US Stock Futures Higher as Benchmark S&P 500 Index Presses Record High

The major U.S. stock indexes opened steady during the pre-market session on Sunday as investors continued to digest last week’s U.S. consumer inflation data and its potential impact on Wednesday’s Federal Reserve monetary policy decision.

At 22:20 GMT, September E-mini S&P 500 Index futures are trading 4241.25, up 4.75 or +0.11%. September E-mini Dow Jones Industrial Average futures are at 34384, up 27 or +0.08% and September E-mini NASDAQ-100 Index futures are trading 14010.25, up 24.50 or 0.18%.

Last Week’s Recap

In the cash market, U.S. stocks ended last week with a record closing high for the S&P 500 and the beginning of a rotation back into growth names.

Last week, the 30-stock Dow Jones Industrial Average fell 0.8%, but the S&P 500 rose 0.4%, for its third straight positive week. The NASDAQ Composite was the outperformer with a gain of nearly 1.9%, posting its fourth winning week in a row as the tech trade came back into favor.

Sectors and Stocks on the Move

Among the 11 major sectors in the S&P 500, rebounding financial stocks and tech led the gainers, while healthcare suffered the biggest percentage drop. The interest-sensitive financial sector was pressured most of the week as benchmark U.S. Treasury yields posted their biggest weekly drop in nearly a year

Meanwhile, the Food and Drug Administration is facing mounting criticism over its “accelerated approval” of Biogen Inc’s Alzheimer’s drug Aduhelm without strong evidence of its ability to combat the disease. Biogen shares ended down 4.4%, while the broader healthcare sector shed 0.7%.

Much of the trading volume last week was attributable to the ongoing social media-driven “meme stock” phenomenon, in which retail investors swarm around heavily shorted stocks. AMC Entertainment, Clover Health Investments, GameStop and more experienced volatile trading as the group continued to get attention from the social media investors on Reddit. AMC Entertainment outperformed the group, gaining 15.4%.

Federal Reserve to Dictate Early Direction of Stocks

The Fed’s two-day policy meeting will likely dominate investor behavior this week. Although the central bank is not expected to take any action, its forecasts for interest rates, inflation and the economy could move the markets.

Fed Chairman Jerome Powell speaks to the press after the central bank issues its statement at 18:00 GMT on Wednesday. He is expected to affirm the Fed’s commitment to easy policy. However, concerns over inflation and how the Fed could react is likely to influence market direction, especially after a hotter-than-expected consumer inflation reading for May was reported last Thursday, CNBC reported.

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

Nike Could Miss Second Quarter Estimates

Nike Inc. (NKE) bulls initially downplayed a Chinese social media backlash to March criticism about forced labor in the persecuted Uyghur minority, insisting the sports and apparel giant was too popular for a government-fueled boycott to succeed. However, the stock has continued to lose altitude during the quarter, suggesting potential downside to revenues when the company reports earnings on June 24th.

Chinese Growth at Risk

China revenues increased 42% on a currency-neutral basis in the quarter ending on Feb. 28 (fiscal Q3 2021), offsetting a 10% North American decline that was blamed on “supply chain challenges”. Continued bottlenecks and Chinese anger have forced some analysts to lower Q4 expectations, with consensus now looking for a profit of $0.51 per-share on $11.24 billion in revenue. However, those numbers could still prove too optimistic, given rising political tensions.

BofA Securities Lorraine Hutchinson summed up these headwinds in May, noting “We are bullish on the long-term prospects for Nike’s accelerated innovation, its distribution strategy to increase digital at the expense of undifferentiated wholesale partners and opportunities to use data to drive growth. However, we see risk to estimates from softness in China. While investors are well aware that Q4 will be hurt by boycotts, uncertainty about the duration of the weakness, the pace of recovery and the margin implications of cleaning up the channel leave us skeptical”.

Wall Street and Technical Outlook

Wall Street consensus has held a ‘Buy’ rating despite current events, based upon 24 ‘Buy’, 2 ‘Overweight’, 3 ‘Hold’, and 1 ‘Underweight’ recommendation. Price targets currently range from a low of $140 to a Street-high $192 while the stock closed Friday’s session more than $8 below the low target. This poor placement tells us that Main Street investors have grown far more skeptical about the China situation than sell-side analysts in lower Manhattan.

Nike returned to the January 2020 high at 105.62 in June and broke out in August, posting superior gains into December’s all-time high at 147.95. Price action since that time has carved a series of lower highs and lower lows, dropping the stock into an 8% year-to-date loss. It’s failed five attempts to mount the 50-day moving average during this period while bouncing twice at the 200-day moving average.  It’s now engaged in a third test while accumulation has dropped to a 12-month low, raising odds for a breakdown.

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.

Financials Look Ripe For A Reversal

The financials and banking stocks have been some of the best performing of the reflation trade since the second half of 2020. Banks in particular have benefitted handsomely from the rise in yields and steepening of the yield curve. Since last October, the KBE banks ETF is up roughly 100%, rewarding investors who saw fit to take advantage of the immense value on offer at the time. However, there are a number of signs suggesting now may be a prudent opportunity for investors to begin to take profits and redeploy capital elsewhere.

Firstly, from a valuation perspective, the group can no longer be considered cheap on a relative or absolute basis. Of the “big four” banks, JP Morgan Chase and Bank of America are trading at their highest valuations in a decade, as measured by price to book value.

On the whole, we know banks like to make their profits by lending long-term and borrowing short-term. With long-term yields looking to have stalled for the time being, or perhaps even rolling over, the yield curve did not confirm the recent highs in the sector. It looks as though banks may have some catching up to do on the downside.

As banks and financials have largely proven to be a de-facto short-bonds trade of late, the bond market is sending a similar message as the yield-curve.

For the banking sector to continue its outperformance, it needs the tailwind that rising yields provide. With the US 30-year yield recently breaking its uptrend to the downside, it is looking as though this tailwind may be turning into a headwind for the time being. A move down to the 200-day moving average would put the 30-year yield at around 1.9%.

Additionally, there is strong overhead resistance for yields around their current levels. This breakdown coincides with the 30-years recent rejection of said resistance.

Couple this with the fact that small speculators (i.e. the “dumb money”) in the 30-year treasury futures market remain nearly as short as they have ever been, all the while commercial hedgers (i.e. the “smart money”) remain heavily net-long. Such positioning in the past has usually preceded favourable performance for bonds, and thus seen yields fall.

What’s more, we are now entering a seasonally favourable period for bonds and conversely an unfavorable period for yields. This adds to the bearish headwinds for financials.

Turning to the technicals of the financials sector itself, a number of indicators are signaling exhaustion. We are seeing DeMark setup and countdown 9 and 13’s trigger on the daily, weekly and monthly charts. When such exhaustion signals begin to appear on multiple timeframes simultaneously, it is generally a fairly reliable indication a pullback, or at the very least a period of consolidation, is imminent. The 9-13-9 is considered one of the most reliable of the DeMark sequential indicators.

Focusing on the daily chart of the financials sector ETF, we have just seen a breakdown of its ascending wedge pattern. This coincides with bearish divergences in momentum (RSI) and money flow, in conjunction with the aforementioned daily DeMark 9-13-19 sequential sell signals.

A rally to test the underside of the broken trendline could be an attractive point for those looking to take profits, or for those who are so inclined to trade from the short-side. Additionally, seasonality of the financials sector is also signaling that it may be time to take a bearish, or less bullish, stance towards financial stocks.

In summary, the risk-reward setup for banks and financials in the short-term does not appear to be overly favourable, nor do these companies offer the kind value they provided last year. Depending on your intermediate to long-term outlook for the direction of interest rates and whether your are in the inflationary or deflationary camps, a potential pullback may provide an attractive buying opportunity for the inflationist. For the deflationists or for those who believe rates may be peaking, this may be a good time to take profits and redeploy capital in alternative opportunities set to benefit from falling rates.

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

Stocks vs Bonds. A Portfolio Allocation Strategy

Summary

Bonds are purchased for capital gains.

Bonds outperform stocks for periods of up to two years.

The business cycle is the strategic tool to help you decide when to hold them.

There are periods lasting up to two years when bonds outperform the stock market (ETF: SPY). This article explores the timing model showing when bonds’ appreciation outpaces the market (SPY). The focus here is investors buy bonds for capital gains not for income, recognizing total return is an important metric.

