What Is The New Norm In The Stock Market When It Seems Normal No Longer Exists?

Yet when we look at the stock market charts they continue to go up.  We have bad jobs data – the markets respond and go up.  We have poor CPI – the markets go up.  The housing data misses – the markets go up.  It is like bouncing off Teflon.  What used to cause rifts in the markets now cause the opposite.  In this upside-down world, this has become the norm.

Since March 18, 2020 until now we have had the following gains:

  • S&P – 71% increase
  • NASDAQ – 97% increase
  • Russell – 90% increase
  • Dow – 64% increase
  • Silver – 120% increase
  • Gold – 50% increase
  • BitCoin – 385% (was as high as 767%)

So, we ask how in the heck is this happening?  How can it be that the markets respond in a positive way to the bad economic news?  The continued slow economic recovery.  The largest debt this world has ever seen.  What on this earth is fueling all this?  It took me a while to figure it out, but it is simple.

In short, these markets like the bad news because it forces quantitative easing and keeps interest rates down.  This is akin to the FED hitting the gas on the economy while driving on a sheet of ice.  Most would expect the Fed to proceed with caution but instead, they are going for broke.

So, every time we see bad numbers the markets respond positively, and bad news is good news.  We have seen this since the breakdown of the markets in March of 2020 and it has continued.  The problem is that we are creating another bubble and when that finally bursts, we are going to have to move fast and furious.  Nobody knows when that will be – next week, next month, or a year from now.  All we can do as traders is to be cautious and execute trades that have defined risk.

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 that 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 with 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 or AKA the VIX of the VIX (VVIX).  No this is not an exercise on doublespeak if you are a subscriber you would have seen 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 confusing.  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 the 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.

We are also offering a live course tomorrow, Saturday, June 19th at 10:00 am with Neil Szczepanski, our Options Trading Specialist! Learning the basics of options trading is the foundation required for more advanced consistent income trading strategies.

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.

Have a wonderful weekend!

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

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

 

European Equities: A Week in Review – 18/06/21

The Majors

It was a bearish week for the majors in the week ending 18th June, with a Friday sell-off doing the damage.

The DAX30 and the EuroStoxx600 ended the down by 1.56% and by 1.16% respectively, with the CAC40 falling by 0.48%.

While economic data influenced in the week, a more hawkish than expected FED  weighed on the majors.

On Friday, hawkish FOMC member chatter added to the market angst.

The Stats

Industrial production, trade data, and wage growth figures for the Eurozone were in focus.

It was a mixed set of numbers for the majors.

While industrial production rose by more than expected in April, the Eurozone’s trade surplus narrowed markedly, with wage growth also slowing significantly in the 1st quarter.

The stats had a relatively muted impact on the EUR, however, with the markets focus being on the FED in the week.

Late in the week, finalized inflation figures for the Eurozone and wholesale inflation figures from Germany delivered little comfort.

Inflationary pressures have continued to build and a marked acceleration in Germany wholesale inflation added more pressure on the majors on Friday.

In May, the Eurozone’s annual rate of inflation accelerated from 1.6% to 2.0%, which was in line with prelim numbers. Consumer prices increased by 0.3% in the month of May, which was also in line with prelim figures. In April, consumer prices had risen by 0.6%.

German wholesale inflation figures pointed to a further pickup in headline inflation in the months ahead.

In May, Germany’s annual wholesale rate of inflation accelerated from 5.2% to 7.2%.

From the U.S

Retail sales and wholesale inflation figures drew plenty of attention on Tuesday.

It was a mixed set of numbers, however.

While wholesale inflationary pressures picked up in May, retail sales hit reverse in May.

Industrial production and NY Empire State manufacturing numbers also delivered mixed results on the day.

While industrial production rose further in May, the NY Empire State Manufacturing Index fell from 24.3 to 17.4 in June.

In the 2nd half of the week, jobless claims and Philly FED Manufacturing PMI numbers were in focus.

In June, the Philly FED Manufacturing PMI fell from 31.5 to 30.7, versus a forecasted 31.0.

While the headline index declined, the employment sub-index was on the rise. The sub-index increased from 19.3 to 30.7.

Jobless claim figures disappointed, however.

In the week ending 11th June, initial jobless claims rose from 375k to 412k. Economists had forecast a decline to 359k.

While the stats did draw attention, the FOMC monetary policy decision, press conference, and economic projections were the key drivers in the week.

A more hawkish than expected outlook on the economy and interest rates sent the European majors into a spin late in the week.

The Market Movers

From the DAX, it was a bearish week for the auto sector. Volkswagen slid by 6.25%, with BMW and Continental ending the week down by 4.02% and by 4.47% respectively. Daimler saw a relatively modest 3.05% loss in the week.

It was also a bearish week for the banking sector. Deutsche Bank and Commerzbank slid by 6.16% and by 5.53% respectively.

From the CAC, it was a bearish week for the banks. Credit Agricole and Soc Gen saw losses of 5.07% and 5.01% respectively, with BNP Paribas falling by 4.31%.

It was also a bearish week for the French auto sector. Stellantis NV and Renault ended the week down by 4.00% and by 3.95% respectively.

Air France-KLM saw a modest 2.57% loss, while Airbus ended the week up 0.39%.

On the VIX Index

It was a 1st week in the green from 4 for the VIX in the week ending 18th June. Reversing a 4.69% decline from the week prior, the VIX jumped by 32.27% to end the week at 20.70.

4-days in the green from 5 sessions, which included an 16.62% jump on Friday delivered the upside in the week.

For the week, the Dow slid by 3.45%, with the NASDAQ and the S&P500 ending the week down by 0.28% and by 1.91% respectively.

VIX 190621 Weekly Chart

The Week Ahead

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

On Wednesday, prelim private sector PMIs for France, Germany, and the Eurozone will draw plenty of attention.

While manufacturing sector PMI numbers from Germany remain, key a further pickup in service sector activity across the Euro bloc is going to be needed to support the market optimism.

Through the latter part of the week, German business and consumer sentiment figures will also influence.

From the U.S, private sector PMIs on Wednesday will also be in focus on Wednesday. Expect the services PMI to be the key driver for riskier assets. On Thursday, the focus will shift to jobless claims and core durable goods orders ahead of personal spending and inflation numbers on Friday.

We could see riskier assets come under further pressure should there be a marked decline in jobless claims figures in the week.

On the monetary policy front, central bank chatter will now begin to have a greater influence following last week’s FOMC projections and press conference.

