announcing that those going back to the office needed to be vaccinated. The company is also extending its work-from-home policy through October 18.

Facebook said that anyone going back to work in their U.S. campuses must be vaccinated.

Netflix is requiring that the casts for all of its U.S. productions be vaccinated, as well as everyone who comes in contact with them.

Drop in UK COVID-19 Cases Indicates Infections Surge May Be Past Peak ~ Reuters

Early last week, the UK added to the confusion when it reported its lowest daily total of new coronavirus cases since July 4, adding to signs that a recent surge in infections driven by the spread of the Delta variant may have passed its peak.

Sydney Readies for the Army as Lockdown Fails to Squash Australia Delta Outbreak ~ CNN

Sydney’s poorest neighborhoods on Friday braced for military enforcement of the city’s toughest and longest lockdown of the COVID-19 pandemic as the infection as the infection numbers held persistently high five weeks since restrictions began.

The situation appears to be so bleak in Australia that economists are already predicting a third quarter contraction.

Oil Climbs, Notches Fourth Monthly Gain on Growing Demand – Reuters

The crude oil market is interesting since it sold off sharply early in July when the Delta-variant story first broke. The biggest concern was demand destruction.

Since then, however, both WTI and Brent have recovered enough to post a fourth monthly gain, with demand growing faster than supply and vaccinations expected to alleviate the impact of a resurgence in COVID-19 infections across the world.

Conclusion

The best advice appears to be: bet on the vaccinations to work, keep monitoring the global economy especially output and labor and keep an eye on gasoline demand.

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

The Week Ahead – Economic Data, Monetary Policy, and COVID-19 in Focus

On the Macro

It’s quieter week ahead on the economic calendar, with 51 stats in focus in the week ending 6th August. In the week prior, 71 stats had also been in focus.

For the Dollar:

From the private sector, ISM Manufacturing and Non-Manufacturing PMIs for July will be in focus.

Expect the Non-Manufacturing PMI due out on Wednesday to have the greatest impact.

On the labor market front, ADP nonfarm employment change and weekly jobless claims figures on Wednesday and Thursday will also influence.

Nonfarm payrolls at the end of the week, however, will be the key stat of the week.

In the week ending 30th July, the Dollar Spot Index fell by 0.79% to 92.174.

For the EUR:

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

Private sector PMIs for Italy and Spain together with finalized numbers for France, Germany, and the Eurozone will influence.

Expect Italy and the Eurozone’s PMIs to be key in the week.

German and Eurozone retail sales figures will also influence, with consumption key to a sustainable economic recovery.

For the week, the EUR rose by 0.84% to $1.1870.

For the Pound:

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

Finalized private sector PMIs for July are due out on Monday and Wednesday.

Expect any revisions to the services PMI to have a greater impact in the week.

Construction PMIs also due out, should have a muted impact, however.

While the finalized numbers will influence, the Bank of England monetary policy decision on Thursday will be the main event.

Last week, the IMF talked up the outlook for the British economy. It now rests in the hands of the BoE.

The Pound ended the week up by 1.13% to $1.3904.

For the Loonie:

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

Trade data on Thursday and employment change figures on Friday will be the key numbers.

While trade figures will influence, expect the employment change figures to have a greater impact.

The Loonie ended the week up 0.71% to C$1.2475 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

Manufacturing sector data, building permits, retail sales, and trade data will be in focus.

Retail sales and trade data, due out on Wednesday and Thursday, will be the key stats of the week.

On the monetary policy front, however, the RBA monetary policy decision on Tuesday will be the main event.

The Aussie Dollar ended the week down by 0.30% to $0.7344.

For the Kiwi Dollar:

It’s a quiet week ahead. Mid-week, employment change figures will draw interest ahead of inflation expectation numbers on Friday.

With little else for the markets to consider in the week, expect both sets of numbers to provide direction. The markets are expecting a further pickup in inflationary pressures…

The Kiwi Dollar ended the week flat at $0.6974.

For the Japanese Yen:

Finalized private sector PMIs and Tokyo inflation figures will be in focus in the 1st half of the week.

Expect any revision to the PMIs to be of greater influence.

Late in the week, household spending figures will also draw interest.

The Japanese Yen rose by 0.75% to ¥109.720 against the U.S Dollar.

Out of China

It’s a busier day, with private sector PMIs to provide the markets with direction.

Following NBS numbers from the weekend, the market’s preferred Caixin manufacturing PMI will set the tone. Over the weekend, the NBS Manufacturing PMI fell from 50.9 to 50.4…

With service sector activity a greater component of the economy, Wednesday’s services PMI will also influence, however.

The Chinese Yuan ended the week up by 0.31% to CNY6.4614 against the U.S Dollar.

Geo-Politics

Russia and China continue to be the main areas of interest for the markets. News updates from the Middle East will also need continued monitoring…

The Weekly Wrap – A Dovish FED and Weak Stats Left the Greenback in the Red

The Stats

It was a busy week on the economic calendar, in the week ending 30th July.

A total of 71 stats were monitored, which was up from 33 stats in the week prior.

Of the 71 stats, 37 came in ahead forecasts, with 30 economic indicators coming up short of forecasts. There were 4 stats that were in line with forecasts in the week.

Looking at the numbers, 42 of the stats reflected an upward trend from previous figures. Of the remaining 29 stats, 27 reflected a deterioration from previous.

For the Greenback, disappointing economic data and a dovish FED left the Dollar in the red. The Dollar Spot Index fell by 0.79% to 92.174. In the previous week, the Dollar had risen by 0.24% to 92.906.

Out of the U.S

Consumer sentiment and durable goods orders drew attention early in the week.

In June, durable goods orders ex transportation rose by 0.3%, following a 0.5% increase in May.

More significantly was a pickup in consumer confidence in July. The CB Consumer Confidence Index rose from 128.9 to 129.1. Economists had forecast a decline to 126.0.

On Thursday, jobless claims and 2nd quarter GDP numbers were in focus. The stats were skewed to the negative, however.

In the 2nd quarter, the U.S economy grew by 6.5%. This fell well short of a forecasted growth of 8.5%.

Jobless claims also fell short of expectations, with initial jobless claims falling from 424k to 400k. Economists had forecast a decline to 370k.

At the end of the week, personal spending and inflation figures came in ahead of forecasts, however.

Personal spending rose by 1.0% in June, with the annual rate of inflation seeing a pickup from 3.4% to 3.5%.

While the stats were material, the FED monetary policy and press conference were the main events of the week.

In line with market expectations, the FED left policy unchanged. The FED Chair also looked to assure the markets that there would be no near-term moves, the guidance considered dovish.

Out of the UK

It was a particularly quiet week. There were no major stats for the markets to consider in the week.

The lack of stats left the Pound in the hands of IMF economic growth forecasts, which delivered Pound support.

In the week, the Pound rose by 1.13% to end the week at $1.3904. In the week prior, the Pound had fallen by 0.14% to $1.3748.

The FTSE100 ended the week up by 0.07%, following a 0.28% gain from the previous week.

Out of the Eurozone

Through much of the week, the German economy was in focus.

Business and consumer sentiment figures delivered mixed results. While business sentiment waned in July, consumer confidence remained unchanged, in spite of the reopening of economies.

