Fed Nothingburger, Dollar Lower, Focus on GDP, PCE

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

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

No surprises here.

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

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

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

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

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

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

GDP Data, Core PCE

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

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

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

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

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

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

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.

 

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

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

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

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

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

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

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

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

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

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

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

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

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

What All of This Means for Us

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

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

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

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

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

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

We will hear from the Fed tomorrow

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

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

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

Thank you.

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

Rafael Zorabedian
Stock Trading Strategist

Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

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

 

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

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

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

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

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

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

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

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

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

The Transports:

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

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

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

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

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

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

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

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

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

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

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

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.

 

U.S. Stock Markets Hit New Highs, Treasury Yields up as Choppy Week Ends

Megacap tech stocks and positive corporate earnings helped drive main U.S. indexes up again. Yields on U.S. Treasuries were also up, as was the dollar, with investors eyeing next week’s Federal Reserve meeting for hints on the U.S. economic recovery from the COVID-19 pandemic and when the central bank will pull back support for the economy.

“It’s certainly been a really strong run. For now it looks justified based on the strong earnings results. We got interest rate stability, which was helpful. As the economic recovery continues, as long as people are continuing to get out there despite the Delta variant, we think stocks can go higher,” said Jeff Buchbinder, equity strategist for LPL Financial. “We think the ride will get bumpier in the second half, but we think the bull market continues.”

The Dow Jones Industrial Average rose 238.2 points, or 0.68%, to close the week at 35,061.55, while the S&P 500 gained 44.31 points, or 1.01%, to 4,411.79. The Nasdaq Composite added 152.39 points, or 1.04%, to close at 14,836.99.

The greenback on Friday booked a second week of gains after a volatile few days as risk appetite waxed and waned.

The dollar index, which measures the greenback against a basket of six major currencies, was slightly higher on the day at 92.894. That was off a 3-1/2-month high of 93.194 hit on Wednesday.

For the week, it was up 0.1%, after rising 0.6% previously.

The yield on 10-year Treasury notes hovered around 1.3%, or almost 17 basis points higher than a five-month low set on Tuesday, but was still at the low end of a recent range. The benchmark note traded up 2.1 basis points to 1.288% after briefly rising above 1.3%.

“We’re closing out the week on a very nice trade, and it’s being driven by earnings primarily and earnings specifically in stocks that speak to the consumer, which is not a new story but it’s a story that adds momentum to the trade in the second half of the year,” said Peter Kenny, founder of Kenny & Co LLC, the parent company for Strategic Board Solutions and Kenny’s Commentary, a subscriber-based political and economic newsletter.

After declining earlier in the trading session, oil was set to end the week slightly up.

Investors have been assuming “things will improve, travel will increase,” said Steve Massocca, managing director at Wedbush Securities. “There are concerns about the Delta variant.”

Massocca added, “If that thesis is thrown into jeopardy, it put a hitch in the ‘giddy up’ in the market.”

Some parts of the United States are implementing mask mandates again due to new COVID-19 cases, while others have not, leading to confusion.

U.S. business activity grew at a moderate pace for a second straight month in July amid supply constraints, suggesting a cooling in economic activity, a report from data firm IHS Markit showed on Friday.

Positive corporate earnings helped the stock market. American Express Co jumped 1.7% after posting second-quarter profit that beat expectations.

Social media firms Twitter Inc and Snap Inc gained 3.8% and 24.5%, respectively, after their upbeat results.

Financial markets have swung from one direction to another this week as investors try to assess what the surging Delta variant means for the world economy.

After recording its steepest one-day drop since May on Monday, the S&P 500 stock index went on to post the biggest one-day jump since March a day later. Currency, bond and commodities markets have seen similar gyrations.

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

(Reporting by Jessica DiNapoli; Additional reporting by Dhara Ranasinghe and Wayne Cole in Syndey; Editing by Ana Nicolaci da Costa, Will Dunham, Pravin Char, Dan Grebler and Raissa Kasolowsky)

 

Stalling Signs? Taking a Look Under the Hood of US Equities

Greetings. I hope this article finds you and yours well. Today, we are taking a look at some additional market indicators and internals to get an unbiased perspective on things.

First, I want to preface things by mentioning that I am not suggesting that I am fully bearish on the S&P 500 or stocks right now. However, I am taking more of a cautious stance at the moment.

 

Figure 1 – S&P 500 Index April 15, 2021 – July 21, 2021, Daily Candles Source stockcharts.com

Nothing new to see here. Just another pedestrian pullback to the 50-day SMA and a bounce back. This pattern has repeated itself several times since the pandemic lows in the $SPX. It won’t repeat itself forever – that would be too easy.

Since it is earnings season, let’s talk earnings multiples.

Feeling bullish? It can be challenging to get excited about an $SPX at 4400 with an estimated 46.40 P/E ratio (trailing twelve months). We are in the middle of earnings season, so we will have a clearer figure soon.