U.S. Dollar Index (DX) Futures Technical Analysis – 92.495 Next Trigger Point for Acceleration to Upside

The U.S. Dollar is surging against a basket of major currencies despite firmer Treasury yields. The strength in the index is being primary driven by a plunge in Euro.

The greenback is headed for its best week in nearly nine months on Friday on the back of a shift in the Federal Reserve’s monetary tone to hawkish. Worries that the Fed could start raising rates sooner than expected are also boosting the greenback. This notion was supported by hawkish comments from St. Louis Federal Reserve President Jim Bullard.

At 20:39 GMT, September U.S. Dollar Index futures are trading 92.270, up 0.397 or +0.43%.

Bullard told CNBC’s “Squawk Box” it was natural for the Fed to tilt a little “hawkish” this week and that the first rates increase from the central bank would likely come in 2022.

Bullish dollar traders also feel with a dovish European Central Bank (ECB) seemingly far behind the Fed in the monetary policy cycle, the greenback is an attractive investment.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through Thursday’s high reaffirmed the uptrend. A trade through 89.795 will change the main trend to down.

The minor trend is also up. A trade through 90.310 will change the minor trend to down. This will shift momentum to the downside.

The nearest resistance is the Fibonacci level at 92.495.

On the downside, the nearest support is a pair of retracement levels at 91.950 to 91.850. This support cluster is currently controlling the near-term direction of the dollar index. The index is currently trading on the strong side of this support cluster, making it support.

Short-Term Outlook

Look for the bullish tone to continue as long as the index holds above 91.850. Taking out the Fibonacci level at 92.495 could trigger an acceleration to the upside with the next major target the March 31 main top at 93.430.

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

E-mini NASDAQ-100 Index (NQ) Futures Technical Analysis – Reversal Top Signaling Shift in Momentum to Downside

September E-mini NASDAQ-100 Index futures are trading lower late Friday as investors worry the Federal Reserve could start raising rates sooner than expected.

Today’s selling was sparked by hawkish comments from St. Louis Federal Reserve President Jim Bullard, who told CNBC’s Squawk Box” it was natural for the Fed to tilt a little “hawkish” this week and that the first rate increase from the central bank would likely come in 2022.

At 20:00 GMT, September E-mini NASDAQ-100 Index futures are at 14058.00, down 98.25 or -0.69%.

“We’re expecting a good year, a good reopening. But this is a bigger year than we were expecting, more inflation than we were expecting,” the central bank official said. “I think it’s natural that we’ve tilted a little bit more hawkish here to contain inflationary pressures.”

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. The uptrend was reaffirmed earlier in the session when buyers took out yesterday’s high. A trade through 13451.25 will change the main trend to down. This is highly unlikely today, but the index is setting up for a closing price reversal top.

A closing price reversal top won’t change the trend to down, but if confirmed, it could trigger the start of a 2 to 3 day correction.

The minor trend is also up. A trade through 13830.25 will change the minor trend to down. This will shift momentum to the downside.

The minor range is 13830.25 to 14204.75. Its retracement zone at 14017.50 to 13973.25 is the first downside target and potential support.

The second minor range is 13451.25 to 14204.75. Its 50% level at 13828.00 is the next potential downside target. This price is a potential trigger point for an acceleration to the downside with 13555.50 the next likely downside target.

Short-Term Outlook

A close under 14156.25 will form a potentially bearish closing price reversal top on the daily chart. If confirmed early next week then look for the start of a minimum 2 to 3 day correction with potential downside targets coming in at 13828.00 and 13555.25.

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 – 33004 Trigger for Accelerated Selling

September E-mini Dow Jones Industrial Average futures are down sharply late in the session on Friday after Federal Reserve official James Bullard said inflation was stronger than anticipated and it would take the central bank several meetings to figure out how to pare back stimulus.

The blue-chip Dow was set for its worst day in a month after Bullard, president of the St. Louis Federal Reserve, said he was among the seven officials who saw rate increases beginning next year to contain inflation.

At 19:02 GMT, September E-mini Dow Jones Industrial Average futures are trading 33244, down 449 or -1.33%.

Friday is also “quadruple witching day,” the quarterly simultaneous expiration of U.S. options and futures contracts which bring about increased trading volume at the market close.

It is the largest options expiration in history, noted Randy Frederick, vice president of trading and derivatives for Charles Schwab.

Daily September E-mini Dow Jones Industrial Average

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. The downtrend was reaffirmed when sellers took out the main bottom at 33300. The next target is the May 13 main bottom at 33131.

A trade through 34711 will change the main trend to up. This is highly unlikely. However, the Dow is down nine sessions from its last main top. This puts it inside the window of time for a closing price reversal bottom. This may be the only chart pattern that stops the market from accelerating to the downside.

The main range is 31842 to 34883. The Dow is currently testing its retracement zone at 33363 to 33004. This zone is controlling the near-term direction of the market.

Daily Swing Chart Technical Forecast

The direction of the September E-mini Dow Jones Industrial Average into the close on Friday will be determined by trader reaction to the main 50% level at 33363.

Bearish Scenario

A sustained move under 33363 will indicate the presence of sellers. The next downside target is the main bottom at 33131, followed by the Fibonacci level at 33004. This price is a potential trigger point for an acceleration to the downside with 31842 the next major downside target.

Bullish Scenario

A sustained move over 33363 will signal the presence of buyers. This could trigger a short-covering rally into the close.

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

Investors Brace for Annual Russell Index Rebalancing with Pandemic Imprint

On the last Friday every June, FTSE Russell refreshes the components in its range of indexes, such as the Russell 2000 index of small-cap stocks and Russell 1000 index of large-cap names. Together they make up the Russell 3000 index. There are also style indexes such as the Russell 1000 growth and Russell 2000 value.

It is often the heaviest trading volume day of the year, as investors and fund managers scramble to buy or sell shares to dozens or even hundreds of companies to reflect changes in indexes. Many this year will be watching “meme stocks” like GameStop or AMC Entertainment whose value soared. Companies that went public through mergers with a Specialty Purpose Acquisition Company (SPAC) will also be on the radar.

As of the end of 2020, about $10.6 trillion in investor assets was benchmarked to Russell’s U.S. indexes, according to FTSE Russell.

While FTSE Russell has occasionally tweaked its rules for inclusion in its indexes, such as allowing companies with multiple share classes to remain in or be permitted for inclusion, this year’s reconstitution has no methodology changes.

“Our policy team obviously regularly talks to the market participants and our committees and there were no new rules identified that were needed,” said Catherine Yoshimoto, FTSE Russell Director of Product Management.