Bond prices are driven by four basic factors: duration, risk, liquidity, and interest rates level. The impact of these variables on bond prices is studied in detail in the classic book by M. L. Leibovitz and S. Homer “Inside the yield curve”. The ETF TLT is used here as a proxy for bonds. TLT seeks to track the investment results of an index composed of U.S. Treasury bonds with remaining maturities greater than twenty years.

TLT is the safest bond portfolio because it is invested in US Treasury obligations. TLT holdings have a long maturity and long-maturity bonds have the greatest price change when interest rates change.

Source: St. Louis Fed, The Peter Dag Portfolio Strategy and Management

The above chart shows 10-year Treasury bond yields (blue line) and the growth of GDP after inflation (red line). The chart shows the long-term trend of yields follows closely the growth of real GDP. In other words, economic growth and inflation are the main determinants of the long-term trend of 10-year Treasury bonds.

If investors believe the long-term growth of the economy after inflation is 2.0%, they should also assume yields are likely to trade close to 2.0%. Of course, much is being said about the action of the Fed and the government. Whatever they do, the ultimate impact of their actions is on economic growth after inflation. Despite, or because of, the programs launched in the past two decades, the trend of economic growth has been declining and is now below its long-term average. I discussed in detail the reasons here.

From a portfolio strategy viewpoint, the profit and hedging opportunities arise by using the business cycle framework.

Source: The Peter Dag Portfolio Strategy and Management

The simplest way to look at the business cycle is to examine the decisions made by executives to control inventory levels. It is a way to relate price moves to business decisions rather than exogenous and unexpected events.

Business, following a period of protracted economic weakness (Phase 3 & 4) recognizes it does not have enough inventory to meet demand. The decision to increase inventory levels involves an increase in production (Phase 1). This process requires hiring new workers, boosting the purchase of raw materials (commodities), and raise the level of borrowing to meet current operations and invest to improve capacity.

The outcome of these decisions is to bolster demand as more workers find jobs, and place upward pressure on commodities and interest rates. This is the time the business cycle moves from Phase 1 to Phase 2.

The process reinforces itself until it reaches extreme conditions. Toward the end of Phase 2 inflation becomes a concern while interest rates reach levels discouraging the purchase of big-ticket items and new homes.

The decline in purchasing power forces the consumer to reduce spending. Business at first does not recognize this change. Eventually the rise in inventories has a negative impact on earnings. Business decides to reduce inventories to protect profitability. Workers are laid off, raw material purchases are reduced, borrowing is curtailed to reduce interest costs.

The business cycle is now going through Phase 3 and Phase 4 until wages, inflation, commodities, and interest rates decline enough to stimulate again consumers’ demand.

This is the time Phase 1 starts all over again. Economic strength improves and the markets react to these changing conditions.

Source: StockCharts.com, The Peter Dag Portfolio Strategy and Management

Let’s see now how these actions impact bond yields and their relationship with the stock market. The trend of bond yields reflects closely the business decisions to manage the inventory cycle. The above chart shows the yield on the 10-year Treasury bonds (upper panel) and the business cycle indicator updated in real-time and reviewed in each issue of The Peter Dag Portfolio Strategy and Management. (An exclusive complimentary subscription is available to the readers of this article.)

The chart shows yields rise when the business cycle rises, reflecting the efforts to finance the re-stocking of inventories and improve and increase productive capacity. Yields decline, however, when the business cycle declines, due to the reduction in production and financing needs. The point is bonds tend to appreciate (bond yields decline) when the business cycle declines. Bond prices are likely to decline (bond yields rise) when the business cycle rises.

The relationship is particularly noticeable because nothing has been said about the action of Congress or the Fed to “drive” the markets. The data to compute the business cycle graph come exclusively from real-time market data.

The relationship between bond prices (TLT) and the market (SPY) provides a useful strategic tool. TLT prices move inversely to the trend of yields ($TNX in the above chart).

Source: StockCharts.com, The Peter Dag Portfolio Strategy and Management

The ratio of SPY and TLT is shown in the upper panel. SPY outperforms TLT when the ratio rises. SPY underperforms TLT when the ratio declines. The lower panel shows the business cycle indicator discussed in every issue of The Peter Dag Portfolio Strategy and Management and is updated on a real time basis using market data on www.peterdag.com.

TLT has outperformed SPY for periods of up to two years during a complete business cycle. The relationship shown on the above chart is important for two major reasons. In a period when the economy slows down and the business cycle declines, a portfolio heavily exposed to long-term bonds such as TLT is likely to outperform SPY.

The second major advantage in overweighing bonds during a decline in the business cycle is its hedging features. For instance, during the business cycle decline of 2018-2020 a portfolio overweighted in TLT offered great strategic advantages due to the market collapse because of the economic slowdown started in 2018 and culminating with the crash of March 2020 due to the pandemic. This event signaled the bottom of the business cycle (see above chart).

Since March 2020, as the business cycle kept rising, SPY has outperformed TLT in line with previous patterns. A decline of the business cycle will cause TLT to outperform SPY as it did in 2018-2020, 2014-2015, and 2011-2012.

Key takeaways

  1. Bond prices rise and yields decline when the business cycle declines (Phases 3 & 4 of the business cycle).
  2. Bond prices decline and bond yields rise when the business cycle rises (Phases 1 & 2 of the business cycle).
  3. Bonds outperform stocks for their capital appreciation and are attractive for their hedging features when the business cycle declines.
  4. Stocks outperform bonds when the business cycle rises, signaling a stronger economy.

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

The Week Ahead – A Busier Economic Calendar and the FED to Keep the Markets Busy

On the Macro

It’s a busier week ahead on the economic calendar, with 60 stats in focus in the week ending 18th June. In the week prior, 45 stats had been in focus.

For the Dollar:

Early in the week, Wholesale inflation and retail sales figures will be in focus.

While inflation figures remain a key area of interest, retail sales will likely be the main focal point.

On Thursday, Philly FED Manufacturing and weekly jobless claim figures will also influence.

Other stats include industrial production, housing sector data, and manufacturing numbers out of NY State. We don’t expect these to have too much influence in the week, however.

On the monetary policy front, it will be the FED’s June monetary policy decision that will be the main event.

The markets are expecting discussions on a tapering to the asset purchasing program to begin. Will there be talk of a shift in sentiment towards interest rates? The projections will hold the key.

In the week, the Dollar ended the week up by 0.46% to 90.555.

For the EUR:

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

Eurozone industrial production, trade, and wage growth figures are due out Monday through Wednesday.

With little else for the markets to consider, we can expect the numbers to influence.

Finalized inflation figures for May are also due out for France, Germany, Italy, and the Eurozone.

Barring marked revisions to prelim figures, however, the numbers should have limited impact on the EUR.

The EUR ended the week down by 0.48% to $1.2108.

For the Pound:

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

Employment figures are due out on Tuesday. Expect claimant counts and the unemployment rate to be the key numbers.

On Wednesday, inflation figures will also influence ahead of retail sales figures on Friday.

Impressive numbers will fuel speculation of a near-term move by the BoE. Much will depend upon the government’s reopening plans, however.

On the monetary policy front, BoE Gov. Bailey is scheduled to speak in the week. Expect any forward guidance to influence.

The Pound ended the week down by 0.35% to $1.4107.

For the Loonie:

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

At the start of the week, manufacturing sales figures are due out ahead of inflation figures on Wednesday.

Expect the inflation figures to be key.

Crude oil inventory numbers will also influence mid-week.

The Loonie ended the week down 0.61% to C$1.2158 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s a quiet week ahead.

Employment figures for May are due out on Thursday. The numbers remain key, with the RBA unwilling to make a move until the slack is removed. Weak numbers would certainly test support levels.

On the monetary policy front, the RBA meeting minutes early in the week will provide direction.

The Aussie Dollar ended the week down by 0.40% to $0.7708.

For the Kiwi Dollar:

It’s also a quiet week ahead.

1st quarter current account and GDP numbers are due out.

Expect the GDP number on Thursday to be key.

Economic data from China will also influence early in the week.

The Kiwi Dollar ended the week down by 1.16% to $0.7130.

For the Japanese Yen:

Finalized industrial production figures are due out at the start of the week. Expect any marked revisions to influence ahead of trade data on Wednesday.