Unemployment figures from Germany were upbeat. The unemployment fell from 5.9% to 5.7% in July.

Inflationary pressures continued to surge, however, with Germany’s annual rate of inflation accelerating in July to 3.8%.

At the end of the week, 1st estimate GDP numbers and prelim inflation figures were the key stats of the week.

Quarter-on-quarter, the French economy grew by 0.9% versus a forecasted 0.7% in the 2nd quarter.

Germany saw growth of 1.5%, falling short of a forecasted 1.9%. In the 1st quarter, the economy had contracted by 2.1%.

For the Eurozone, the economy grew by 2.0%, coming in ahead of a forecasted 1.5%. The economy had contracted by 0.3% in the previous quarter.

Inflation also ticked up, aligned with member state numbers. According to prelim figures, the Eurozone’s annual rate of inflation accelerated from 1.9% to 2.2% in July, rising above the ECB’s 2% target.

For the week, the EUR rose by 0.84% to $1.1870. In the week prior, the EUR had fallen by 0.30% to $1.1771.

The DAX30 fell by 0.67%, while the CAC40 and the EuroStoxx600 ended the week up by 0.67% and by 0.05% respectively.

For the Loonie

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

Inflation and GDP numbers were the key stats of the week.

In June, the annual rate of inflation softened from 2.8% to 2.7%, bucking the trend seen across key economies.

The Canadian economy also continued to struggle in May, with the economy contracting by 0.3%. The economy had contracted by 0.5% in April.

In the week ending 30th July, the Loonie rose by 0.71% to C$1.2475. In the week prior, the Loonie had risen by 0.39% to C$1.2564.

Elsewhere

It was a mixed week for the Aussie Dollar and the Kiwi Dollar.

While the Aussie Dollar fell by 0.30% to $0.7344, the Kiwi Dollar ended the week flat at $0.6974.

For the Aussie Dollar

Inflation was the main area of focus. The stats were mixed, however, pegging the Aussie Dollar back.

In the 2nd quarter, the annual rate of inflation surged from 1.1% to 3.8%. The trimmed mean rate of inflation picked up from 1.1% to 1.6%, however.

Wholesale inflation also saw a pickup but at a softer pace than anticipated.

Australia’s annual wholesale rate of inflation ticked up from 0.2% to 2.2%. Economists had forecast a rate of 3.5%.

For the Kiwi Dollar

It was a busier week, with trade and consumer and business confidence in focus.

Trade data disappointed, with the trade surplus narrowing from NZ$498m to NZ$261m in June. The narrowing stemmed from a more marked increase in imports, however, rather than a fall exports, which limited the damage.

Business and consumer confidence figures were also skewed to the negative. The ANZ Business Confidence Index fell from -0.60 to -3.80, with the ANZ Consumer Confidence Index falling from 114 to 113.1.

The week numbers were not enough to sink the Kiwi.

For the Japanese Yen

It was another relatively busy week.

Early in the week, private sector PMIs were in focus. Later in the week industrial production and retail sales also drew attention on Friday.

While prelim private sector PMIs softened slightly in July, industrial production and retail sales impressed.

Industrial production jumped by 6.2% in June, reversing a 6.5% slide from May. More significantly, retail sales increased by 3.1%, reversing a 0.4% decline from May.

The Japanese Yen rose by 0.75% to ¥109.72 against the U.S Dollar. In the week prior, the Yen had fallen by 0.44% to ¥110.550.

Out of China

It was a quiet week on the economic data front. There were no major stats from China for the markets to consider.

In the week ending 30th July, the Chinese Yuan rose by 0.31% to CNY6.4614. In the week prior, the Yuan had ended the week down by 0.03% to CNY6.4813.

The CSI300 and the Hang Seng ended the week down by 4.98% and by 5.46% respectively.

NASDAQ Bearish Divergence, Amazon’s After-Hour Losses Weighing on US Futures Overnight

U.S. stock index futures are down sharply in Friday’s pre-market session as a disappointing earnings report from Amazon.com threatened to dampen an otherwise strong month ahead of July’s final day of trading. The early price action has put the major futures indexes in a position to post a potentially bearish closing price reversal top. If confirmed, this could mean a weak start to August.

Early Trading Results

At 04:41 GMT, September E-mini S&P 500 Index futures are trading 4378.25, down 33.50 or -0.76%. September E-mini Dow Jones Industrial Average futures are at 34863, down 111 or -0.32% and September E-mini NASDAQ-100 Index is trading 34861, down 113 or -0.32%.

Possible Bearish Divergence

On Thursday, the S&P 500 Index and the Dow Jones Industrial touched record highs but the NASDAQ Composite underperformed. This created a divergence in the major indexes, suggesting weakness in the technology sector.

Weighing on the tech-heavy NASDAQ Composite during the regular session were shares of Facebook, which tumbled 4% after the social media company’s earnings report.

A disappointing IPO from online brokerage firm Robinhood helped cap NASDAQ’s gains throughout the regular session. The stock opened at $38 per share on Thursday, but eventually closed its debut session more than 8% lower at $34.82 per share.

The weakness carried over into the after-hours and pre-market sessions after e-commerce giant Amazon and social media platform Pinterest released their earnings reports to investors.

Amazon equity sank 7.4% in extended trading after it reported its first quarterly revenue miss in three years and gave weaker guidance. The move in Amazon’s stock helped weigh on NASDAQ-100 futures. Pinterest fell even further, down 19%, after saying it lost monthly users during the three months ended June 30.

Thursday Recap

Thursday’s positive session came despite a government report that showed U.S. second-quarter gross domestic product accelerated 6.5% on an annualized basis, considerably less than the 8.4% Dow Jones estimate. Meanwhile, weekly initial claims surprisingly came in higher-than-expected.

Helping to underpin the markets was the Fed news from late Wednesday. Many investors were relieved that the Federal Reserve signaled no imminent plans for dialing back asset purchases.

Fed Chairman Jerome Powell also noted that while the economy has come a long way since the COVID-19 recession, it still has a ways to go before the central bank considers adjusting its easy-money policies.

Near-Term Outlook

The bearish divergence between the NASDAQ and the other major indexes could be an early sign that a major top is forming. If the tech-heavy NASDAQ trades sharply lower, it will drag the technology sector of the S&P 500 with it. The Dow is not likely to feel as much pain since it is tech unweighted.

The U.S. stock markets could be facing several near-term headwinds including summer vacation until after the U.S. Labor Day holiday. This would lead to low volume trading sessions. Overvaluation is another concern as well as the coronavirus outbreak.

One major concern is that investors won’t have a clue as to what the Fed is planning to do about tapering until it meets on September 21-22.

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

Asia-Pacific Markets Called Higher on Opening as Investors Hope to Ride Wall Street’s Bullish Wave

A strong performance on Wall Street on Thursday and a rebound in Hong Kong the previous session following a steep plunge earlier in the week is expected to lead to stronger openings in the Asia-Pacific region on Friday.

In the U.S., the major stock indexes rose to record levels as investors shrugged off economic data pointing toward slower-than-expected growth. Investors also showed a delayed reaction to dovish news from the Federal Reserve the previous session.

Many investors were relieved that the Federal Reserve signaled no imminent plans for dialing back asset purchases. Fed Chairman Jerome Powell cautioned that although the economy is making progress towards its goals, it has a ways to go before the central bank would actually adjust its easy policies.