Market capitalization for the Russell 3000 index vaulted from $31.4 trillion in 2020 to $47.7 trillion as of Russell’s “rank day” on May 7, 2021.

Stock market volatility took the index on a wild ride in the past two years. In early 2020, stocks sold off when the pandemic hit but then rebounded late in the first quarter to remain about flat from the previous year. This year the market cap for the index surged as stocks have rebounded along with vaccine distribution and a reduction in pandemic-induced lockdowns.

“It’s more assets, more appreciation, you’ve got some stocks that have gotten bigger weight changes so they are going to see more trading volume because there is jumping around, so this is a bigger trade this year than it has been in previous years” said Steve DeSanctis, equity strategist at Jefferies in New York.

The market cap breakpoint Russell uses to determine inclusion in the large-cap Russell 1000 or the small cap 2000 also increased to $5.2 billion in 2021 from $3 billion in 2020.

Perhaps no group of stocks exemplified the pandemic trading environment more than the so-called “meme stocks” such as GameStop and AMC Entertainment.

Shares for those companies had languished and even been shorted by many institutional investors due to poor fundamentals. They took off like a rocket as retail investors using commission-free trading services looked for places to invest government stimulus checks.

The market cap of AMC, for instance, stood at $4.3 billion on the May 7 rank day, but has surged to over $30 billion by June 17, well above the top end of the market cap band for the Russell 2000 index of $7.3 billion set by Russell.

GameStop is expected to graduate to the Russell 1000 large cap index. Managers who have chosen not to own those stocks prefer they stay within the index so as not to disrupt their performance versus the benchmark.

“Where those stocks move will dictate a lot of active manager’s relative performance over the following six, eight or 10 months after the rebalancing,” said Keith Buchanan, senior portfolio manager at Globalt in Atlanta.

“I would rather have AMC in the benchmark because obviously since I don’t own it I think it is overvalued.” Therefore, if AMC falls, his investments would look better against the benchmark.

Goldman Sachs expects 255 additions to the Russell 3000 and 295 deletions, and expects 57 stocks will enter the Russell 1000, including 34 currently in the Russell 2000. Goldman anticipated a total of 279 stock will enter the small cap index, comprised of 232 new components and 47 being knocked down from the large cap index.

A big portion of expected adds will be companies that went public through a merger with a SPAC. Jefferies’ DeSanctis estimates over 25% of additions to the Russell 3000 are SPAC companies.

“It is the year of the SPAC, the year of the meme stock – and here they are having ramifications on real money,” said Ross Mayfield, investment strategist at Baird in Louisville, Kentucky.

During the event every year, volume surges near the close, often resulting in the biggest trading volume day of the year. The Nasdaq and New York Stock Exchange have contingency plans for the event.

KBW analyst Melissa Roberts expects the bulk of passive fund trading related to the reconstitution will occur in the last 15 minutes or so of the session and estimates the net trade will total nearly $75 billion.

“Let’s face it, for the New York Stock Exchange – Russell reconstitution, from a trading standpoint, is the greatest show on earth, that’s where it all comes down,” said Gordon Charlop, a managing director at Rosenblatt Securities in New York.

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

(Reporting by Chuck Mikolajczak; Editing by Alden Bentley and David Gregorio)

 

S&P 500 Weekly Price Forecast – S&P 500 Continues to Look at Supported

While we have had a lot of drama crossing the wires recently, it is worth noting that we are still very much in an area that is widely supported by traders in the S&P 500, so I think we are more than likely going to see a bit of recovery sooner rather than later. I think that buying on the dips continues to work, despite the fact that a lot of people have freak out about the idea of the Federal Reserve tightening. That being said, the tightening is not coming anytime soon so it is easy to suggest that perhaps this is a bit overdone.

S&P 500 Video 21.06.21

The 4000 level underneath should be a massive support level as far as I can see, and you can see that multiple times we have seen a bit of buying pressure all the way down to the 4000 level, so I do not have any interest in shorting this market. If we break down below the 4000 level then it is possible that we could see the idea of buying puts makes sense, but beyond that I do not have any short-term or short trading ideas in this market.

Given enough time, I do believe that we will break out to fresh, new highs, just as soon as everybody comes down about the Federal Reserve and what it has recently said. Longer-term outlook is still very much favorable for stocks at the Federal Reserve is massively accommodative, which is the only thing that has pushed docs for the last 13 years.

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

S&P 500 Price Forecast – S&P 500 Continues to Dance Along 50 Day EMA

The S&P 500 has fallen significantly during the course of the trading session on Friday as traders are a bit concerned about the Federal Reserve tightening monetary policy down the road. However, what is even more interesting is the fact that it is “quadruple witching” on Friday, and therefore it is likely that we will see a lot of noisy behavior towards the end of the session. Nonetheless, this is a market that cannot be sold despite the fact that it is very negative in general. With that being said, I think what we have is a “buy on the dips” type of market, because a strong argument can be made for an overreaction.

S&P 500 Video 21.06.21

Looking at this chart, if we do break down below the 50 day EMA it is likely that 4100 would be targeted by support, just as the 4000 level will be with a massive gap there. Nonetheless, this looks to be more or less a simple pullback more than anything else, despite the fact that there is a lot of drama crossing the headlines. I do not see a bearish trend opening up, so therefore a little bit of patience could be rewarded if you get the right signal underneath.

If we can break above the all-time high, then obviously that is a very bullish sign and could send this market towards the 4300 level, followed by the 4400 level as the market tends to move in 200 point increments over the longer term. If we did somehow break down below the 4000 level, then I might be tempted to buy puts.

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

Gold: The Fed Wreaked Havoc on the Precious Metals

However, we should stay alert to any possible changes, as no market moves in a straight line. Tread carefully.

On a side note, while I didn’t check it myself (well, it’s impossible to read every article out there), based on the correspondence I’m receiving, it appears I’ve been the only one of the more popular authors to be actually bearish on gold before the start of this week. Please keep that in mind, along with me saying that yesterday’s decline is just the beginning, even though a short-term correction might start soon. Having that in mind, let’s discuss what the Fed did (and what it didn’t do) in greater detail.

Look What You Did

With the U.S. Federal Reserve’s (FED) reverse-repo nightmare frightening the liquidity out of the system, I highlighted on Jun. 17 that the FED raised the interest rate on excess reserves (IOER) from 0.10% to 0.15%.

I wrote:

The FED hopes that by offering a higher interest rate that it will deter counterparties from participating in the reverse repo transactions. However, whether it will or whether it won’t is not important. The headline is that the FED is draining liquidity from the system and increasing the IOER is another sign that the U.S. federal funds rate could soon seek higher ground.