Inflation figures on Friday should have a muted impact, with the BoJ in action at the end of the week.

The Japanese Yen fell by 0.13% to ¥109.66 against the U.S Dollar.

Out of China

Industrial production, retail sales, and fixed asset investments will be in focus.

Following disappointing numbers for April, the markets will be looking for improvement. Weaker numbers would test support for riskier assets on Wednesday.

The Chinese Yuan ended the week down by 0.05% to CNY6.3988 against the U.S Dollar.

Geo-Politics

There are no major risks to consider in the week ahead. Key takeaways from the G7 will likely influence, however.

As always, however, the markets will need to continue monitoring chatter from Capitol Hill and Beijing.

The Iranian presidential election is in the week ahead…

The Weekly Wrap – Monetary Policy and Economic Data Accompanied Market Optimism

The Stats

It was a quieter week on the economic calendar, in the week ending 11th June.

A total of 45 stats were monitored, following 80 stats from the week prior.

Of the 45 stats, 23 came in ahead forecasts, with 19 economic indicators coming up short of forecasts. There were just 3 stats that were in line with forecasts in the week.

Looking at the numbers, 29 of the stats reflected an upward trend from previous figures. Of the remaining 16 stats, 15 reflected a deterioration from previous.

For the Greenback, economic data and market anticipation ahead of next week’s FOMC policy decision remained the key drivers. In the week ending 11th June, the Dollar Spot Index rose by 0.46% to 90.5550. In the previous week, the Dollar had risen by 0.12% to 90.136.

Out of the U.S

JOLT’s job openings and trade data were in focus early in the week.

The stats were skewed to the positive. In April openings jumped from 8.288m to 9.286m, with April’s trade deficit narrowing from $75.0bn to $68.9bn.

While the stats were market positive, there was limited impact on the Dollar and the broader markets.

The focus was on the weekly jobless claims and inflation figures due out on Thursday.

Also skewed to the positive, the annual core rate of inflation accelerated from 3.0% to 3.8%. Economists had forecast a pickup to 3.4%.

Core consumer prices and consumer prices continued to rise in the month of May and by more than had been expected.

Month-on-month, core consumer prices increased by 0.7% off the back of a 0.9% rise in April.

Initial jobless claim figures were also positive but perhaps not impressive enough to force the FED into action. In the week ending 4th June, initial jobless claims fell from a revised 405k to 376k. Economists had forecast a decline to 370k.

At the end of the week, prelim consumer sentiment figures wrapped things up.

In June, the Michigan Consumer Sentiment index climbed from 82.9 to 86.4. Economists had forecast a rise to 84.0.

In the equity markets, the Dow fell by 0.80%, while the NASDAQ and the S&P500 saw gains of 1.85% and 0.41% respectively.

Out of the UK

It was a relatively quiet week, GDP, manufacturing and industrial production, and trade data in focus.

The markets had to wait until Friday, however, for the numbers.

In April, the UK economy grew by 2.3% in the month, following 2.1% growth in March.

Trade data for April was also positive. The trade deficit narrowed from £11.71bn to £10.96bn, with the non-EU deficit narrowing from £6.55bn to £5.55bn.

While GDP numbers and trade data were positive, production figures disappointed.

Manufacturing production fell by 0.3% versus a forecasted 1.5% increase. Industrial production declined by 1.3% versus a forecasted 1.2% increase.

In the week, the Pound fell by 0.35% to end the week at $1.4107. In the week prior, the Pound had fallen by 0.22% to $1.4147.

The FTSE100 ended the week up by 0.92%, following a 0.66% rise from the previous week.

Out of the Eurozone

 

It was a busy 1st half of the week on the economic data front.

 

The German economy was in focus.

 

In April, German factory orders (-0.20%) and industrial production (-1.00%) unexpectedly fell, following solid gains from March.

 

A modest increase in Germany’s trade surplus also disappointed, falling short of forecasts.

 

Economic sentiment figures from Germany and the Eurozone were also skewed to the negative. Sentiment towards the German and the Eurozone economies weakened marginally in June.

The numbers were not enough to spook the markets ahead of Thursday’s ECB policy decision and press conference.

 

Providing support in the early part of the week were finalized 1st quarter GDP numbers for the Eurozone.

 

Quarter-on-quarter, the Eurozone economy contracted by a modest 0.3%, revised up from a prelim 0.6% contraction.

 

In the 2nd half of the week, the focus was on the ECB and the all-important press conference.

 

Upward revisions to growth and inflation for this year coupled raised the prospects of a possible nearer-term tapering. Talk of unwavering support through the coming months was therefore key. The ECB’s inflation forecasts also pointed to easing inflationary pressures in 2022 and 2023, which also pegged the EUR back.

For the week, the EUR fell by 0.48% to $1.2108. In the week prior, the EUR had fallen by 0.21% to $1.2167.

The DAX30 ended the week flat, while the CAC40 and the EuroStoxx600 rose by 1.30% and by 1.09% respectively.

For the Loonie

It was a quiet week. Economic data was limited to trade data for April, which was positive for the Loonie.

In April, Canada’s trade balance rose from a C$1.35bn deficit to a C$0.59bn surplus.

A further increase in crude oil prices was also Loonie positive.

The main event, however, was the BoC monetary policy decision on Wednesday.

In line with market expectations, the BoC stood pat on monetary policy. Following May’s more hawkish messaging, the BoC took a more cautious approach, avoiding a Loonie rally.

The key takeaway was that the BoC would continue to deliver extraordinary monetary policy support until the 2% inflation target was sustainably achieved.

In the week ending 11th June, the Loonie declined by 0.061% to C$1.2158. In the week prior, the Loonie had fallen by 0.07% to C$1.2084.

Elsewhere

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

In the week ending 11th June, the Aussie Dollar fell by 0.40% to $0.7708, with the Kiwi Dollar sliding by 1.16% to $0.7130.

For the Aussie Dollar

It was a quiet week. Business and consumer confidence figures were in focus, with the stats skewed to the negative.

In May, the NAB Business Confidence Index slipped from 23 points to 20 points. The modest decline had a limited impact on the Aussie Dollar.

For June, the Westpac Consumer Sentiment Index fell by a further 5.2%. In May, the index had fallen by 4.8%.

Concerns over the a 2-week lockdown in Melbourne weighed on sentiment in the month. Once more, the Aussie Dollar brushed aside the decline.

Market optimism towards the economic outlook and demand for commodities continued to provide support. A U.S Dollar rally from Friday left the Aussie Dollar in the red for the week.

For the Kiwi Dollar

It was also a quiet week.

Electronic card retail sales and Business PMI numbers were in focus.

In May, electronic card retail sales rose by a further 1.7%, following a 4.4% jump in April.

Also positive was an increase in the Business PMI from 58.4 to 58.6. While the headline figure was positive, a slide in the employment sub-index will have been a cause for concern. A marked increase in new orders, however, raises the prospects of a pickup in hiring in the coming months.

For the Japanese Yen

It was a busier week.

Early in the week, finalized 1st quarter GDP numbers were in focus. Upward revisions from prelim numbers were a positive for the Yen.

In the 1st quarter, the economy contracted by 1.0%, revised up from a prelim 1.3% contraction.

At the end of the week, manufacturing sector data disappointed but had a muted impact on the Yen.

For the 2nd quarter, the BSI Large Manufacturing Conditions Index fell from 1.6 to -1.4.

The Japanese Yen fell by 0.13% to ¥109.66 against the U.S Dollar. In the week prior, the Yen had risen by 0.30% to ¥109.52.

Out of China

Trade data and inflation figures were key areas of focus.

Weaker than expected exports tested support for riskier assets at the start of the week.

Exports were up 27.9% year-on-year, falling short of a forecasted 32.1%. In April, exports had been up by 32.3%.

On the inflation front, wholesale inflationary pressures built up further in May. The annual rate of wholesale inflation accelerated from 6.8% to 9.0%. Economists had forecast a pickup to 8.5%.

In the week ending 11th June, the Chinese Yuan fell by 0.05% to CNY6.3988. In the week prior, the Yuan had fallen by 0.42% to CNY6.3953.

The CSI300 and the Hang Seng ended the week down by 1.09% and by 0.26% respectively.