In economic news, U.S. second-quarter gross domestic product accelerated 6.5% on an annualized basis, considerably less than the 8.4% Dow Jones estimate.

Meanwhile, a separate data point showed that 400,000 people filed initial claims for unemployment benefits for the week ended July 24. That level is nearly double the pre-pandemic norm and above a Dow Jones estimate of 385,000.

Asia-Pacific Investors Hoping to Feed Off Wall Street’s Gains

Asia-Pacific investors are hoping to build on gains from Thursday fueled by a rebound in Hong Kong from a two-day slump earlier in the week and after the U.S. Federal Reserve left its benchmark interest rate near zero.

On Thursday, Hong Kong’s Hang Seng Index jumped 3.3% to close at 26,315.32. The index had dived more than 8% over two days early this week.

Meanwhile, Chinese tech stocks in Hong Kong, which were hit hard by the market rout earlier in the week, soared. Shares of Tencent jumped 10.02% while Alibaba gained 7.7% and Meituan climbed 9.49%. The Hang Seng Tech Index soared 8% to 6,958.77.

Helping to ease concerns in the region was the news that China’s securities regulators told brokerages late Wednesday that the country will allow Chinese firms to go public in the U.S. as long as they meet listing requirements, a source familiar with the matter told CNBC.

Traders should pay particular attention to the Australian stock market. Prices should firm because of strength in the energy and gold sectors due to strong gains on Thursday. Crude oil futures settled 1.41% higher. Gold futures posted a 1.54% gain.

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

Today’s Market Wrap Up and a Glimpse Into Friday

Stocks finished the day in the green after investors were able to brush off signs that the economic recovery may have hit a snag. The Dow Jones Industrial Average tacked on more than 150 points, while the S&P 500 and tech-heavy Nasdaq also inched higher. The market indices showed resilience even as the delta variant threatens to throw a wrench into economic expansion for the rest of the year.

Second-quarter GDP expanded at an annual rate of 6.5%, which catapults the economy beyond pre-COVID levels but falls short of estimates. Meanwhile, the forecast for the rest of the year could be threatened by the uncertainty from the delta variant. Companies have responded by delaying the return to the office or in some cases reinstating mask policies for consumers. It’s déjà vu all over again.

Investors were able to focus on the glass half full. For example, consumer spending and corporate earnings have been bright spots of late. Meanwhile, supply chain issues seem to be a stumbling block.

Stocks to Watch

Amazon reported its Q2 results, and the stock sank 5% in after-hours trading. While the e-commerce giant reported revenue of slightly more than USD 113 billion, Wall Street analysts were looking for USD 115 billion. Amazon’s revenue outlook for Q3 also falls below consensus estimates, and the stock is being punished. The latest quarterly performance unfolded just before Jeff Bezos was replaced as CEO by Andy Jassy earlier this month.

Pinterest is also under pressure in extended-hours trading, falling 14%. The company fell short on its number of monthly active users, which came in at 454 million compared to estimates of 482 million. This indicator could also come back to bite Pinterest in Q3, for which management failed to provide any forecast and blamed the pandemic.

Robinhood’s IPO was a flop after the stock fell more than 8% on its first day of trading on the Nasdaq. The trading app’s shares opened at USD 38 and finished the day at just under USD 35. Robinhood sought to appeal to retail investors but was in for a rude awakening. The broker finished the day with a market cap of USD 29 billion.

Look Ahead

On the economic front, Personal Income & Spending for the month of June comes out on Friday. Wells Fargo economists predict that income fell 0.2% while spending increased 2% vs. May levels. The weaning away of the stimulus is pressuring incomes.

S&P 500, Dow Scale All-Time Highs as Economy Picks Up Pace

By Sagarika Jaisinghani

Ford Motor Co jumped 5.9% to hit a more than three-week high as it lifted its profit forecast for the year.

Industrials Boeing Co and Caterpillar Inc, and banks including JPMorgan Chase & Co, Bank of America Corp and Citigroup Inc gained between 0.4% and 1%, a day after the Federal Reserve said it was not yet time to start withdrawing its massive pandemic-era monetary stimulus.

The central bank’s comments also assuaged fears that a rise in cases of the Delta variant would hurt a solid U.S. economic rebound. Data on Thursday showed gross domestic product increased at a 6.5% annualized rate in the second quarter, while jobless claims fell to 400,000 for the week ended July 24.

“What really stands out (in the GDP data) is consumption; it really means that consumers are carrying the economy,” said Peter Cardillo, chief market economist at Spartan Capital Securities.

Trading on Wall Street in the past few months has also been dictated by rising inflation, and fears that higher prices would not be as transient as expected have recently knocked the benchmark S&P 500 off record highs.

Investors are now focused on the June reading of the personal consumption expenditures price index – the Fed’s main inflation measure, which is due on Friday.

“Once we have normalized our supply chains, there won’t be much of this inflation pressure, which can be achievable in the next six months, but the spread of the Delta variant is a wild card, which could derail the recovery process,” said Arthur Weise, chief investment officer at Kingsland Growth Advisors.

At 9:42 a.m. ET, the Dow Jones Industrial Average was up 0.49%, the S&P 500 was up 0.44%, and the Nasdaq Composite was up 0.36%.

Trading in the shares of technology behemoths Apple Inc, Amazon.com Inc, Netflix Inc and Google-parent Alphabet Inc was muted.

The group has tended to underperform the broader market during times of economic optimism, when investors prefer stocks such as mining and energy, which are expected to benefit more from a steady business recovery.

 

Graphic: U.S. reflation trade hurts Nasdaq, lifts Dow: https://fingfx.thomsonreuters.com/gfx/mkt/zjpqkqakwpx/Pasted%20image%201627564664970.png

 

Facebook Inc fell 3.2% as it warned revenue growth would “decelerate significantly” following Apple’s recent update to its iOS operating system that would impact the social media giant’s ability to target ads.

KFC-owner Yum Brands Inc, on the other hand, gained 3.8% after beating expectations for quarterly sales.

China’s Didi Global jumped 14.4% after a report said it was considering going private to placate Chinese authorities and compensate investor losses since the ride-hailing firm listed in the United States. Didi denied what it called a “rumor” that it could go private.

Focus later in the day will be on shares of Robinhood Markets Inc, which is scheduled to start trading on the Nasdaq under the ticker “HOOD” after the company raised $2.1 billion in its initial public offering on Wednesday.

Advancing issues outnumbered decliners 3.36-to-1 on the NYSE and 2.52-to-1 on the Nasdaq.

The S&P index recorded 40 new 52-week highs and one new low, while the Nasdaq recorded 46 new highs and 10 new lows.

(Reporting by Sagarika Jaisinghani, Sruthi Shankar and Shashank Nayar in Bengaluru; editing by Uttaresh.V and Aditya Soni)

Fed Nothingburger, Dollar Lower, Focus on GDP, PCE

It was a rather pedestrian FOMC Statement day on Wednesday. There is GDP data incoming, and the widely Fed-followed Core PCE Price Index data comes out on Friday. What can we take away from the FOMC Statement and press conference?

Rates unchanged. No rush to raise interest rates. Inflation should persist.

No surprises here.