Please see below:

To explain, the red line above tracks the U.S. federal funds rate, while the green line above tracks the IOER. If you analyze the behavior, you can see that the two have a rather close connection. And while we don’t expect the FED to raise interest rates anytime soon, officials’ words, actions and the macroeconomic data signal that the taper is likely coming in September.

And in an ironic twist, while the question of whether it will or whether it won’t seemed reasonable at the time, the tsunami of reverse repurchase agreements on Jun. 17 signal that 0.15% just isn’t going to cut it. Case in point: while the FED hoped that the five-basis-point olive branch would calm institutions’ nerves, a record $756 billion in excess liquidly was shipped to the FED on Jun. 17 . For context, it was nearly $235 billion more than the daily amount recorded on Jun. 16.

Please see below:

To explain the significance, I wrote previously:

A reverse repurchase agreement (repo) occurs when an institution offloads cash to the FED in exchange for a Treasury security (on an overnight or short-term basis). And with U.S. financial institutions currently flooded with excess liquidity, they’re shipping cash to the FED at an alarming rate.

The green line above tracks the daily reverse repo transactions executed by the FED, while the red line above tracks the U.S. federal funds rate. Moreover, notice what happened the last time reverse repos moved above 400 billion? If you focus your attention on the red line, you can see that after the $400 billion level was breached in December 2015, the FED’s rate-hike cycle began. Thus, with current inflation dwarfing 2015 levels and U.S. banks practically throwing cash at the FED, is this time really different?

Furthermore, I noted on Jun. 17 that the FED’s latest ‘dot plot’ was a hawkish shift that market participants were not expecting.

I wrote:

The perceived probability of a rate hike by the end of 2022 sunk to a 2021 low on Jun. 12. However, after the FED’s material about-face on Jun. 16, I’m sure these positions have been recalibrated.

Please see below:

And as if the chart above had been inverted, the perceived probability of a rate hike by the end of 2022 has now surged to more than 90%.

The Death Toll of June 17th

In addition, while I’ve been warning for months that the bond market’s fury would eventually upend the PMs, not only has the FED’s inflationary misstep rattled the financial markets, but the U.S. 30-year fixed-rate mortgage (FRM) jumped to 3.25% on Jun. 17.

Please see below:

Source: Mortgage News Daily

Furthermore, please read what Matthew Graham, COO of Mortgage News Daily, had to say:

“Markets were somewhat surprised by the Fed’s rate hike outlook. Granted, the Fed Funds Rate (the thing the Fed would actually be hiking) doesn’t control mortgage rates, but the outlook speaks to how quickly the Fed would need to dial back its bond buying programs (aka “tapering”). Those programs definitely help keep rates low. The sooner the Fed begins tapering, the sooner mortgage rates will see some upward pressure .”

To that point, with tapering prophecies officially morphing from the minority into the consensus, the PMs weren’t the only commodities sent to slaughter on Jun. 17. For example, the S&P Goldman Sachs Commodity Index (S&P GSCI) plunged by 2.37% as the inflationary unwind spread. For context, the S&P GSCI contains 24 commodities from all sectors: six energy products, five industrial metals, eight agricultural products, three livestock products and two precious metals.

Exacerbating the selling pressure, China’s National Food and Strategic Reserves Administration announced on Jun. 17 that it would release its copper, aluminum and zinc supplies “in the near future” in a bid to contain the inflationary surge that’s plaguing the region. As a result, if the psychological forces that led to the surge in cost-push inflation come undone, the USD Index could move from the outhouse to the penthouse.

To explain, I wrote on Apr. 27:

Why is the behavior of the S&P GSCI so important? Well, if you analyze the chart below, you can see that the S&P GSCI’s pain is often the USD Index’s gain.

To explain, the red line above tracks the USD Index, while the green line above tracks the inverted S&P GSCI. For context, inverted means that the S&P GSCI’s scale is flipped upside down and that a rising green line represents a falling S&P GSCI, while a falling green line represents a rising S&P GSCI. More importantly, though, since 2010, it’s been a near splitting image.

Inflation Is Still There

In the meantime, though, inflationary pressures are far from contained. And while the S&P GSCI’s plight would be a boon for the USD Index, the greenback still has plenty of other bullets in its chamber. Case in point: with the FED poised to taper in September and investors underpricing the relative outperformance of the U.S. economy, VANDA Research’s latest FX Outlook signals that over-optimism abroad could lead to a material re-rating over the summer.

Please see below:

To explain, the chart on the right depicts investors’ expectations of economic strength across various regions. If you analyze the second (CAD) and the third (GBP) bars from the right, you can see that positioning is more optimistic than the economic growth that’s likely to materialize. Conversely, if you analyze the first bar (USD) from the left, you can see that positioning is more pessimistic than the economic growth that’s likely to materialize. As a result, with U.S. GDP growth poised to outperform the U.K., Canada, and the Eurozone, an upward re-rating of the USD Index could intensify the PMs selling pressure over the medium term.

On top of that, while the inflation story is far from over (and will pressure the FED to taper in September), the Philadelphia FED released its Manufacturing Business Outlook Survey on Jun. 17. And while manufacturing activity dipped in June, “the diffusion index for future general activity increased 17 points from its May reading, reaching 69.2, its highest level in nearly 30 years .”

In addition, “the employment index increased 11 points, recovering its losses from last month,” and “the future employment index rose 2 points … [as] over 59 percent of the firms expect to increase employment in their manufacturing plants over the next six months, compared with only 5% that anticipates employment declines.” For context, employment is extremely important because a strengthening U.S. labor market will likely put the final nail in QE’s coffin.

But saving the best for last:

“The prices paid diffusion index rose for the second consecutive month, 4 points to 80.7, its highest reading since June 1979 . The percentage of firms reporting increases in input prices (82 percent) was higher than the percentage reporting decreases (1 percent). The current prices received index rose for the fourth consecutive month, moving up 9 points to 49.7, its highest reading since October 1980 .”

Please see below:

Source: Philadelphia FED

Investment Clock Is Ticking

Also, signaling that QE is living on borrowed time, Bank of America’s ‘Investment Clock’ is ticking toward a bear flattener in the second half of 2021. For context, the term implies that short-term interest rates will rise at a faster pace than long-term interest rates and result in a ‘flattening’ of the U.S. yield curve.

Please see below:

To explain, the circular reference above depicts the appropriate positioning during various stages of the economic cycle. If you focus your attention on the red box, you can see that BofA forecasts higher interest rates and lower earnings per share (EPS) for S&P 500 companies during the back half of the year.