E-mini Dow Jones Industrial Average (YM) Futures Technical Analysis – Stronger Over 34607, Weaker Under 34499

June E-mini Dow Jones Industrial Average futures are trading higher shortly after the mid-session on Thursday, but struggling to hold on to its earlier gains. The volatile trading session suggests investors are still on the fence about what today’s higher-than-expected consumer inflation report means to the Federal Reserve’s next monetary policy decision on June 16.

At 17:51 GMT, June E-mini Dow Jones Industrial Average futures are trading 34556, up 119 or +0.35%.

Consumer prices for May increased at their fastest clip in nearly 13 years as inflation pressures continued to accelerate in the U.S. economy, the Labor Department reported Thursday.

Treasury yields initially moved higher after the report but drifted lower as morning trading continued. The dip in yields still wasn’t enough for the Dow to hold on to most of its earlier gains.

Investors have been concerned about whether rising inflation could see the Federal Reserve taper its asset purchases or start to talk about raising interest rates. However, the Fed has emphasized that price pressures are transitory, as the economy reopens and recovers from the coronavirus pandemic.

Daily June 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 34827 will signal a resumption of the uptrend. A move through 34310 will change the main trend to down.

The minor trend is also up. A trade through 34389 will change the minor trend to down. This will also shift momentum to the downside.

The first minor range is 34825 to 34389. The market straddled its 50% level at 34607 earlier in the session.

The second minor range is 34170 to 34827. Its retracement zone at 34499 was also straddled earlier in the day.

The short-term range is 34402 to 34827. If the main trend changes to down then its 50% level at 34115 will become the next target.

Daily Swing Chart Technical Analysis

The direction of the June E-mini Dow Jones Industrial Average into the close will be determined by trader reaction to the pair of pivots at 34607 and 34499.

Bullish Scenario

A sustained move over 34607 will indicate the presence of buyers.  This could trigger a test of the intraday high at 34733. Taking out this level could fuel a surge into the pair of main tops at 34825 and 34827.

Bearish Scenario

A sustained move under 34607 will indicate the presence of sellers. Taking out 34499 will indicate the selling pressure is getting stronger. This could trigger a test of the intraday low at 34389. Taking this out will lead to a test of the main bottom at 34310.

The main trend changes to down on a move through 34310. This could trigger an acceleration into the minor bottom 34170, followed closely by the pivot at 34115.

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

Volatility? All Eyes on CPI – Looking Beyond the Data Release

In general, data releases can be fickle and tricky events. While they may provide opportunities for algorithmic traders due to short-term spats of volatility, it can be challenging to initiate or exit a position as the market digests the data upon release. Longevity in trading can be achieved by being flat around data releases (or at least not highly leveraged); and/or having a what-if plan already in place.

Today’s CPI data (this publication is being written before the data release) could provide some fireworks. Last month, the expectations were for a 0.2% print, and we got 0.8%. Today, the market is looking for 0.4% for the CPI print (includes food and energy) and 0.5% for Core CPI (excludes food and energy). Could this be on the lofty side? Or, will inflation begin to spiral out of control?

Keep in mind that we are heading into a Fed Meeting June 15 -16 . If prices continue to rise at an exponential rate, will the Fed really be willing to raise interest rates? It would be appropriate by many standards to do so. However, the theme has been “lower for longer”; and this creates a sense of uncertainty as to what the plan may be if we get another huge CPI print. While neither you nor I have a crystal ball available, my inclination is that the print could be below expectations. If that happens, it would fit the Fed’s “transitory inflation” theme that was discussed in the past. We will find out at 8:30 AM ET today.

As traders wait on this data, the $VIX certainly caught a bump in yesterday’s trading.

Figure 1 – $VIX Volatility Index March 10, 2021 – June 8, 2021, Daily Candles Source stockcharts.com

We can see some technically bullish signs in the $VIX above, with some long daily tails on the candles coinciding with the April lows. RSI(14) and MACD(12,26,9) are showing bullish crossover signs. The $VIX can be a bit of a tricky barometer to trade technically.

Figure 2 – SPY SPDR S&P 500 ETF March 9, 2021 – June 8, 2021, Daily Candles Source stockcharts.com

The SPY indeed put in a down session yesterday with the $VIX higher. As we have been discussing, the S&P 500 is near the higher end of its range and will most likely need a catalyst to get moving one way or the other.

The 50-day moving average is $414.58 right now, which is only 1.676% away from the current price. A move down to the 50-day moving average could be of interest.

In addition, we can see the Fibonacci retracement levels of interest in the SPY from the May 19th low to the June 8th highs. We see the 50% retracement level @ $414.38 and the 61.8% retracement level at $412.26. I like how the 50% retracement level lines up with the 50-day moving average here.

Figure 3 – SPY SPDR S&P 500 ETF March 9, 2021 – June 8, 2021, Daily Candles Source stockcharts.com

Next, no one knows with any degree of certainty how the equity markets will react to the CPI print, whether it exceeds or misses expectations. Here is what we do know: the last data release brought the cash S&P 500 near the 50-day moving average, which held up well. It then tested the 50-day moving average four trading sessions later, and it once again held up very well. Could the same type of price action be in store this time?

Nobody knows. However, I am inclined to look for a move for a potential pullback opportunity, between $412.26 (61.8% Fibonacci retracement level above) and the 50-day moving average ($414.58 as of the close on June 8th). If the market moves higher off the CPI data, so be it. The market will be there tomorrow. Remember to monitor the 50-day moving average level, as it changes each day!

Now, for our premium subscribers, let’s recap the eight markets that we are currently 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.

 

Are Space Tech ETF’s MOON And UFO The 21st Century’s DOT COM Boom?

Disruptive technology and science has become one of the biggest driving forces in global market acceleration over the past 20+ years.  Many of you remember the DOT COM rally and how that technology disruption, even in an infancy stage, dominated market trends. Now, 20+ years later, many of the same technology companies that got started in the late 1990s are global powerhouse technology firms commanding massive price valuations.  Are there other “moonshot” firms out there and, if there are, how can we take advantage of this new disruptive technology today?

My team and I believe one of the biggest and newest technologies that stands a strong likelihood of creating a new industry and disrupting existing concepts is the Space Sector.  Virgin Galactic (SPCE), SpaceX, and Blue Origin are racing to create consumer space solutions including reusable travel, exploration, recreational, and other new industries.  Over time, as this technology continues to provide greater and more varied solutions, just like the late 1990s internet boom, the opportunities for traders could be incredible.

21st Century Disruptive Technology ETF May Present Real Opportunities

Currently, the MOON (Direxion Moonshot ETF) includes various innovative sectors – including the Space sector.  The distribution of this ETF includes Genetic Engineering, Cyber Security, Virtual Reality, Digital Communities, Drones, Distributed Ledger, Robotics, Smart Technology, and many others.  In terms of disruptive technology and the potential for a moonshot return over the next 16+ months, this ETF appears to be uniquely positioned for substantial gains if the current trend continues.

MOON ETF Sector Holdings

This Daily MOON ETF chart highlights the recent upside price rallies that have broken above the downward price trend channel on fairly weak volume.  We believe this upward breakout move may consolidate because of the low volume trend. But we also believe this breakout trend may be the start of a move higher as the global economy transitions towards new disruptive technologies and the opportunities of new consumer space exploration/industries.

One thing to remember about this MOON ETF is that it is somewhat new (less than 12 months since it started), but includes a number of potentially large innovative sectors and symbols.  The opportunities for traders related to this expanding disruptive sector ETF could be impressive over the next 4+ years.

MOON Needs To See Increasing Volume To Sustain A Stronger Rally Phase

This Weekly MOON ETF chart highlights the very mild volume recently within the current uptrend.  We believe a moderate sideways price correction may happen after the recent upside breakout trend which may prompt a new momentum base setup near $34~$35.  If our research is correct, accumulation will start to happen over the next 5+ months in MOON which will setup a new momentum base price level.  From there, a larger upside price rally may prompt a move above $45 to $50.

We would like to see volume levels climb higher as this momentum base nears completion and when the upward price trend really starts to accelerate.  At these lower volume levels, we are starting to see some accumulation from traders, but the volume levels suggest MOON has not reached a true upside momentum rally phase yet.

UFO News Is Hot Right Now.  Are You Ready For The Next Opportunities In Space?