However, there was some notable price action in the US Dollar Index during Wednesday’s session. The US Dollar Index initially rose on the FOMC statement at 2:00 PM. During the press conference, the USD fell as Fed Chair Jerome Powell mentioned that inflation should persist for several months. It is noteworthy price action and can be a forward-looking indicator for the direction of other asset prices.

First, let’s take a look at the daily chart of the $DXY:

Figure 1 – US Dollar Index November 1, 2020 – July 28, 2021, Daily Candles Source stockcharts.com

As we know, the US Dollar has been in a longer-term downtrend. The repeating pattern has been lower daily highs. Short the dollar was a heavily crowded trade recently that we examined and discussed. After reaching oversold conditions, a quick bounce occurred. However, with no rush to raise interest rates and Fed open market operations continuing, the $DXY could try the downside once again. This downward move could impact the prices of commodities even further to the upside. There is a key Fibonacci level that was not quite reached in the index on its last downside attempt (near $88.41).

Figure 2 – US Dollar Index July 28, 2021 – July 28, 2021, 1-minute Candles Source stooq.com

I find value in this type of analysis; when you can take a daily/longer-term trend/outlook and then take an intraday peek on a day such as a Fed day. I would have guessed that the market would be factoring in further inflation already. However, based on the $DXY behavior intraday, it appears that the US Dollar may want to get set to go and retest the recent low near $89.50.

GDP Data, Core PCE

On Thursday morning, we are getting GDP (q/q), and on Friday morning we will get the Core PCE data. GDP can be a market mover, and the Fed does like to monitor the PCE data for inflation signals.

As the US Dollar may weaken some, a place to park some cash could be in the UDN – Invesco DB US Index Bearish ETF. I wouldn’t expect any home runs here; the ETF is unleveraged, but a 2 – 3% pop could be in the cards here if the $DXY wants to test its recent lows.

Figure 3 – Invesco DB US Dollar Index Bearish Fund – September 4, 2020 – July 28, 2021, Daily Candles Source stockcharts.com

UDN is doing its job rather well and is inversely tracking the US Dollar Index at an efficient rate. Other traders could use the $DXY product on ICE if their accounts are enabled for it. ICE passes through the monthly fee for its products to retail traders (somewhere in the neighborhood of $110 per month) to trade these products and receive quotes.

So, using UDN can give traders some pure exposure to a dollar decline. We will be eyeballing the $21.48 – $21.64 levels as potential TP targets for now. Levels and sentiment can change quickly, so stay tuned!

Now, for our premium subscribers, let’s review the other markets that we are covering. Not a Premium subscriber yet? Go Premium and receive my Stock Trading Alerts that include the full analysis and key price levels.

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Thank you.

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

Rafael Zorabedian
Stock Trading Strategist

Sunshine Profits: Effective Investment through Diligence & Care

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This content is for informational and analytical purposes only. All essays, research, and information found above represent analyses and opinions of Rafael Zorabedian, and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. You should not construe any such information or other material as investment, financial, or other advice. Nothing contained in this article constitutes a recommendation, endorsement to buy or sell any security or futures contract. Any references to any particular securities or futures contracts are for example and informational purposes only. Seek a licensed professional for investment advice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Information is from sources believed to be reliable; but its accuracy, completeness, and interpretation are not guaranteed. Although the information provided above is based on careful research and sources that are believed to be accurate, Rafael Zorabedian, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. Mr. Zorabedian is not a Registered Investment Advisor. By reading Rafael Zorabedian’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Trading, including technical trading, is speculative and high-risk. There is a substantial risk of loss involved in trading, and it is not suitable for everyone. Futures, foreign currency and options trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment when trading futures, foreign currencies, margined securities, shorting securities, and trading options. Risk capital is money that can be lost without jeopardizing one’s financial security or lifestyle. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Rafael Zorabedian, Sunshine Profits’ employees, affiliates, as well as members of their families may have a short or long position in any securities, futures contracts, options or other financial instruments including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice. Past performance is not indicative of future results. There is a risk of loss in trading.

 

E-mini Dow Jones Industrial Average (YM) Futures Technical Analysis – 34862 Pivot Determines Intraday Trend

September E-mini Dow Jones Industrial Average futures are inching higher in a slow overnight session early Thursday after the U.S. Federal Reserve concluded its two-day meeting yesterday afternoon without revealing when or how it would move on tapering its massive bond purchases.

The price action suggests a tired, top-heavy market that may be overvalued and ripe for a near-term correction.

With the Federal Open Market Committee (FOMC) not meeting again until September 21-22 stock market traders starving for guidance will have to rely on economic reports and Fed Speaker chatter for guidance. This will give them an excuse to take their summer vacations in August before returning after Labor Day. This could create mountains of volatility throughout the month.

At 05:24 GMT, September E-mini Dow Jones Industrial Average futures are trading 34853, up 19 or +0.05%.

In stock related news, Dow component McDonald’s reported on Wednesday that the chain’s Crispy Chicken Sandwich helped U.S. same-store sales outpace 2019 levels by double digits. U.S. same-store sales climbed 25.9% in the quarter and 14.9% on a two-year basis.

Earnings per share for the fast-food giant came in at $2.37 adjusted versus $2.11 expected and revenue was $5.89 billion versus $5.60 billion expected.

Additionally, Dow component Boeing reported its first quarterly profit in almost two years on Wednesday, boosted by a surge in deliveries of commercial jetliners as airlines began recovering from a pandemic slump and higher sales in the company’s other divisions.

The plane manufacturer snapped six consecutive quarters of losses, swinging to a profit of $567 million for the second quarter from a net loss of $2.96 billion in the quarter a year ago as air travel was plunging early in the pandemic.

Daily September E-mini Dow Jones Industrial Average

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 35072 will signal a resumption of the downtrend. A move through 33623 will change the main trend to down.

The minor trend is also up. A trade through 34652 will change the minor trend to down. This will shift momentum to the downside.

The minor range is 35072 to 34652. The Dow is currently straddling its pivot at 34862 for a third session.

The short-term range is 33623 to 35072. If the minor trend changes to down then look for a break back to its retracement zone at 34348 to 34177.

Daily Swing Chart Technical Forecast

The direction of the September E-mini Dow on Thursday is likely to be determined by trader reaction to the pivot at 34862.

Bullish Scenario

A sustained move over 34862 will indicate the presence of buyers. If this move is able to generate enough upside momentum then look for buyers to make a run at the 35072 record high.

Bearish Scenario

A sustained move under 34862 will signal the presence of sellers. This could create the momentum needed to challenge the minor bottom at 34652. This is a potential trigger point for an acceleration to the downside with the first major target the short-term retracement zone at 34348 to 34177.

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

E-mini Dow Jones Industrial Average (YM) Futures Technical Analysis – Trader Reaction to 34862 Pivot Sets Tone

September E-mini Dow Jones Industrial Average futures are trading lower shortly before the mid-session on Wednesday as investors shrug off earnings reports ahead of the Federal Reserve’s monetary policy statement at 18:00 GMT.

Investors are eager to get an update on the central bank’s plans to start trimming its bond purchases, the first major step in tightening policy. Many Fed watchers expect that the spreading coronavirus delta variant will make the central bank sound more cautious on its economic outlook.