Figure 2 – S&P 500 PE Ratio 1870 – July 22, 2021. Source multpl.com

Stocks are not cheap by any measure, folks. However, with easy monetary policy and low rates, this is to be expected. What could be the catalyst to derail this freight train?

How about the Dow Transports? This index used to be talked about much more frequently and is followed closely by students of Dow Theory. We just don’t hear much analysis about it on Fox Business, CNBC, or Bloomberg these days.

The Dow Transports (Dow Jones Transportation Average) $TRAN is an index comprised of 20 companies.

Here are the index components and weighting as of December 2020:

Alaska Air Group, Inc. 2.55%

American Airlines Group Inc. 0.76%

Avis Budget Group, Inc. 1.80%

C.H. Robinson Worldwide, Inc. 4.61%

CSX Corporation 4.39%

Delta Air Lines, Inc. 1.94%

Expeditors International of Washington, Inc. 4.61%

FedEx Corporation 13.10%

J.B. Hunt Transport Services, Inc. 6.70%

JetBlue Airways Corporation 0.70%

Kansas City Southern 9.73%

Kirby Corporation 2.51%

Landstar System, Inc. 6.60%

Matson, Inc. 2.79%

Norfolk Southern Corporation 11.42%

Ryder System, Inc. 3.12%

Southwest Airlines Co. 2.26%

Union Pacific Corporation 9.91%

United Airlines Holdings, Inc. 2.11%

United Parcel Service, Inc. 8.39%

Figure 3- Dow Jones Transportation Index January 4, 2021 – July 21, 2021, Daily Candles Source stockcharts.com

Here, and in contrast to the Dow Jones Industrial Average, we can see that the Transports topped back on May 10, 2021. Proponents of Dow Theory would argue that this creates a lack of confirmation and that the subsequent highs in the Dow Jones Industrial Average are not valid due to this lack of confirmation.

What could be the reason for the stall in the Transports? Input Costs? While fuel costs have risen, what about the rise in retail spending? Is the stimulus-powered consumer pocket not enough to counterbalance the rising input costs?

If input costs are the reason for the stalling, what about the other companies that rely on raw materials to make their products? Recent inflationary data has not affected these companies’ stock prices yet (for the most part).

What if the Fed eases off the gas pedal?

While it is very difficult (if not impossible) to pick market tops (and I don’t advocate trying to do that), it is wise to look at certain market indicators to get an understanding of what is going on beneath the surface.

It is easy to look at the chart of the $SPX and see that it is moving higher, from the bottom left-hand corner of the chart to the top right-hand corner. However, that does not tell the whole story of what is happening in the US equity markets.

We will be monitoring the above and previously mentioned market internals and indicators for more clues in the coming days, weeks, and months. I think it is critical to be aware of metrics such as the above as the broader indices trade near all-time highs.

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.

S&P 500 Bounces from 50-Day SMA, What is Different?

Greetings. I hope this article finds you well and that you are using the strength in the equity markets today and yesterday to shore up your overall long exposure and getting some dry powder available.

Usually, I would be feeling like this is the easy part of the $SPX bounce; a quick move lower to the 50-day SMA, then the second up day where it just creeps higher on low volatility. That has been the pattern since the pandemic lows in March 2020.

Figure 1 – S&P 500 Index March 5, 2020 – July 21, 2021, Daily Candles Source stockcharts.com

We have discussed the 50-day SMA phenomenon at length in previous articles and used them as a basis for entries, so please feel free to peruse them for additional detail.

However, this time, I just couldn’t get as enthusiastic about it.

Yesterday, in an article for Premium Subscribers, we mentioned the percentage of stocks that are currently trading below their 200-day standard moving averages.

Figure 2 – MMTH Index Percentage of Stocks Trading Above 200-Day Moving Average July 3, 2018 – July 21, 2021, Daily Candles Source tradingview.com

We can see above that the percentage of stocks trading above their key 200-day standard moving average peaked back in February. Many stocks dipped below their key 200-day moving average during the selloff earlier on Friday and Monday. However, we do still have this internal market indicator showing weakness.

We also have the interest rate conundrum that is currently facing the markets. Please see the July 15th publication for additional color in this area.

CPI Data & Interest Rates

We have higher prices across the board for many goods and services. What continues to fuel the demand at higher prices? Direct stimulus and artificially low interest rates are partially to blame for this. When you logically think about this, what will happen when interest rates rise? Will they rise? What about if the Fed begins to taper bond purchases and the market throws a “taper tantrum”?

Delta Variant & Olympics

As the delta variant has been making its way around the newswires for several weeks, markets finally began to take notice last Friday. As the start of the Olympic Games is slated for July 23, 2021 (just 2 days away), there has been some chatter about the Olympic Games being canceled due to the delta variant. Let’s hope the games take place as scheduled.