Another interesting ETF for traders to consider is UFO.  This ETF is more focused on space-based technologies and solutions.  Generally, it focuses on anything “space-related” and would be an interesting candidate for traders that truly believe in the long-term disruptive capabilities of the current US and global race to space.

The renewed efforts to turn space into a private and consumer based “new frontier” opens nearly unlimited opportunities to those who are able to find a way to engage and profit from this in the near future.  Obviously, it is not cheap to fly into space and/or engage in any type of profitable enterprises in space.  But, the unknown factor related to raw materials, space mining, broad range exploration and consumer space travel could be something that becomes very real over the next 20+ years.

This Daily UFO chart shows, like the MOON chart does, an upward price trend breakout that supports a new momentum base near $28~$29.  If this trend continues and we start to see volume levels increasing, we may see UFO trading above $33 to $35 before the end of 2021.

Thinking outside the box/planet for a moment – on June 29th, we could have some very interesting news, data, and facts about actual UFOs seen by militaries around the world with a declassified report being released by the Pentagon. Not the most comforting thought as this type of UFO (Unidentified Flying Object) may also include secret drones/planes. This could be headline news over the next month or two and draw some attention to sectors such as Space Tech and ETFs like UFO.

In this article, we have highlighted two unique ETFs that allow traders to engage in disruptive technologies from different perspectives.  The MOON ETF is a more broad-based innovator ETF that includes Terran-based innovators and space technology firms.  The UFO ETF is more exclusively focused on space-related technologies and opportunities.

Traders want to stay ahead of these trends and opportunities related to what may become the next big disruptive technology gains.  As we move further into the 21st Century, it is very likely that space will become the DOT COM/Internet disruptive technology over the next 20 to 40+ years (or longer).  That means traders need to start considering how this exciting new sector fits into their investment portfolio and where new industry leaders will settle.

Learn how my BAN Trader Pro Strategy can help you identify and trade better sector setups.  My team and I built this technology to help us identify the strongest and best trade setups in any market sector.  Every day, we deliver these setups to our subscribers along with the BAN Trader Pro system trades.  You owe it to yourself to see how simple it is to trade 30% to 40% of the time to generate incredible results.

Have a great day!

Chris Vermeulen
Founder & Chief Market Strategist
www.TheTechnicalTraders.com

 

Timber! What Do Insane 2021 Lumber Prices Mean for You?

Before diving into the lumber market, let’s review the current state of the S&P 500.

There weren’t too many surprises in the S&P 500 in Tuesday’s cash session, as the $SPX settled practically flat on the day. $SPX is at the higher end of its recent range, as discussed in yesterday’s publication . It will most likely require a catalyst of some sort to push through higher or break lower from here. Will Thursday’s CPI data be the catalyst? I think it could be.

After last month’s monster CPI print , traders are on their tippy-toes waiting for this data release. It is important to know that the $SPX was already down for two consecutive sessions when last month’s CPI print came out. It then sold off further intraday (May 12) and closed sharply lower.

Figure 1 – $SPX S&P 500 Index April 28, 2021 – June 8, 2021, Hourly Candles Source tradingview.com

It seems like everyone is talking about inflation, and with good reason! It is real and is impacting lives. All eyes are peeled for Thursday’s CPI data release.

Speaking of inflation, have you noticed the price of lumber lately? We all know that commodities are much higher and that homes are priced ridiculously high across most of the US. What amazes me is the demand and ability for borrowing at such high prices…but that is a subject for another time.

Check out this long-term chart of Lumber Futures (front-month):

Figure 2 – LBS1! Random Length Lumber Futures Continuous Contract December 1972 – June 2021 Monthly Candles Source tradingview.com

That’s a 48-Year chart for lumber, folks. Again, that is a chart for lumber. There is no Bitcoin or Dogecoin inside the lumber. There isn’t any 24K gold hiding in there. It is wood, and it managed to go ~ 8X from the pandemic lows.

This monster clearly decided that the average prices over nearly half a century just didn’t apply anymore. What a move!

I want to put this in big bold letters here: I strongly suggest against trading in Lumber Futures. They can be illiquid, and experience many limit up and limit down days. You could be stuck in a losing position and not be able to get out. The only traders in Lumber futures should be hedgers that are in the wood business or deep pocket institutional traders that have real money to burn. Futures trading entails unlimited risk. I am sure that many fortunes have been made, and many more have been lost during this insane lumber market. Being on the wrong side of a futures market like that can be brutal.

Now that we have that out of the way, is there another way to participate in this market?

Yes, there is. But first, have you been following along with the GRID ETF trade that was covered in the May 6, 2021 publication? We were targeting an idea buy range of $86.91 – $88.17.

Figure 3 – First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID) Daily Candles January 7, 2021 – June 8, 2021. Source tradingview.com

Given the infrastructure bill theme that is currently in play in the US, the $100 Billion aimed at upgrading and building out the nation’s electrical grid , and the fact that the new administration is still in its very early days, I don’t think it is too late to get aboard. I like pullbacks, and we will be covering them.

Now, for our premium subscribers, let’s explore a potential opportunity in the lumber sector. 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.

 

Visa Set to Reward Shareholders

Dow component Visa Inc. (V) is trading just five points below April’s all-time high after bullish Credit Suisse commentary. The financial giant has risen about 7% so far in 2021 but could add substantially to those gains as international locations get vaccinated and open their borders to travelers.  U.S. citizens alone could add significantly to payment volumes, with baby boomer accounts stuffed with discretionary capital earmarked for foreign destinations.

Slow International Recovery

The stock had a mixed 2020, booking an 11.7% return, but added just four points to the February 2020 peak by year’s end. It benefited from the rapid transition out of paper currency and into digital assets when the pandemic struck but transaction volumes still haven’t returned to 2019 levels. Americans are doing their part, with 2021 GDP surging above 6%, but the slow recovery in Europe and parts of Asia continue to weigh on investor sentiment.

Credit Suisse analyst Moshe Orenbuch raised his target to $285 on Tuesday, noting “Visa provided updated business metrics through May 31st, highlighted by cross-border ex-intra Europe improving to 85% of 2019 levels in May. This 600bps improvement compares to a guide that implies only 200-300bps of improvement for the entire quarter. In our view, Visa’s cross-border recovery highlights our stance that cross-border revenue can begin to surpass 2019 levels far before we reach a full recovery in travel.”

Wall Street and Technical Outlook

Wall Street consensus rates Visa as a ‘Buy’ based upon 28 ‘Buy’, 6 ‘Overweight’, 4 ‘Hold’, and 1 ‘Underweight’ recommendation. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $238 to a Street-high $297 while the stock opened Wednesday’s session about $6 below the low target. This depressed placement suggests major upside but solid metrics will be needed to overcome investor caution.

A strong uptrend topped out near 215 in February 2020, giving way to a steep slide, followed by a vertical recovery wave that stalled in September after completing a 100% retracement into the first quarter peak. Visa has spent the rest of the year and first two quarters of 2021 grinding sideways to higher in a shallow trajectory. Weak accumulation since November 2020 highlights investor caution that should dissipate once enough jabs hit European and Asian arms.

For a look at all this week’s economic events, check out our economic calendar.

Disclosure: the author held Visa in a family account at the time of publication.

Buyers Do Not Have Enough

Indices are firm in the middle of the week with the SP500 flirting with all-time-highs and the Nasdaq coming back above major supports. Two main indices are slightly behind: the DAX and Nikkei but we cannot say that there is a major bearish situation there. At least not yet.

Gold protected the crucial mid-term up trendline and saved its positive sentiment.

Brent Oil escaped from a few days long consolidation and is aiming for new long-term highs.

The USDCAD consolidated above the strong long-term horizontal support, which may indicate willingness for a breakout.

The ERUCHF keeps dropping but the price is getting closer to the mother of all supports, where the situation can get very interesting.

The EURAUD is in a very clean price action setup, where the price bounces from a combination of two horizontal and one dynamic resistance. As long as we stay below, the sentiment is negative.

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

Stocks Pop in After-Hours as Traders Eye Oil and Inflation

Stocks finished mixed on Monday with the S&P 500 failing to make a run for a new record and closing slightly in the red. The index is already up about 12% year-to-date, but investors are feeling a bit skittish about inflation.

The Nasdaq and the Dow Jones Industrial Average both finished the day up fractionally, while oil is back on investors’ radar to reclaim the USD 100 level in the medium-term. Meme stocks continue to rule the roost. Let’s take a look at some of today’s market action.