At 15:09 GMT, September E-mini Dow Jones Industrial Average futures are trading 34900, down 53 or -0.15%.

In stock related news, Dow component Boeing shares climbed about 5% after the manufacturer posted its first profit since the third quarter of 2019 thanks to a rebound in aircraft deliveries.

Other tech-related components were mixed. Apple shares dipped 0.4% after CEO Tim Cook warned that silicon “supply constraints” will affect sales of the iPhone as well as the iPad. The company did beat top- and bottom-line estimates and said its iPhone sales surged 50% year over year.

On the other hand, Microsoft saw its shares rise 1% after reporting an earnings beat despite a dip in revenue from its Windows division.

Daily September E-mini Dow Jones Industrial Average

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 35072 will signal a resumption of the uptrend. A move through 33623 will change the main trend to down.

The minor trend is also up. A trade through 34652 will change the minor trend to down. This will also shift momentum to the downside.

The minor range is 34652 to 35072. The Dow is currently straddling its pivot at 34862.

The short-term range is 33623 to 35072. If the minor trend changes to down then look for the selling to possibly extend into its retracement zone at 34348 to 34177.

Daily Swing Chart Technical Forecast

The direction of the September E-mini Dow Jones Industrial Average on Wednesday is likely to be determined by trader reaction to the pivot at 34862.

Bullish Scenario

A sustained move over 34862 will indicate the presence of buyers. If this move is able to generate enough upside momentum then look for the rally to possibly extend into the record high at 35072.

Bearish Scenario

A sustained move under 34862 will signal the presence of sellers. This move could create enough downside momentum to challenge the minor bottom at 34652.

Taking out 34652 will change the minor trend to down. This could trigger an acceleration to the downside with the next target zone the short-term retracement area at 34348 to 34177.

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

Google Lifts Nasdaq as Focus Turns to Fed

By Sagarika Jaisinghani and Sruthi Shankar

Alphabet Inc shares rose 3.8% to an all-time high as a surge in advertising spending helped it post record quarterly results, although the Nasdaq’s gains were capped by a forecast of slowing revenue growth from Apple Inc.

Wall Street’s main indexes have scaled record highs this month on hopes of stellar corporate results amid a broader economic recovery, but the pace of gains has slowed recently due to a deepening regulatory crackdown in China and fears of a quicker-than-expected tapering of monetary policy.

All eyes on Wednesday will be on the outcome of the Federal Reserve’s two-day meeting, with investors looking for comments on how the double whammy of rising inflation and a spike in COVID-19 cases would impact the central bank’s plan to potentially start withdrawing its stimulus.

“The Fed might taper towards the end of this year, but we expect it to not hike rates at least until the end of 2022,” said Sam Stovall, chief investment strategist at CFRA Research in New York.

“We think inflation will gradually come down towards the end of this year, but still would remain above the Federal Reserve’s target.”

The June reading of the personal consumption expenditures price index – the Fed’s main inflation measure – is due on Friday.

The Nasdaq Composite was up 0.31% by 9:55 a.m. ET, after posting its worst session in more than two months on Tuesday.

The Dow Jones Industrial Average was down 0.08%, shrugging off a 4.8% jump in Boeing Co following the company’s first quarterly profit in almost two years.

The benchmark S&P 500 was down 0.07%.

 

Graphic: Alphabet, Facebook lead tech behemoths in 2021: https://fingfx.thomsonreuters.com/gfx/mkt/zjvqkqnkmvx/Pasted%20image%201627477653445.png

 

Microsoft Corp edged 0.1% higher as a boom in cloud services helped it beat Wall Street expectations for revenue and earnings.

Facebook Inc, which competes with Google in web ad sales and is slated to report results late on Wednesday, rose 0.7%.

In other sectors, Starbucks Corp fell 3.1% after it lowered its fiscal 2021 forecast for China sales growth, while Pfizer Inc rose 1.7% as it raised its outlook for full-year sales of the COVID-19 vaccine.

Payment company Visa Inc slipped 0.6% despite beating estimates for quarterly profit.

As of July 23, analysts expected earnings at S&P 500 firms to have jumped 78.1% in the second quarter, compared with their estimate of 65.4% growth on July 1.

Advancing issues outnumbered decliners 1.58-to-1 on the NYSE and 2.63-to-1 on the Nasdaq.

The S&P index recorded 24 new 52-week highs and no new lows, while the Nasdaq recorded 18 new highs and 27 new lows.

(Reporting by Sruthi Shankar, Sagarika Jaisinghani and Shashank Nayar in Bengaluru; editing by Uttaresh.V, Aditya Soni)

Boeing Posts First Quarterly Profit Since 2019

Dow component Boeing Co. (BA) is trading at a two-week high in Wednesday’s pre-market after posting the first profit since the third quarter of 2019. The aerospace giant earned $0.40 per-share in Q2 2021, $1.12 higher than estimates, while $44 billion in revenue matched expectations, marking a 44.0% year-over-year increase. The total backlog at the end of the quarter stood at a respectable $363 billion while the company secured new orders for 234 737 airliners and 31 freighter aircraft.

Airline Industry Crosswinds

The 737 MAX is returning to the friendly skies at a rapid pace, with the delivery of more than 130 new aircraft and more than 190 previously grounded aircraft resuming service, translating into nearly 95,000 revenue flights and more than 218,000 flight hours. The company release said little about the potential impact of the Delta variant on the commercial airline industry but that’s likely to be discussed in the 10:30am Eastern conference call.

However, its isn’t all good news for Boeing, with China still withholding certification of the MAX and 787 production delays needed to address FAA mandated inspections and reworking. In addition, business travel is expected to recover at a much slower pace than leisure travel, with the Delta variant forcing many corporations to put off reintegration plans at the same time that international destinations rethink their customs requirements.

Wall Street and Technical Outlook

Wall Street consensus is mixed despite the return of the MAX 737, with an ‘Overweight’ rating based upon 11 ‘Buy’, 2 ‘Overweight’, 11 ‘Hold’, and 2 ‘Sell’ recommendations. Price targets currently range from a low of $200 to a Street-high $314 while the stock is set to open Wednesday’s session more than $40 below the median $272 target. This placement favors share gains in coming weeks, possibly dampened by continued pandemic headwinds.

Boeing posted an all-time high at 446 in 2019, just before the 737 MAX crashed in Ethiopia. The subsequent decline accelerated in the first quarter of 2020, dropping price to a 7-year low in double-digits, ahead of an uptick that ran into a buzzsaw of resistance above 200. Price action since December has tested the 200-day moving average repeatedly while accumulation has dropped to the lowest low since September 2020, when the stock was trading in the 160s. Given uncertain travel conditions, this sideways action could easily persist into 2022.

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

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

GameStop to Rebrand EB Games in Canada by Year-End

Grapevine, Texas-based GameStop had acquired EB Games’ owner Electronic Boutique Holdings Corp in 2005 for more than $1 billion.

EB has about 4,000 stores across Canada, with operations in Australia, New Zealand, and countries across Europe, according to its LinkedIn page https://bit.ly/3iOKO7a.

“This decision follows our receipt of feedback from our valued customers and stockholders,” GameStop said.

The company has been looking to shift its focus from brick-and-mortar sales and accelerate its e-commerce push. Its largest shareholder, Ryan Cohen, joined its board in January and became chairman last month with a plan to revive stores and boost online sales.