As further evidence, not only is the FED’s faucet likely to creak in the coming months, but fiscal stimulus may be nearing the dry season as well.

Please see below:

To explain, the blue bars above track the U.S. budget deficit as a percentage of the GDP. If you analyze the red circle on the right side of the chart, you can see that coronavirus-induced spending was only superseded by World War Two. Moreover, with the law of gravity implying that ‘what goes up must come down,’ the forthcoming infrastructure package could be investors’ final fiscal withdrawal.

The Housing Market

Last but not least, while the S&P 500 has remained relatively upbeat in recent days, weakness in the U.S. housing market could shift the narrative over the medium term.

Please see below:

To explain, the red line above tracks the S&P 500, while the green line above tracks U.S. private building permits (released on Jun. 16). If you analyze the arrows, you can see that the former nearly always rolls over in advance of the latter . For context, the S&P 500 initially peaked before building permits in 2018 and alongside in 2015. However, in 2018, when the S&P 500 recovered and continued its ascent – while building permits did not – the U.S. equity benchmark suffered a roughly 20% drawdown. Thus, if you analyze the right side of the chart, you can see that building permits peaked in January and have declined significantly. And if history is any indication, the S&P 500 will eventually follow suit.

In conclusion, the PMs imploded on Jun. 17, as taper trepidation and the USD Index’s sharp re-rating dropped the guillotine on the metals. And with the FED’s latest ‘dot plot’ akin to bullet holes in the PMs, the walking wounded is still far from a recovery. With inflation surging and the FED likely to become even more hawkish in the coming months, the cycle has materially shifted from the goldilocks environment that the metals once enjoyed. And with the two-day price action likely the opening act of a much larger play, the PMs could be waiting months for another round of applause.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

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

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA 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. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Adobe Shares Hit New Record High After Earnings Beat Estimates; Analysts Raise Target Price

Adobe shares scaled its fresh all-time high on Friday after the U.S. multinational computer software company reported better-than-expected earnings and revenue in the fiscal second quarter, prompting several analysts to raise their one-year price targets.

The San Jose, California-based software company reported quarterly revenue of $3.84 billion in its second quarter of the fiscal year 2021, which represents 23% year-over-year growth. That was higher than the Wall Street consensus estimates of $3.73 billion.

Adobe posted diluted earnings per share was $2.32 on a GAAP basis and $3.03 on a non-GAAP basis, beating the market expectations of $2.81 per share.

Adobe, one of the largest software companies, reported digital media segment revenue was $2.79 billion, which represents 25% year-over-year growth. Creative revenue grew to $2.32 billion, representing 24% year-over-year growth. Document Cloud revenue was $469 million, representing 30% year-over-year growth.

Adobe shares rose over 3% to a record high of $570 on Friday. The stock surged over 10% so far this year.

Analyst Comments

Adobe (ADBE) delivered a strong qtr w/ net new ARR growth of 17% handily beating our 3% est. DX growth of 21% beat our 18% est, aided by its largest deal ever and now marking two qtrs of outsized upside. And op margins were ~250bps above our est. All in, a very clean qtr and w/strong 3Q guide & commentary on confidence for a 4Q seasonal flush, it suggests demand trends are back in full swing. PT to $650,” noted J. Derrick Wood, equity analyst at Cowen.

“We think valuations remain attractive, particularly given growth momentum seems to be elevating. We increased our FY21 growth forecast from 20% to 22%. And we raised FY22E FCF/sh from $16.07 to $16.49.”

Adobe Stock Price Forecast

Twenty-one analysts who offered stock ratings for Adobe in the last three months forecast the average price in 12 months of $616.16 with a high forecast of $665.00 and a low forecast of $520.00.

The average price target represents 11.75% from the last price of $551.36. Of those 21 analysts, 18 rated “Buy”, three rated “Hold” while one rated “Sell”, according to Tipranks.

Morgan Stanley raised the stock price forecast to $610 from $575 with a high of $770 under a bull scenario and $464 under the worst-case scenario. The firm gave an “Overweight” rating on the software company’s stock.

“Digital Media net new ARR additions beating consensus by 15% and accelerating to 17% YoY growth show building momentum in Adobe’s core earnings engine. With operating margins 200 bps ahead of consensus driving 24% YoY EPS growth, positive revisions should drive Adobe (ADBE) towards our increased $610 PT,” noted Keith Weiss, equity analyst at Morgan Stanley.

“Adobe has a leading market share in some of the most dynamic secular growth areas in software: creative design, dynamic media, and marketing automation. As such, we see the longer-term growth story for ADBE as better than most. With a large recurring rev base and operating margin improvements expected (as margin pressure from recent acquisitions comes to an end), we expect 25% EBIT CAGR from FY20-FY22 and believe this durable growth is not fully reflected in shares. Our $610 price target is based on 42x CY22e EPS of $14.56, which implies 2.1x PEG on 20% EPS CAGR from FY20-FY22e.”

Several other analysts have also updated their stock outlook on Friday. Evercore ISI raised the stock price forecast to $625 from $550. Bernstein lifted the target price to $638 from $577. Stifel increased the price objective to $600 from $550. Goldman Sachs upped the target price to $665 from $580. Cowen and company lifted the price target to $650 from $600.

BMO raised the target price to $630 from $585. Mizuho increased the target price to $640 from $600. Citigroup upped the price target to $575 from $523. Oppenheimer lifted the stock price target to $600 from $550. RBC increased the target price to $650 from $575. Jefferies raised the target price to $660 from $630.

Check out FX Empire’s earnings calendar

Stocks Decline As Traders Remain Worried About Rate Hikes

Fed’s Bullard Believes That Fed Will Hike Rates In 2022

S&P 500 futures are down by 1% in premarket trading after Fed’s Jim Bullard stated that the Fed may start raising rates at the end of 2022.

Treasury yields have recently started to rebound after yesterday’s pullback, but they stay well below highs that were reached after Fed meeting.

Meanwhile, U.S. dollar continues to gain ground against a broad basket of currencies, and it looks that it’s a major short squeeze. Stronger dollar is bearish for dollar-denominated stocks, so dollar’s recent move adds to the pressure.

However, it remains to be seen whether the market is ready for a material pullback. Yesterday’s attempt to gain downside momentum was quickly bought, highlighting the strength of the current bullish trend in the market.

Precious Metals Try To Rebound Despite Stronger Dollar

Gold has recently made an attempt to settle back above the resistance at $1800 but lost momentum and pulled back towards $1775. Silver also tried to gain more ground, but its upside move was stopped at $26.50.