Movers & Shakers

  • Movie chain AMC Entertainment tops today’s most actively trading stock, with 344.5 million shares changing hands. Most of that was buying activity, with the stock advancing nearly 15% to USD 55. Retail investors were calling hedge funds’ bluff for naked short selling activity in meme stocks.
  • The second most actively traded stock today was fellow internet meme name BlackBerry. With trading volume of 193 million, trading in this nostalgic stock outpaced activity in fellow tech names Apple, Nokia and AMD.
  • Clover Health made the most active list with 112 million shares exchanged today. Clover is also one of the most heavily shorted names and the meme-stock crowd drove the stock higher by an eye-popping 32% today.

Here are the stocks to watch in after-hours trading:

  • Shares of StitchFix are up 15% in after-hours trading after the company handily beat Q3 estimates. The company, which sells clothes online and gives wardrobe advice, reported a loss of USD 0.18 per share compared to Wall Street estimates for a steeper 0.27 per-share loss. Revenue came in at USD 536 million and the number of users rose 20% to more than 4 million.
  • Marvell Tech shares also moved higher in the after market, tacking on almost 5% on the heels of better-than-expected Q1 results. The company also has a bullish outlook for the current quarter.
  • Coupa Software shares were taking it on the chin in extended-hours trading, falling by more than 8%. Investors punished the stock due to a revenue forecast that cuts it too close to Wall Street’s expectations.

What to Expect

All eyes are on inflation with May’s Consumer Price Index data set to be released on Thursday. In the prior month, the CPI inched higher by 4.2%, which was reminiscent of a trend in the recession year of 2008. Any hint of inflation rising too far too fast could force the Fed to move its hand away from its dovish stance.

Crude oil is another major theme, as investors have turned bullish on the commodity once again. Traders are reportedly buying call options for Brent and WTI oil with a USD 100 target by year-end 2022. Oil hasn’t seen that level in seven years.

E-mini Dow Jones Industrial Average (YM) Futures Technical Analysis – Having Trouble Sustaining Early Strength

June E-mini Dow Jones Industrial Average futures are edging higher shortly after the cash market opening on Monday as investors remained neutral ahead of a major U.S. inflation report later this week, while heavyweight technology shares largely shrugged off a deal by the world’s richest nations on a global minimum corporate tax.

At 13:35 GMT, June E-mini Dow Jones Industrial Average futures are trading 34769, up 27 or +0.08%.

On Thursday, June 10, investors will get the opportunity to react to the latest CPI and Core CPI reports. Consumer inflation for May is expected to have risen by 0.4%, down from 0.8% in April. Core CPI is expected to have risen by 0.4%, down from 0.9% in April.

Providing the support early in the session is Visa. The credit card company is trading 233.34, up $3.20 or +1.39%. On the downside, Dow Inc is trading $69.66, down $0.71 or -1.01%.

Daily June E-mini Dow Jones Industrial Average

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. The high of the session is 34825, just shy of the 34827 main top. A trade through this price will reaffirm the uptrend. The major top is the contract high at 35000. A new main bottom was formed at 34310. A trade through this level will change the main trend to down.

The minor trend is down. A trade through 34827 will change the minor trend to up.

The minor range is 34170 to 34827. Its 50% level at 34499 is support.

The first short-term range is 34402 to 34827. Its 50% level at 34115 is a potential support level. The second potential downside target and support area is a retracement zone at 34014 to 33822.

Daily Swing Chart Technical Forecast

The direction of the June E-mini Dow Jones Industrial Average is likely to be determined by trader reaction to 34742.

Bullish Scenario

A sustained move over 34742 will indicate the presence of buyers. Taking out 34827 will reaffirm the uptrend and could trigger an acceleration to the upside with 35000 the next major upside target.

Bearish Scenario

A sustained move under 34742 will signal the presence of sellers. If this creates enough downside momentum then look for the selling to possibly extend into the minor pivot at 34499. Since the main trend is up, buyers could come in on the first test of this level. If it fails then look for the selling to possibly extend into the main bottom at 34310.

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

The Week Ahead – Economic Data, the BoC, and the ECB to Keep the Markets Busy

On the Macro

It’s a quieter week ahead on the economic calendar, with 42 stats in focus in the week ending 11th June. In the week prior, 80 stats had been in focus.

For the Dollar:

Early in the week, trade data and JOLT’s job opening figures are due out on Tuesday. With continued focus on labor market conditions, expect the job opening figures to be key.

The markets will then need to wait until Thursday for inflation and jobless claim figures.

Following the core PCE price index figures for April, another pickup in inflationary pressure would raise further uncertainty over FED policy.

Labor market conditions will need to continue to improve, however, to justify a move.

Initial jobless claims would, therefore, need to take a tumble to fuel speculation of a near-term move.

In the week, the Dollar ended the week up by 0.12% to 90.136.

For the EUR:

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

Early in the week, the German economy will be in focus.

Factory orders, industrial production, and trade data are due out Monday through Wednesday.

ZEW Economic Sentiment figures for Germany and the Eurozone on Tuesday will also influence.

In the 2nd half of the week, stats are on the lighter side, leaving the ECB monetary policy decision as the main event on Thursday.

Following assurances from the ECB doves of unwavering support, the markets will be looking for any talk of a tapering to the asset purchasing program.

The ECB’s outlook on inflation and economy will also be key, however.

Barring a marked revision from prelim figures, finalized GDP numbers for the Eurozone should have a muted impact on the EUR early in the week.

The EUR ended the week down by 0.21% to $1.2167.

For the Pound:

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

Early in the week, BRC retail sales figures for May will be in focus. With the UK continuing to reopen, we can expect Pound sensitivity to the numbers.

At the end of the week, trade data and industrial and manufacturing production figures for April will draw interests.

While trade data will influence, expect production figures to be key.

Away from the economic calendar, the markets will also be keeping an eye on COVID-19 news…

The Pound ended the week down by 0.22% to $1.4157.

For the Loonie:

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

On the economic data front, trade data will draw interest on Tuesday. With little else for the markets to focus on, expect plenty of influence from the data.

The main event of the week, however, will be the BoC monetary policy decision.

With the markets expecting the BoC to stand pat on policy, it will come down to the BoC’s outlook on growth. Last time around, the BoC delivered an unexpected boost to the Loonie.

Monthly reports from OPEC and the IEA and the inventory numbers will also provide direction, however.

The Loonie ended the week down 0.07% to C$1.2084 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s a quieter week ahead.

Business and consumer confidence figures are due out on Tuesday and Wednesday.

With business investment and consumer spending key to a sustained economic recovery, both sets of numbers will influence.

The Aussie Dollar ended the week up by 0.35% to $0.7739.

For the Kiwi Dollar:

It’s also a relatively quiet week ahead.

Electronic card retail sales and Business PMI numbers are due out. Following the more hawkish than expected RBNZ, positive numbers would deliver another Kiwi boost.

The Kiwi Dollar ended the week down by 0.50% to $0.7214.

For the Japanese Yen:

Finalized GDP numbers for the 1st quarter are due out on Tuesday. Barring a marked revision from prelim, however, don’t expect too much influence from the numbers.

At the end of the week, the BSI Large Manufacturing Conditions Index figures for the 2nd quarter will draw interest, however.

The Japanese Yen rose by 0.30% to ¥109.52 against the U.S Dollar.

Out of China

Trade data for May will provide the broader markets with direction at the start of the week.

Recent economic data from China has suggested a topping out…

On Wednesday, inflation figures will also influence. While the markets are expecting a further pickup in inflation, a marked acceleration would test support for riskier assets.

The Chinese Yuan ended the week down by 0.42% to CNY6.3953 against the U.S Dollar.

Geo-Politics

There are no major risks to consider in the week ahead.

As always, however, the markets will need to continue monitoring chatter from Capitol Hill and Beijing.

The Iranian presidential election is also nearing…

The Weekly Wrap – U.S Labor Market Data Gyrates the Global Financial Markets

The Stats

It was a particularly busy week on the economic calendar, in the week ending 4th June.

A total of 80 stats were monitored, following 41 stats from the week prior.

Of the 80 stats, 48 came in ahead forecasts, with 27 economic indicators coming up short of forecasts. There were 5 stats that were in line with forecasts in the week.