Separately, S&P Dow Jones Indices said on Tuesday that GameStop — one of the hottest and most visible “meme stocks” — will join the S&P MidCap 400 index next week

(Reporting by Eva Mathews in Bengaluru; editing by Uttaresh.V)

Asia Shares Sit at 2021 Lows Ahead of Fed Decision, China Steadies

By Alun John

MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.91%, though markets in Hong Kong and mainland China saw milder losses after a sharp sell-off in the previous sessions.

U.S. stock futures, the S&P 500 e-minis, were down 0.26%, pan-region Euro Stoxx 50 futures dropped 0.11%, and FTSE futures fell 0.3%.

Asian shares have fallen in each of the three previous sessions as broadening regulatory crackdowns in China roiled stocks in the technology, property and education sectors, leaving international investors bruised.

Chinese state-run financial media urged calm on Wednesday morning, and while Chinese shares swung back and forth in early trading, they did not repeat the sharp plunges seen earlier in the week.

Chinese blue chips were last 0.46% lower, having had a volatile day, and the Hong Kong benchmark gave up early gains to fall 0.82%. Both were pinned around eight-month lows.

The embattled Hang Seng Tech Index also gave up early gains to fall 0.4%, a day after touching its lowest level since the index’s creation in July 2020. It is down over 40% from its February high.

Japan’s Nikkei slid 1.73%, with shares in SoftBank Group, a major investor in Chinese tech, falling 4.7%.

“China and the Fed are the two key things for today,” said Tai Hui, chief market strategist for Asia Pacific, at JPMorgan Asset Management.

“We are still trying to digest the news from China, what’s going to be new is how the Fed view the latest round of (COVID-19) infections and whether they need to readjust their view,” he said.

The statement from the Fed policy meeting is due at 2 p.m. EDT (1800 GMT), with a news conference by Chairman Jerome Powell expected a half hour later.

Markets will be watching closely for any hints on when the Fed will start reducing its purchases of government bonds and any fresh insight into its views on inflation and economic growth.

The declines in Asian equities on Tuesday spread to other markets overnight, causing Wall Street to retreat a little from the record highs set earlier in the week.

The Dow Jones Industrial Average ended Tuesday down 0.2%, the S&P 500 shed 0.5% and the Nasdaq Composite slid 1.2%. [.N]

After the U.S. close, Google parent Alphabet Inc, Microsoft, and Apple all reported record quarterly earnings, though the smartphone maker’s shares slid in after-hours trading on the back of a slower growth forecast.

In currency markets, things were fairly quiet in Asian trading hours, with the U.S. dollar sitting below recent highs after a month-long rally.

The safe-haven yen held onto earlier gains and the risk-sensitive Australian and New Zealand dollars dropped back, but while analysts at CBA attributed the earlier moves to falling risk sentiment on the back of the Chinese regulatory crackdown, they said market participants were now turning their attention to the Fed.

The yield on benchmark 10-year Treasury notes was little changed from the U.S. close at 1.236% compared to 1.234%.

Oil prices rose as industry data showed U.S. crude and product inventories fell more sharply than expected last week, outweighing worries that surging COVID-19 cases would curb fuel demand. U.S. crude rose 0.56% to $72.05 a barrel and Brent crude rose 0.36% to $74.81 per barrel. Gold strengthened, with spot prices above the key psychological level of $1,800, while Bitcoin rose around 1.3%, trading either side of $40,000.

(Editing by Ana Nicolaci da Costa and Kim Coghill)

US Stock Index Futures Flat as Investors Eye Asia Markets Ahead of Fed Decisions, Earnings Reports

U.S. stock index futures are trading nearly flat in the pre-market session early Wednesday after retreating from record highs reached the previous session. Tuesday’s lower close snapped a five-day winning streak in both the cash and futures markets as the highly anticipated tech-heavyweight earnings reports released after the close failed to move the needle much.

At 02:52 GMT, September E-mini S&P 500 Index futures are trading 4398.00, up 3.50 or +0.08%. September E-mini Dow Jones Industrial Average futures are at 34952, down 1 or -0.00% and the September E-mini NASDAQ-100 Index is trading 14948.50, up 0.25 or +0.00%.

During the overnight session, the focus is being spread between the after-market earnings reports from Alphabet, Microsoft and Apple, Wednesday’s reports from Pfizer, McDonald’s, Qualcomm, Facebook, Ford and PayPal, the turmoil in China due to the country’s crackdown on technology firms and the Federal Reserve’s monetary policy decisions.

Tuesday’s Recap

The major U.S. equity markets fell from record highs on Tuesday as a sell-off in Chinese shares, economic growth concerns and the Federal Reserve’s policy meeting put investors on guard and drove profit-taking.

Unsettled by events in China overnight, where share prices skidded on concerns about the impact of a recent tightening in government regulations, global stock markets pulled back on Tuesday as volatility spiked.

In other developments, a host of megacap tech names reported quarterly results on Tuesday after the U.S. market closed, including Apple, which beat top- and bottom-line estimates and said iPhone sales jumped 50% year over year. Google-parent Alphabet also posted quarterly results, registering a 69% jump in advertising revenue, while Microsoft beat earnings despite a dip in revenue from its Windows division.

Wednesday’s Outlook

Investors are likely monitoring new developments in Asia early Wednesday since steep declines in the region were one of the reasons U.S. investors used to book profits the previous session.

In morning trading on Wednesday, Hong Kong’s Hang Seng Index is down 0.28% after an earlier jump of more than 1%. Chinese tech stocks in Hong Kong, among the hardest hit in the recent sell-off, were mixed in Wednesday’s morning trade.

On Wednesday, the Federal Open Market Committee will release a statement followed by remarks from Chairman Jerome Powell during a press conference.

Investors aren’t expecting any major developments at this meeting, but they do expect the Fed to say it looked deeper into when and how it will start removing its emergency stimulus from the economy. Some analysts want Powell to address inflation, while others believe he will stick to his “it’s transitory” proclamation.

Finally, after removing concerns about coronavirus from its June statement, policymakers may mention the subject again due to the surge in COVID-19 infections.

Meanwhile, the busiest week of earnings continues on Wednesday with Pfizer, McDonald’s, Qualcomm, Facebook, Ford and PayPal among the major companies reporting. Of the S&P 500 companies that have reported quarterly results thus far, 89% have topped earnings estimates, while 86% have exceeded revenue expectations, according to data from Refinitiv.

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

Robust Earnings, Revenue Numbers from Alphabet, Apple, Microsoft After-Bell Fail to Turn NASDAQ Futures Green

The major U.S. stock index futures are trading lower following the release of earnings numbers from Google-parent Alphabet, Microsoft and Apple after the bell. The trio of tech heavyweights had been pressured during the cash market session, declining about 1% each ahead of their numbers.

In the futures markets at 20:00 GMT, the September E-mini S&P 500 Index was trading 4394.75. At 20:36 GMT, they were trading 4389.75.

At 20:00 GMT, the September E-mini Dow Jones Industrial Average was trading 34952. At 20:36 GMT, it was trading 34886 and at 20:00 GMT, the September E-min NASDAQ-100 Index was trading 14950.50. At 20:37 GMT, it was at 14911.00.