It is not clear whether gold and silver will be able to move higher in case the U.S. dollar continues its upside move. Most likely, some traders would like to take positions in precious metals after the strong pullback, but it remains to be seen whether this support will be sufficient enough to push gold and silver to higher levels.

Meanwhile, gold mining stocks are gaining some ground in premarket trading after a brutal sell-off on Thursday.

WTI Declines Towards The $70 Level

WTI oil is currently trying to get to the test of the $70 level as the recent sell-off in commodity markets pushed oil traders to take some profits after the strong rally.

If WTI oil manages to settle below the $70 level, it will gain additional downside momentum which will be bearish for oil-related stocks. I’d note that oil segment suffered a serious sell-off during yesterday’s trading session, and shares of oil majors like Exxon Mobil or BP are under significant pressure in premarket trading.

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

European Equities: Futures Point Northwards with no Major Stats to Consider Today

The Majors

It was another mixed day for the European majors on Thursday, with the EuroStoxx600 seeing its 9 day run come to an end.

The CAC40 and the DAX30 rose by 0.20% and by 0.11% respectively, while the EuroStoxx600 fell by 0.12%.

Market reaction to the FED’s more hawkish outlook on monetary policy weighed on the majors. Monetary policy divergence, however, provided some comfort, with the CAC40 and DAX30 managing to recover from early losses.

Economic data from the Eurozone and the U.S had a relatively muted impact on the majors. This was in spite of weaker than expect jobless claim figures from the U.S and the pickup in Eurozone inflation.

The Stats

It was a quiet day on the economic calendar, with stats limited to finalized inflation figures for the Eurozone.

In May, the annual rate of inflation accelerated from 1.6% to 2.0%, which was in line with prelim numbers. Consumer prices increased by 0.3% in the month of May, which was also in line with prelim figures. In April, consumer prices had risen by 0.6%.

According to Eurostat,

  • The lowest annual rates were registered in Greece (-1.2%), Malta (-0.2%), and Portugal (0.5%).
  • Luxembourg (+4.0%) registered the highest annual rate of inflation.
  • In May, the highest contribution to the annual euro area inflation rate came from energy (+1.19 pp).
  • There were also contributions from services (+0.45 pp), non-energy industrial goods (+0.19 pp), and food, alcohol, & tobacco (+0.15 pp).

From the U.S

Economic data included Philly FED Manufacturing PMI numbers and the weekly jobless claim figures.

In June, the Philly FED Manufacturing PMI fell from 31.5 to 30.7 versus a forecasted fall to 31.0.

While the headline index declined, the employment sub-index was on the rise. The sub-index jumped from 19.3 to 30.7.

Jobless claims figures disappointed, however.

In the week ending 11th June, initial jobless claims rose from 375k to 412k. Economists had forecast a decline to 359k.

The Market Movers

For the DAX: It was a mixed day for the auto sector on Thursday. Daimler and Volkswagen rose by 0.95% and 0.69% respectively, with BMW ending the day up by 0.24%. Continental bucked the trend, however, falling by 0.17%.

It was also a mixed day for the banks. Deutsche Bank fell by 1.85%, while Commerzbank rose by 0.91%

From the CAC, it was a bullish day for the banks. BNP Paribas and Credit Agricole rose by 1.02% and by 0.99% respectively. Soc Gen saw a more modest 0.38% gain on the day.

It was a relatively bullish day for the French auto sector. Stellantis NV and Renault ended the day with gains of 0.34% and 0.14% respectively.

Air France-KLM slipped by 0.52%, while Airbus SE rose by 0.46%.

On the VIX Index

It was a back into the red for the VIX on Thursday, marking the first day in the red of the week.

Partially reversing a 6.64% rise from Wednesday, the VIX fell by 2.20% to end the day at 17.75.

The NASDAQ rose by 0.87%, while the Dow and the S&P500 ended the day down by 0.62% and by 0.04% respectively.

VIX 180621 Daily Chart

The Day Ahead

It’s a particularly quiet day ahead on the European economic data front.

There are no major stats due out of the Eurozone to provide the majors with direction. From the U.S, there are also no major stats, leaving the majors to take their cues from the U.S markets late in the day.

Away from the economic calendar, we can expect greater sensitivity to any central bank chatter on the day.

The markets will also need to monitor any news up dates from Capitol Hill.

With no major stats to consider, expect the majors to take their cues from the U.S markets later in the day.

The Futures

In the futures markets, at the time of writing, the Dow Mini was down by 1 point, while the DAX was up by 8 points.

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

E-mini S&P 500 Index (ES) Futures Technical Analysis – Strengthens Over 4220.75, Weakens Under 4194.75

September E-mini S&P 500 Index futures are trading flat late in the session on Thursday after clawing back earlier losses. U.S. technology stocks are giving the broad-based index its biggest boost on optimism around a speedy economic recovery.

Investors seem to be ignoring the threat of higher interest rates from the Federal Reserve. The central bank on Wednesday moved its first projected rate increases from 2024 into 2023. The price action suggests tech traders weren’t surprised by the Fed with some investors saying the Fed didn’t say anything that the market didn’t already know.

At 18:51 GMT, September E-mini S&P 500 Index futures are trading 4209.75, down 3.25 or -0.08%.

Daily September E-mini S&P 500 Index

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart, however, momentum is trending lower. A trade through 4258.25 will signal a resumption of the uptrend. The main trend will change to down on a move through the nearest swing bottom at 4155.50.

The minor range is 4258.25 to 4183.00. Its 50% level at 4220.50 is the first upside target and potential resistance.

The short-term range is 4155.50 to 4258.25. The market is trading on the strong side of its retracement zone at 4206.75 to 4194.75, making it support.

The main range is 4020.00 to 4258.25. If the main trend changes to down then look for a test of its retracement zone at 4239.00 to 4111.00.

Daily Swing Chart Technical Forecast

The direction of the September E-mini S&P 500 Index into the close is likely to be determined by trader reaction to the minor 50% level at 4220.75.

Bearish Scenario

A sustained move under 4220.75 will indicate the presence of sellers. The first downside target is the short-term 50% level at 4206.75, followed by the short-term Fibonacci level at 4194.75.

A failure to hold 4194.75 will be a sign of weakness. This could lead to a test of the intraday low at 4183.00. This is a potential trigger point for an acceleration into the main bottom at 4155.50, followed by the main retracement zone at 4139.00 to 4111.00.

Bullish Scenario

A sustained move over 4220.75 will signal the presence of buyers. This is a potential trigger point for an acceleration to the upside with 4258.25 the near-term target.