Looking at the numbers, 49 of the stats reflected an upward trend from previous figures. Of the remaining 31 stats, 26 reflected a deterioration from previous.

For the Greenback, economic data from the U.S and FOMC chatter continued to be the main area of focus. In the week ending 4th June, the Dollar Spot Index rose by 0.12% to 90.136. In the previous week, the Dollar had risen by 0.02% to 90.031.

Out of the U.S

It was a quiet start to the week, with the U.S markets closed in recognition of Memorial Day on Monday.

On Tuesday, the ISM Manufacturing PMI rose from 60.7 to 61.2, supporting the market optimism towards the economic outlook.

The markets then needed to wait until Thursday and Friday for the key stats of the week.

ADP nonfarm employment change and weekly jobless claims were in focus along with the market’s favored ISM Non-Manufacturing PMI figures for May.

In May, nonfarm payrolls surged by 978k according to the ADP, coming in well ahead of a forecasted 650k increase. In April, nonfarm payrolls had risen by 654k.

Initial jobless claim figures also impressed. In the week ending 28th May, initial jobless claims fell from 405k to 385k. Economists had forecast a decline to 390k.

Service sector PMI numbers were also positive, with the ISM Non-Manufacturing PMI climbing from 62.7 to 64.0. Economists had forecast an increase to 63.0.

At the end of the week, it was another story, however.

Nonfarm payrolls increased by just 559k in May, falling well short of the ADP’s figures. Economists had forecast a 650k increase following April’s modest 278k rise.

A fall in the participation rate and increase in payrolls supported a fall in the unemployment rate.

In May, the U.S unemployment rate fell from 6.1% to 5.8%. This was not enough, however, to soften the impact from the disappointing NFP numbers…

In the equity markets, the NASDAQ rose by 0.48%, with the Dow and the S&P500 seeing gains of 0.66% and 0.61% respectively.

Out of the UK

It was a relatively quiet week, with finalized private sector PMIs for May in focus.

The stats were mixed in the week. In May, the manufacturing PMI rose from 60.9 to 65.6. While up from April, this was down from a prelim 66.1.

On Thursday, service sector PMI numbers provided Pound support.

In May, the services PMI rose from 61.0 to 62.9, which was up from a prelim 61.8.

Construction PMI figures from Friday were also out but had a muted impact on the Pound.

While the stats were Pound positive, concerns over new COVID-19 strains identified in the UK weighed on the Pound.

In the week, the Pound fell by 0.22% to end the week at $1.4157. In the week prior, the Pound had risen by 0.27% to $1.4188.

The FTSE100 ended the week up by 0.66%, following a 0.06% rise from the previous week.

Out of the Eurozone

Private sector PMIs, and German and Eurozone unemployment and retail sales figures were in focus.

Early in the week, manufacturing sector PMI numbers for May impressed. The Eurozone’s PMI hit a new record high. The Netherlands, Italy, Ireland, and Austria also logged record highs in the month.

Unemployment figures were also positive. In April, the Eurozone’s unemployment rate fell from 8.1% to 8.0%. In Germany, unemployment fell by a larger than expected 15k to leave the unemployment rate unchanged at 6.0% in May.

Mid-week, retail sales figures from Germany did disappoint, however, with sales down 5.5% in April. In March, retail sales had risen by 7.7%.

In the 2nd half of the week, service sector activity and retail sales figures for the Eurozone were in focus.

For May, the Eurozone’s Composite PMI came in at 57.1. This was up from an April 53.8 and a prelim 56.9.

At the end of the week, Eurozone retail sales figures had a muted impact on the EUR following weak numbers from France and Germany.

For the week, the EUR fell by 0.21% to $1.2167. In the week prior, the EUR had risen by 0.08% to $1.2192.

The DAX30 rose by 1.11%, with CAC40 and the EuroStoxx600 ending the week up by 0.49% and by 0.78% respectively.

For the Loonie

It was a busy week. Early in the week GDP numbers for the 1st quarter were in focus.

Month-on-month, the economy expanded by 1.1% in March, coming in ahead of a forecasted 1.0%. In February, the economy had expanded by a more modest 0.4%.

Quarter-on-quarter, the economy expanded by a further 1.4%, following 2.2% growth in the 4th quarter of last year.

At the end of the week, Ivey PMI and employment figures were in focus.

In May, the unemployment rate ticked up from 8.1% to 8.2%, driven by a 68k fall in employment. In April, employment had tumbled by 207.1k.

Mid-way through the 2nd quarter, the Ivey PMI provided some support, however. In May, the Ivey PMI climbed from 60.6 to 64.7.

Other stats included current account, RMPI, and building permit numbers that had a muted impact on the Loonie.

In the week ending 4th June, the Loonie slipped by 0.07% to C$1.2084. In the week prior, the Loonie had fallen by 0.08% to C$1.2076.

Elsewhere

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

In the week ending 4th June, the Aussie Dollar rose by 0.35% to $0.7739, while the Kiwi Dollar fell by 0.50% to $0.7214.

For the Aussie Dollar

It was a busy week.

Company gross operating profits, 1st quarter GDP and trade figures were key stats in the week.

Gross operating profits fell by a further 0.3% in the 1st quarter, following a 4.8% slide from the 4th quarter.

On the positive, however, were better than expected GDP and trade figures.

In the 1st quarter, the Australian economy expanded by 1.8%, coming in ahead of a forecasted 1.1%. In the 4th quarter, the economy had expanded by 3.1%. Year-on-year, the economy grew by 1.1%. In the 4th quarter, the economy had contracted by 1.0%.

In April, the trade surplus widened from A$5.574bn to A$8.028bn, also positive for the Aussie Dollar.

Finalized retail sales figures were also out and were in line with prelim figures, affirming a 1.1% rise in April.

While the stats were skewed to the positive, the RBA weighed on the Aussie Dollar on Tuesday.

Standing pat on monetary policy, the RBA stood by its policy outlook, forecasting a hold on policy until 2024 at the earliest.

For the Kiwi Dollar

It was a quiet week.

Business confidence and building consents were in focus.

In May, business confidence improved, with the ANZ Business Confidence Index rising from -2 to 1.8. This was down 5 points from a prelim 7.0, however.

Building consents continued to rise in April, with consents up 4.8% following a 19.2% surge in March.

For the Japanese Yen

It was a busier week.

Industrial production, retail sales, capital spending, and household spending figures were in focus.

Finalized private sector PMIs for May also drew interest.

The stats were skewed to the positive in the week.

Retail sales and household spending delivered some comfort. In April, retail sales rose by 12%, with household spending up 0.1% in the month. Economists had forecast a 2.2% decline in household spending.

Industrial production rose by a further 2.5%, following a 1.7% increase in March, which was also positive.

Capital spending disappointed, however, falling by 7.8% in the 1st quarter. In the 4th quarter, spending had declined by a more modest 4.8%.

Private sector PMIs delivered mixed results in the month, with the services sector struggling.

In May, the services PMI fell from 49.5 to 46.5, which was up from a prelim 45.7. A rise in new COVID-19 cases weighed on service sector activity in May.

The manufacturing sector continued to see growth, however, with the PMI seeing a modest decline from 53.6 to 53.0. This was up from a prelim 52.5.

The Japanese Yen rose by 0.30% to ¥109.52 against the U.S Dollar. In the week prior, the Yen had fallen by 0.82% to ¥109.85.

Out of China

Private sector PMIs for May were out.

It was a mixed set of numbers, however.

The NBS Manufacturing PMI slipped from 51.1 to 51.0, while the non-manufacturing PMI increased from 54.9 to 55.2.

It was a different story for the market’s preferred Caixin numbers, however. The Manufacturing PMI increased from 51.9 to 52.0, while the services PMI fell from 56.3 to 55.1.

In the week ending 4th June, the Chinese Yuan fell by 0.42% to CNY6.3953. In the week prior, the Yuan had risen by 1.02% to CNY6.3685.

The CSI300 and the Hang Seng ended the week down by 0.73% and by 0.71% respectively.

US Equities Rally, Dollar Drops as Hiring Picked Up Last Month

US stocks performed excellently this afternoon while the Greenback fell following a pickup in hiring last month. The job data has bolstered confidence in the economy. However, the surge in hourly wages contributed to inflation worries in the country, leading the US Dollar to perform poorly.