In the cash market on Tuesday, the benchmark S&P 500 Index settled at 4396.48, down 25.82 or -0.58%, the blue chip Dow Jones Industrial Average finished at 35047.32, down 96.99 or -0.28% and the tech-driven NASDAQ Composite closed at 14638.77, down 201.94 or -1.36%.

The earnings are out and here are the numbers.

Alphabet Jumps 3% in After-Hours Trade After Earnings Beat

Alphabet Earnings per share (EPS) was reported at $27.26 versus $19.34 per share, according to Refinitiv estimates. Revenue was $61.88 billion versus $56.16 billion, according to Refinitiv.

YouTube advertising revenue was $7.00 billion versus $6.37 billion expected, according to StreetAccount estimates. Google Cloud revenue was $4.63 billion versus $4.40 billion expected, according to Street Account estimates.

Traffic acquisition costs (TAC) revenue came in at $10.93 billion versus $9.74 billion expected, according to Street Account estimates.

Microsoft Beat Expectations on the Top and Bottom Lines

Microsoft shares fell 3% in extended trading on Tuesday after the software and hardware company reported fiscal fourth-quarter earnings.

The report showed earnings of $2.17 per share, adjusted, vs $1.92 per share as expected by analysts, according to Refinitiv. Revenue was $46.15 billion, versus $44.24 billion as expected by analysts, according to Refinitiv.

Revenue rose 21% year over year in the quarter, which ended June 30, according to a statement. In the previous quarter revenue had increased by 19%.

Apple Earnings Blow Away Forecasts

Apple reported strong fiscal third-quarter earnings on Tuesday, demolishing Wall Street expectations, according to CNBC. Additionally, every one of Apple’s major product lines grew over 12% on an annual basis.

Overall, Apple’s sales were up 36% from the June quarter last year. iPhones sales increased nearly 50% on an annual basis.

Apple’s Earnings per Share (EPS) came in at $1.30 versus $1.01 estimated. Revenue was $81.40 billion versus $73.30 billion estimated.

Starbucks Credits Strong Cold Beverage Sales in U.S. for Fueling Earnings Beat

In other non-tech-related earnings news, Starbucks topped Wall Street’s estimates for its fiscal third-quarter earnings and revenue. The company also tightened its forecast for fiscal 2021 same-store sales growth.

Starbucks on Tuesday reported soaring cold drink sales in the United States, fueling an earnings and revenue beat for the company. The company also narrowed its forecast for same-store sales growth for rascal 2021.

Here’s a comparison between the company’s numbers and Wall Street analyst expectations.

Earnings per share was $1.01 adjusted versus 78 cents expected. Revenue came in at $7.50 billion versus $7.29 billion expected.

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

 

China Soft Ahead of Fed, Big Tech Earnings. Transports Lower

It seems like rough markets have a way of originating in China

Thinking back to 2007, I remember watching the China markets meltdown. This process began well ahead of the US financial crisis of 2008.

Looking back at markets that you have lived and traded through, you amass a mental library of history and look to learn from it. Before 2007, I spent years as a Real Estate Agent and remember the days of people being approved for home purchases on variable ARMs and very low-income requirements. You just knew the music would have to stop at some point as banks loaded up subprime borrowers with debt that logic would dictate as unpayable.

The China markets started to crack ahead of the US markets back then.

Figure 1 – Shanghai Stock Exchange Composite Index March 24, 2007 – May 2, 2008, Daily Candles Source stockcharts.com

I do remember watching this market at the time. Other China indices fared even worse. Around this time, the $SPX experienced a pullback too, but one of a much lesser magnitude.

Figure 2 – S&P 500 Index August 1, 2007 – December 7, 2007 Daily Candles Source stockcharts.com

As we can see, the $SPX also pulled back around this time, but in more of a pedestrian manner, with a 5.4% pullback over an 11 day period versus 10.8% for China around the same time period.

It is important to note that the $SPX had pulled back prior to this time and rebounded to all-time highs. I am mentioning all of this as markets have memories and accelerated moves in China catch my attention. Let’s also mention the obvious here: the Covid meltdown in Feb – March 2020.

As China is grabbing all of the headlines today, let’s see how the Shanghai Stock Exchange Composite has fared yesterday and today.

Figure 3 – Shanghai Stock Exchange Composite Index March 17, 2021 – July 27, 2021, Daily Candles Source stockcharts.com

Yes, the Shanghai Composite is lower over the last two days. However, the sky isn’t falling, at least not yet. It is lower by 2.9% or so over the past two sessions. Note the support that was found around its 200-day moving average.

What All of This Means for Us

I believe it is smart to avoid getting too caught up in the daily headlines, for the most part. Price and divergences can tell better stories than any news headlines, which often come out much too late.

This is the reason that it made sense to target the Transports to the downside yesterday. We had a pattern of lower highs and lower lows, with clear divergence from the direction of the broader markets since May 1st.

As we targeted the short side of the IYT yesterday afternoon around $258.00, let’s see how the transports are faring in today’s market down day.

Figure 4 – iShares Transportation Average ETF March 1, 2021 – July 27, 2021, Daily Candles Source stockcharts.com

The IYT is lower by 2.54% as of the time of this writing. As discussed, the Transports were already trading lower versus the broader indices.

Right now, we see the RSI(14) at 40 and daily MACD crossover brewing to the downside with the fast line crossing the slow line.

We will hear from the Fed tomorrow

The FOMC statement and subsequent press conference is slated for tomorrow. Those kinds of days can be tough to trade, and depending on the Fed’s tone, anything could happen.

Now, for our premium subscribers, let’s look cover some potential take profit levels and strategies in IYT, and recap the other markets that we are covering. Not a Premium subscriber yet? Go Premium and receive my Stock Trading Alerts that include the full analysis and key price levels.

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

Thank you.

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

Rafael Zorabedian
Stock Trading Strategist

Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

This content is for informational and analytical purposes only. All essays, research, and information found above represent analyses and opinions of Rafael Zorabedian, and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. You should not construe any such information or other material as investment, financial, or other advice. Nothing contained in this article constitutes a recommendation, endorsement to buy or sell any security or futures contract. Any references to any particular securities or futures contracts are for example and informational purposes only. Seek a licensed professional for investment advice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Information is from sources believed to be reliable; but its accuracy, completeness, and interpretation are not guaranteed. Although the information provided above is based on careful research and sources that are believed to be accurate, Rafael Zorabedian, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. Mr. Zorabedian is not a Registered Investment Advisor. By reading Rafael Zorabedian’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Trading, including technical trading, is speculative and high-risk. There is a substantial risk of loss involved in trading, and it is not suitable for everyone. Futures, foreign currency and options trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment when trading futures, foreign currencies, margined securities, shorting securities, and trading options. Risk capital is money that can be lost without jeopardizing one’s financial security or lifestyle. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Rafael Zorabedian, Sunshine Profits’ employees, affiliates, as well as members of their families may have a short or long position in any securities, futures contracts, options or other financial instruments including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice. Past performance is not indicative of future results. There is a risk of loss in trading.