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

Tech-Heavy Nasdaq Ignores Hawkish Fed News to Advance

The performance of the tech-heavy Nasdaq was in stark contrast to the S&P 500 and Dow, which slumped as investors reacted negatively to the Fedeignoral Reserve’s unexpectedly hawkish message on monetary policy on Wednesday.

Chipmaker Nvidia Corp jumped 5.4%, leading the charge among technology behemoths after Jefferies raised its price target on the stock.

Technology shares, which generally perform better when interest rates are low, powered a rally on Wall Street last year as investors flocked to stocks seen as relatively safe during times of economic turmoil.

The group has come under pressure this year on fears that rising inflation would lead the Fed to hike interest rates sooner than expected. The central bank on Wednesday moved its first projected rate increases from 2024 into 2023.

Still, shares of Apple Inc, Microsoft Corp, Amazon.com Inc and Facebook Inc reversed premarket declines to rise between 1.4% and 2% as investors bet that a steady economic rebound would boost demand for their products in the long run.

“Yes there is rising inflation but the market is focusing more on the positives of improving earnings, robust GDP growth and the wider economy getting stronger,” said Randy Frederick, vice president of trading and derivatives at Charles Schwab in Austin, Texas.

“Today’s action is indicative that the Fed hasn’t said anything that the market didn’t already know.”

The Nasdaq briefly advanced to within 16 points of its lifetime peak achieved on April 29, before pulling back a touch.

By 1:55PM ET, the Dow Jones Industrial Average fell 198.57 points, or 0.58%, to 33,835.1, the S&P 500 gained 0.24 points, or 0.01%, to 4,223.94 and the Nasdaq Composite added 127.04 points, or 0.9%, to 14,166.73.

Interest rate-sensitive bank stocks slumped -3.8% as longer dated U.S. Treasury yields dropped.

The strengthening dollar, another by-product of the previous day’s Fed news, pushed U.S. oil prices down from the multi-year high hit earlier in the week. The energy index, in turn, fell more than 3%, the biggest laggard among the 11 main S&P sectors.

Other economically sensitive stocks including materials and industrials fell 2.4% and 1.5% respectively, as data showed jobless claims rising last week for the first time in more than a month. Still, layoffs appeared to be easing amid a reopening economy and a shortage of people willing to work.

“In the balance of June and into the summer we anticipate continued volatility as we get more signals from economic data, Fed policy and as we get into the earnings season,” said Greg Bassuk, chief executive officer at AXS Investments in New York.

In corporate news, U.S.-listed shares of CureVac NV sank 41.5% after the German biotech said its COVID-19 vaccine was 47% effective in a late-stage trial, missing the study’s main goal.

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

(Reporting by Shashank Nayar and Medha Singh in Bengaluru; Editing by Sriraj Kalluvila, Anil D’Silva, Maju Samuel and Dan Grebler)

 

A “Sell The S&P 500” Signal Was Given: Correction Underway

A little over three months ago, see here, I shared my S&P500 (SPX) “Buy/Sell” indicator, which had switched to a “Buy the SPX” on March 10. The index was then trading at SPX3950. Since then, it has gone through several more “buy/sell” signals, as you can see in Figure 1 below.

Back then, I was -based on the Elliott Wave Principle’s notion in that a 5th wave often equals the length of the 1st wave- looking for SPX4065-4185. The upper end was reached on April 16 when the index closed at SPX4185. A 6.0% gain in a month. Eventually, the index topped out June 14 at SPX4255 at the close, which is only 1.7% above my ideal target zone and thus within the +/- 2.5% margin of error I allow myself. Currently, the index is trading at SPX4200. Hence, another reliable forecast my premium major market members and you could trust and bank on.

Figure 1. S&P500 daily chart (blue) with overlayed Buy/Sell Indicator.

Sell signal supports the notion of lower prices ahead before the next rally

A month ago, I was looking for the index to reach ideally SPX4315 +/- 5. The S&P500 opened at SPX4257 on June 15. I was off by 1.2%, which is also within the acceptable margin of error as no one can forecast the exact highs and lows the markets will eventually make.

Thus, based on my previous two articles, I can say “mission accomplished.” The EWP count since the March low is complete (five waves up), while the forecasted upside targets were reached and slightly exceeded. Besides, with a “Sell the SPX” signal, I now expect a deeper correction lasting into the last two weeks of June. The exact date is unknown but should fall around June 23 +/- a few trading days. I continue to expect SPX4050+/-50 before the next rally to new ATHs starts. It should take the index to around SPX4500+/-100 by late July to early August. Once achieved, I expect a multi-month deep correction.

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

S&P 500 Price Forecast – Stock Markets Looking at 4200

The S&P 500 has pulled back a bit during the course of the trading session on Thursday, as traders continue to freak out a bit after the Federal Reserve statement. At the end of the day though, the Federal Reserve is still very accommodative, so it is hard to imagine a scenario where the stock market truly needs to fall apart. Ultimately, this is a market that I think continues to go higher but we may have a noisy couple of days ahead of us. With this being the case, if we can break above the top of the candlestick for the trading session on Thursday, then it is very likely we will continue to go looking towards the highs again.

S&P 500 Video 18.06.21

Looking at this chart, even if we break down below the 50 day EMA, it is likely that the market could go looking towards the 4000 level underneath. The 4000 level also features a major gap, and as a result I think it will be important. That area should be essentially the “floor the market”, so I think there will be a certain amount of buying in that area. Ultimately, I would be very aggressive in that area but if we did break down below it, then I might be convinced to start buying puts, as you can then make an argument that the market can never be shorting, mainly because the Federal Reserve will come back into the picture and save everyone. We have seen this be the case for the last 13 years, and despite all of the drama during the last couple of days, that has not changed.

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

Stocks Retreat As Fed Expects Two Rate Hikes In 2023

Stocks Remain Under Pressure After Yesterday’s Pullback

S&P 500 futures are moving lower in premarket trading as stocks remain under pressure after Fed Interest Rate Decision.

The Fed left the interest rate unchanged, but Fed’s dot plot, which shows the potential trajectory of interest rates in the future, indicated that two interest rate hikes are expected by the end of 2023.

Fed reacted to the recent inflation data from around the world, which indicated that higher commodity prices and various production bottlenecks have already had material impact on prices, in addition to the inflationary pressure created by money-printing from central banks.

U.S. dollar was the main beneficiary of Fed’s hawkish tone. The U.S. Dollar Index, which measures the strength of the U.S. dollar against a broad basket of currencies, moved from 90.50 to 91.80 in less than one day.