US stocks rally, USD underperforms

US equities are performing excellently as the stock markets in the country open. This comes following an impressive job data presented a few hours ago. The United States added 559,000 jobs in May, one of the highest recorded in a while and just below the average forecast.

Following this impressive job data, US indices are performing excellently this afternoon. The S&P 500 is currently up by 0.5%, while the NASDAQ 100 also surged by 0.8%. Furthermore, the Dow Jones Industrial Average went up by 0.4%, the Stoxx Europe 600’s value is up by 0.2%, and the MSCI World index has seen a 0.5% increase.

S&P 500 chart. Source: FXEMPIRE

While the stocks are performing well, the US Dollar is having a tough time in the market. The Bloomberg Dollar Spot Index dropped by 0.5%, while the Euro gained 0.4% over the past few hours to now stay at $1.2176. The GBP also went up by 0.7% against the USD and now stands at $1.4198. The Greenback is basically losing against most of its major competitors as it is also down by 0.6% against the Japanese Yen.

The decline in the US Dollar’s performance is due to the increase in hourly wages, creating concern about the rising inflation wages in the country.

Will the job data continue to increase?

The economy of the United States and several other countries in the world is slowly recovering following the Coronavirus pandemic that plagued virtually every country last year. Due to the pandemic, millions lost their jobs.

However, the Biden administration is targeting at least 70% of Adult Americans should be vaccinated over the coming months. This would allow more businesses to open and more people to go back to work. In that case, the job data could continue to increase or maintain this level over the coming months, strengthening the equities market in the process.

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

Head Spinning Crash Course In Share Price Volatility (VIX vs VVIX)

While there are a plethora of methods, calculations, and derivatives to calculate volatility, they are all trying to accomplish the same goal: what is the price of a security going to do in the future? Without a crystal ball, there’s no perfect answer, but let’s go through a few common ways that we can estimate future volatility.

LET’S TALK VOLATILITY

Generally speaking, there are two types of volatility that traders and investors use in an effort to understand risk – historical volatility and implied volatility. Each of these can be used in different ways for different types of trades. Today we’re going to go through the basics of implied volatility, starting with the VIX.

First proposed as the Sigma Index in 1987, the VIX got its start in 1993 when the CBOE reported implied volatility in real time using at-the-money options data from the S&P 100. While updates have been made to the VIX over time, it’s used as a “fear gauge” or a measure of the market’s expectations of future price action. As the VIX increases, the market expects more risk ahead.

Take a look at the most recent recession in 2020 – where we saw the VIX climb as high as 85. At that price, the market is expecting extreme risk. Ultimately, the VIX is the industry standard to help traders and investors have a standardized view of market risk through implied volatility.

The VIX is useful because it can give us a hint at what the market is expecting since it is an example of implied volatility. Typically, IV is derived using an options pricing model, such as the Black–Scholes. Using these models, the theoretical value of an option can help guide us to the measurement of implied volatility at a particular point in time.

Traders and investors can use IV to find attractive options trades to hedge, enter or exit a position, or to speculate on a future outcome in the market.

HISTORICAL VOLATILITY

While the VIX is a measure of implied volatility, there are many historical measures of volatility that can be useful. One common example is the beta coefficient. This is a historical calculation measured by taking the returns associated with a security and comparing the price action of the market over the same time period. A security with a beta less than 1 implies that the security is theoretically less volatile than the market as a whole. A security with a beta greater than 1 would be more volatile than the market.

For those that want to have a full picture of the risk of a security, the beta coefficient can help separate market risk from individual security risk. These types of measures can help you diversify properly with respect to your individual risk tolerance.

A historical volatility calculation like beta gives you a basic understanding of what the price of a security has done in the past. While past performance is not indicative of future results, historical volatility calculations can be used to help measure risk and ultimately help determine if a security is right for you.

THE VOLATILITY OF THE VOLATILITY – VVIX

To further confuse new traders there is such a thing called the volatility of the volatility – AKA the VIX of the VIX (VVIX). No this is not an exercise in doublespeak. If you are a subscriber you will have heard me talk about this before. The VVIX is simply a measure of the change of volatility in the VIX volatility index.

The VVIX is the VIX of the VIX like the VIX is the VIX of stocks. Ok, if you are not thoroughly confused by now then congrats because this stuff can get pretty mind-bending! Another way to put it is, the VVIX measures how rapidly S&P 500 volatility changes, and is thus a measure of the volatility of the index. Investors can use the VVIX and its derivatives to hedge against volatility swings on changes in the VIX options market. You can hedge the hedge!

WHY YOU SHOULDN’T BE AFRAID OF VOLATILITY

All told, volatility is just a measurement that can give you insight into the potential risk of a security. It’s important to remember that actual volatility is almost always less than implied volatility. No measure of risk is going to be totally accurate, anything can happen in the financial markets. Even so, volatility measurements can offer a clear view of risk the market expects.

If you want to learn more about how to trade options, about how to take all factors of options pricing into consideration, and about how to account for volatility in your options trading, please look into our Options Trading Signals.  We send trade alerts out weekly and do daily updates on our positions as to why we got in and out along with the factors to our strategies.  We trade proprietary strategies you will not find anywhere else.  Our goal is to make the market work for us and not try to work the market like everyone else.

You owe it to yourself to have the best tools and subject matter experts on had to ensure you are set up for ultimate success.  Don’t trade with one hand behind your back. Rather, expedite your learning curve with the Options Trading newsletter service.

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

Have a wonderful weekend!

Chris Vermeulen
Founder & Chief Market Strategist
www.TheTechnicalTraders.com

 

USD Gains Traction Ahead of the NFP

American Traders did what they love to do. They bought the dip and made another V-shape reversal. SP500 and Dow Jones are back above the major supports with handsome buy signals.

The Nasdaq on the other hand is still struggling. Here, a further drop is very probable.

The DAX is flirting with all-time-highs, again

Gold drops after a brilliant head and shoulders pattern. The drop stopped on a mid-term up trendline. This can be a good place to stop this correction.

The EURUSD drops ahead of the NFP data.

This day is important for the USDCAD as we do have labor market data from Canada and the US. The ‘loonie’ tries to bounce from a major long-term horizontal support.

The AUDCHF doing everything to defend the 38,2% Fibo.

The AUDUSD breaks the neckline of the H&S formation and the lower line of the triangle is possibly bearish.

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 34499 Sets the Tone

June E-mini Dow Jones Industrial Average futures are trading flat as investors prepared for the release of several economic reports on Thursday and the U.S. Non-Farm Payrolls report on Friday. The outcome of these reports, especially the jobs data, could influence Fed policy when it meets in mid-June.

At 06:20 GMT, June E-mini Dow Jones Industrial Average futures are trading 34576, down 14 or -0.04%.

Inflation remains in focus after the release of the core personal consumption expenditures index – a key inflation gauge – last week. The core PCE rose 3.1% in April from a year earlier, hotter than expected. The report apparently raised some concerns on Wall Street because the rally appears to have stalled.

In other news, the Federal Reserve’s Beige Book published on Wednesday reported businesses are facing rising costs, particularly on goods used to make their products. The Fed also found that firms are offering higher wages and other incentives to lure employees back to work.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 34827 will signal a resumption of the uptrend. A move through 33402 will change the main trend to down.

The minor trend is also up. A trade through 34408 will change the minor trend to down. This will also shift momentum to the downside.

The minor range is 34170 to 34827. Its 50% level at 34499 is potential support.

The second minor range is 34402 to 34827. Its 50% level at 34115 is another potential support level.

The short-term range is 33200 to 34827. If the minor trend changes to down then its retracement zone at 34014 to 33822 will become the primary downside target.

Daily Swing Chart Technical Forecast

The direction of the June E-mini Dow Jones Industrial Average on Thursday is likely to be determined by trader reaction to the minor pivot at 34499.

Bullish Scenario

A sustained move over 34499 will indicate the presence of buyers. If this creates enough upside momentum then look for the move to possibly extend into 34827. Taking out this level will reaffirm the uptrend with 35000 the next likely upside target.

Bearish Scenario

A sustained move under 34499 will signal the presence of sellers. The first target is 34408. Taking out this level will indicate the selling is getting stronger with 34170, 34115 and 34014 the next likely downside targets.

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