 

Asia-Pacific Shares Called Mixed to Lower on Opening; Investors Hoping for US Tech Stock Bailout

The major Asia-Pacific stock indexes are called lower on Wednesday, following Wall Street’s weaker lead as the rout on Hong Kong and China tech stocks is expected to resume. Conditions could change ahead of the openings, however, if the U.S. markets can get back on track after key technology companies report their latest quarterly data after the U.S. close.

Shares in the Asia-Pacific region were mixed on Tuesday as the sell-off of major Chinese tech stocks in Hong Kong continued following Monday’s tumble. The broader Hang Seng Index in Hong Kong briefly fell more than 5% in Tuesday afternoon trading (local time) before paring some of those losses, eventually closing 4.22% lower at 25,086.43.

The Hang Seng Index is off more than 8% in just two days of trading this week. On Monday, it was also hit hard, falling more than 4% on the back of regulatory fears surrounding China’s technology and private education sector.

Wall Street Could Fuel Early Session Weakness in Asia-Pacific Region

U.S. stocks fell for the first time in six days on Tuesday ahead of quarterly earnings reports from several megacap technology companies. The blue chip Dow Jones Industrial Average decline 170 points. The benchmark S&P 500 Index fell 0.8%, led by weakness in consumer, technology and energy sectors. The NASDAQ Composite retreated 1.6%. The drop in the major averages from their respective records reached on Monday could bring an end to their five-session winning streaks.

Of concern for Asia-Pacific traders will be the U.S. market’s reaction after the closing bell in New York. Second-quarter earnings season will kick into high-gear with Google-parent Alphabet, Microsoft and Apple set to report after the bell on Tuesday. The trio of tech heavyweights is down about 1% each ahead of their numbers.

Fedwatch Continues

Investors are awaiting the Federal Reserve’s update on its monetary policy as the central bank’s two-day meeting began. The Federal Open Market Committee will release a statement when the meeting concludes Wednesday, followed by Chairman Jerome Powell’s news conference.

Since the Fed will make its announcements at 18:00 Wednesday, Asia-Pacific traders won’t have a chance to react to the news until Thursday’s opening.

Nikkei Closes Below 28,000 Level for Second Day

Japanese equities rose on Tuesday, tracking overnight gains on Wall Street as investors cheered upbeat corporate earnings, but the benchmark Nikkei 225 failed to close above the 28,000 key psychological level for a second straight session.

Like Monday, the Nikkei briefly traded above that level but pared gains before the close amid caution ahead of this week’s Federal Reserve policy meeting and a pick-up in both the U.S. and Japanese earnings seasons.

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

E-mini Dow Jones Industrial Average (YM) Futures Technical Analysis – Momentum Shifts Lower if 34652 Fails

September E-mini Dow Jones Industrial Average futures settled at a record close for the second consecutive session on Monday after recovering nicely from an early session setback. The blue chip average was supported by expectations of strong earnings this week from a couple of its components like 3M Corp on Tuesday and Boeing on Wednesday. Helping to put a lid on prices and volume were general concerns ahead of Wednesday’s U.S. Federal Reserve announcements.

On Monday, September E-mini Dow Jones Industrial Average futures settled at 35034, up 83 or +0.24%.

In stock related news, Dow Inc posted the best performance amongst the components, settling at $62.01, up $1.90 or +3.161%. This was followed by Intel Corp and Chevron Corp which gained 2.47% and 2.11% respectively.

Daily September E-mini Dow Jones Industrial Average

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 35072 will reaffirm the uptrend. A move through 33623 will change the main trend to down.

The minor trend is also up. A trade though 35652 will change the minor trend to down and shift momentum to the downside.

The minor range is 34652 to 35072. Its 50% level or pivot is 34862.

The short-term range is 33623 to 35072. If the minor trend changes to down then look for a pullback into its retracement zone at 34348 to 34177.

Daily Swing Chart Technical Forecast

The direction of the September E-mini Dow Jones Industrial Average futures contract on Tuesday is likely to be determined by trader reaction to the pivot at 34862.

Bullish Scenario

A sustained move over 34862 will indicate the presence of buyers. If this creates enough upside momentum then look for buyers to make a run at 35072. Since there is no resistance, taking out this level could trigger an acceleration to the upside.

Bearish Scenario

A sustained move under 34862 will signal the presence of sellers. The first downside target is the minor bottom at 34652. Taking out this level will change the minor trend and shift momentum to the downside. If this move creates enough downside momentum then look for the selling to possibly extend into the short-term retracement zone at 34348 to 34177. Since the main trend is up, buyers are likely to show up on a test of this area.

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

All Eyes on Big Tech Earnings this Week. Contrarian Play?

The bull market has continued, albeit with some warning signs beneath the surface of the market.

Last week, markets flexed their resiliency muscles by quickly erasing a 700 + point Dow Jones Industrial Average on Monday and ending the week at all-time highs. Easy monetary policy has continued, and liquidity is high. There was no shortage of buyers that were ready, willing, and able to buy that dip.

Even though the Fed has telegraphed its message of increasing rates in the future, Fed bond purchases have continued for the time being. The purchasing of these bonds helps to keep rates lower and create liquidity across markets.

Since June of 2020, the Fed has been buying $80 billion a month in Treasury bonds and $40 billion in MBS (Mortgage Backed Securities).

There is quite a lot happening this week. Consumer Confidence is set for release tomorrow. We will hear from Fed Chair Powell on Wednesday with the FOMC statement and the subsequent conference call. Advance GDP and Core PCE are on the table for later in the week.

All of the above happens during earnings week for the tech giants, namely Apple, Facebook, Google, Tesla, Amazon, and Microsoft.

What can we do on a week like this when the S&P 500 is at or near an all-time high?

Last week, we examined the divergence of the Dow Jones Transports and the Dow Jones Industrial Average.

The Transports:

Figure 1 – Dow Jones Transportation Average March 8, 2021 – July 26, 2021, Daily Candles Source stockcharts.com

Transports have been weak, and today the index traded up to and touched the 78.6% Fibonacci retracement level from its July 1, 2021, high to its July 19, 2021 low. What is going on with the transports?

We can see lower highs and higher lows that have been occurring since May. Today is providing a nice bounce and intraday reversal so far.

As we can see, there is a downtrend in place in an otherwise sector uptrend dominant marketplace, let’s go with what is working here.

Looking for an ETF to take advantage of this downtrend is no easy task. Currently, I do not see a liquid way to take the inverse side of the transportation, so we will examine a short position in IYT.

Figure 2 – iShares Transportation Average ETF March 18, 2021 – July 26, 2021, Daily Candles Source stockcharts.com

We see IYT doing its job rather well, seeking to track the investment results of an index composed of U.S. equities in the transportation sector.

Considering this downtrend could be a way to gain some alternative exposure in today’s market.

We are in a big earnings and economic data release week. There could be volatility in either direction in the major indices.

Since I am cautious on the indices in the current landscape per previous Stock Trading Alert publications, a trade in the transports could be a way to take advantage of an existing countertrend, while the major market indices have been trading at highs.

Now, for our premium subscribers, let’s look to pinpoint potential entry levels in IYT, and recap the other markets that we are covering. Not a Premium subscriber yet? Go Premium and receive my Stock Trading Alerts that include the full analysis and key price levels.

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Thank you.

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

Rafael Zorabedian
Stock Trading Strategist

Sunshine Profits: Effective Investment through Diligence & Care

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