Gold Declines Below $1800

Strong dollar and higher Treasury yields put significant pressure on gold, which has recently managed to settle below the $1800 level and is currently trying to get below $1775. Silver is also under pressure. Currently, it is trying to settle below the support level at $26.30.

Gold price dynamics will certainly put significant pressure on gold mining stocks at the beginning of today’s trading session. Silver mining stocks will also move lower. Meanwhile, traders should continue to monitor the developments in U.S. government bond markets. If yields pull back from recent highs, gold and silver may get some support.

Initial Jobless Claims Increased To 412,000

The U.S. has just released Initial Jobless Claims and Continuing Jobless Claims reports.

Initial Jobless Claims report indicated that 412,000 Americans filed for unemployment benefits in a week compared to analyst consensus of 359,000. Continuing Jobless Claims remained flat at 3.52 million (the previous report was revised from 3.5 million to 3.52 million).

Interestingly, these reports may provide some support to the market as disappointing job market data is bullish in the current market environment as Fed promised to support markets until its employment targets are met.

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

E-mini NASDAQ-100 Index (NQ) Futures Technical Analysis – Strengthens Over 13992.75, Weakens Under 13803.25

September E-mini NASDAQ-100 Index futures are edging higher shortly before the release of a pair of U.S. economic reports and the cash market opening. Prices are consolidating despite a surprise shift to hawkish by the Federal Reserve on Wednesday that triggered a sharp break.

At 11:27 GMT, September E-mini NASDAQ-100 Index futures are trading 13925.25, down 47.50 or -0.34%. This is up from yesterday’s low at 13830.25.

In terms of data due out at 12:30 GMT, the number of weekly jobless claims filed the week ended June 12 is expected to come in at 360K, down from the previously reported 376K. The Philly Fed Manufacturing Index is expected to come in at 30.3, down from last month’s 31.5.

Daily September E-mini NASDAQ-100 Index

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart, however, momentum has been trending lower since Tuesday’s closing price reversal top and yesterday’s subsequent confirmation of the move.

A trade through 14155.25 will negate the closing price reversal top and signal a resumption of the uptrend. The main trend changes to down on a move through 13451.25.

The minor trend is also up. A trade through 13716.25 will change the minor trend to down. This will confirm the shift in momentum.

The minor range is 14155.25 to 13830.25. Its 50% level at 13992.75 is the upside target. Sellers could come in on the first test of this level. Overcoming this level could extend the rally into 14155.25.

The short-term range is 13451.25 to 14155.25. Its 50% level at 13803.25 is potential support.

The main range is 12906.00 to 14155.25. If the minor trend changes to down then look for the selling to possibly extend into its 50% level at 13530.50.

Daily Swing Chart Technical Forecast

The direction of the September E-mini NASDAQ-100 Index on Thursday will be determined by trader reaction to the pivot at 13803.25.

Bullish Scenario

A sustained move over 13803.25 will indicate the presence of buyers. The first upside target is 13992.75. Look for sellers on the first test. Overcoming this level could trigger an acceleration into the main top at 14155.25.

Bearish Scenario

A sustained move under 13803.25 will signal the presence of sellers. The first target is the minor bottom at 13716.25. Taking it out will confirm the shift in momentum and could trigger a further break into the short-term 50% level at 13530.50, followed by the main bottom at 13451.25.

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

American Dollar Retaliates

Yesterday’s FOMC brought havoc to the market. The vast majority of the instruments quoted against the USD are going down. Stocks are mixed…with this amount of money on the market that is indeed a great occasion for a correction but definitely not a major sign for a reversal.

The SP500 is still safely above the main uptrend line.

The Dow Jones on the other hand broke the major uptrend line but I do not think it will be permanent.

The DAX is doing great, it’s in a channel up formation above the major support.

Gold dropped like a rock. It’s back inside the flag and the sentiment is negative.

The USDCAD climbed higher with a sweet long-term buy signal.

The EURCHF is fighting for a bullish engulfing on the weekly chart. That is possibly a great occasion to go long.

The AUDUSD broke the lower line of the triangle is aiming lower.

The GBPUSD broke the crucial horizontal support and long-term up trendline, it’s is an invitation to go short.

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 – Weak Under 33738, Strong Over 33926

September E-mini Dow Jones Industrial Average futures are trading lower during the early session, testing an area that separates the market from consolidation and a steep decline.

The price action suggests investors are still digesting yesterday’s events that included the Fed’s raising its headline inflation expectation to 3.4%, a full percentage point higher than the March projection, after its two-day policy meeting concluded on Wednesday afternoon.

The Fed also indicated that rate hikes could come as soon as 2023, after saying in March that it saw no increases until at least 2024. The so-called dot plot of individual member expectations pointed to two hikes in 2023.

At 08:50 GMT, September E-mini Dow Jones Industrial Average futures are trading 33791, down 114 or -0.34%.

Even with the Fed coming across as hawkish, in its post-meeting statement, it reiterated the view that inflationary pressures were “transitory.”

Fed Chairman Jerome Powell also said in a press conference following the meeting that the central bank’s forecast needed to be taken with a “big pinch of salt.”

Daily September E-mini Dow Jones Industrial Average

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. The downtrend was reaffirmed earlier in the session when sellers took out yesterday’s low. A trade through the intraday low at 33687 will signal a resumption of the downtrend.

A trade through 34711 will change the main trend to up. This is highly unlikely, but with the Dow down eight sessions from its last main top, it is currently inside the window of time to form a potentially bullish closing price reversal bottom.

The short-term range is 33131 to 34721. The Dow is currently testing its retracement zone at 33926 to 33738. Trader reaction to this area could decide whether prices rise into a consolidation area, or if there is a steep decline.

Another short-term range is 34883 to 33131. Its 50% price at 34007 is another level controlling the near-term direction of the trade.

The new minor range is 34721 to 33687. If a short-covering rally gains traction, prices could rebound back to 34204 to 34326.

Daily Swing Chart Technical Forecast

The direction of the September E-mini Dow Jones Industrial Average futures contract on Thursday is likely to be determined by trader reaction to 33738.

Bearish Scenario

A sustained move under 33738 will indicate the presence of sellers. If this move creates enough downside momentum then look for an acceleration to the downside with the next major targets a pair of main bottoms at 33300 and 33131.

Bullish Scenario

A sustained move over 33738 will signal the presence of buyers. This could trigger the start of a labored rally with 33926 and 34007 the first resistance targets. The latter is a potential trigger point for an acceleration into 34204 to 34326. Since the main trend is down, sellers could come in on a test of this zone. They are going to try to form a secondary lower top.

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