Getting back to the equity markets, you may have noticed that the sectors that have been moving higher in the past several weeks have been limited; and only select names. This lack of broad market participation illustrates the percentage of stocks that are trading above the 200-day moving average. In today’s and yesterday’s session, we have more of a broader market participation due to oversold conditions. Small-cap stocks have led the way, as they were a very oversold group heading into Friday’s and Monday’s price action.

In a healthy market, we want to see broad market participation with a high percentage of stocks trading above their key 200-day moving averages. I feel like we are close to an inflection point in the broader markets, and there are several risks that skew to the downside, more so than the upside.

From 1980 – 2019 ($SPX):

  • July: +0.79%
  • August: -0.15%
  • September: -0.70%

The $SPX is up 1.32% in the month of July right now.

At a certain point, one would expect these factors to collide and for market participants to begin to view things differently; therefore selling the rip instead of buying the dip.

I can’t be the only one.

Now, let’s cover the markets we are monitoring for Premium Subscribers.

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.

 

Emotional Traders React To Recent Market Rotation – Are You Ready For What’s Next?

Most traders don’t really have a solid strategy in place to protect assets and assist them in knowing when to pull risk capital away from market trends.  If you are trading on MEME stock content, variable technical strategies or flying by the seat of your pants when making trading decisions, you are probably very concerned and emotional about the recent downside price rotation in the major markets right now.

What is happening is that the markets are attempting to potentially start a reversion event – a price rotation.  This rotation in price may turn into a bigger price correction or downtrend at some point in the near future. But right now, we are only seeing moderate price rotation in the US and global markets.  Should you be concerned about this spike in volatility and the timing of this correction? This a good and valid question. Let my team and I try to help you regarding what may happen in the near future.

First, we’re going to point you to one article that predicted this volatility event may take place near the middle of 2021 and other key data. These are as follows:

The US and Global Markets have started to reprice expectations related to the post COVID-19 rally/growth capabilities.  We’ve highlighted this in recent articles that current economic data, price appreciation, and inflation growth are well within an excess phase peak level.  The normal reaction to this excess phase rally stage is a moderate reversion event – a price reversion that eliminates these excesses in the markets and in price valuations.

Currently, we do not have any signals from our proprietary stategies that this is a confirmed downward price trend.  At this point, it is simply a price correction taking place – nothing more.

Major Market Cycles Will Drive Price Trends

One of our recent articles highlighted this cycle phase chart and we suggested traders needed to prepare for the current high peak level to roll over into weaker economic growth and data expectations.  It is very likely that global traders and investors have suddenly woken up from their high-flying expectations and are now pulling risk capital away from the peaks in the markets.

Our research suggests that during the end of 2021 and possibly well into 2022, the downward price cycle reversion process may attempt to unwind the extreme (excess phase) rally trend we’ve experienced since the COVID-19 bottom in March 2020.

https://www.thetechnicaltraders.com/wp-content/uploads/2021/07/CovidSineStructre-2.png

Major Appreciation Cycle Phase Ended In December 2019 – New Depreciation Cycle Phase Is Dominant

Our extended cycle research continues to highlight the major Depreciation cycle phase that started in December 2019 and we’ve been suggesting a “blow-off” excess phase peak trend was likely setting up over the past 16+ months. It is important to understand the bigger cycle trends that drive investor sentiment as trading tries to navigate the shorter term trends.  The flip from an Appreciation cycle phase to a Depreciation cycle phase suggests global equities will likely weaken and struggle until 2028~29 while precious metals will likely begin to rally.  This new cycle phase also suggests a bigger “blow-off” (excess phase) cycle peak would take place after December 2019. This may act as a hyperbolic bubble rally phase lasting 12 to 24 months after the cycles changed into Depreciation.

This means a bubble rally phase very likely started in January 2020 and may last until January 2022 – setting up a huge rally event, a major market peak/top, and a big sell-off phase (the bursting of the bubble).

https://www.thetechnicaltraders.com/wp-content/uploads/2021/07/Chart2_DepreciationPhase.png

Lastly, even bigger market cycle trends and Elliot Wave theory suggests the SPY would reach a peak near $440 and the S&P 500 would reach a peak near $4400 that would end the Wave 5 rally – ultimately setting up an ABC corrective price wave targeting new support below the $2800 level on the S&P 500.  Are we at this stage of the market trend where we have confirmation of the Wave 5 peak and should start to expect a bigger downside price trend?  No.

We are at the early stage potential top near the $440/$4400 level and we are waiting for confirmation.  Yes, our strategies are actively protecting capital and pulling some trades off as the markets enter a weaker price trend. However, we do not have any solid technical confirmation of these bigger cycle phases or of any major global market price collapse taking place (yet).

https://www.thetechnicaltraders.com/wp-content/uploads/2021/07/Chart3-1.png

Our research and trading strategies will alert us to proper confirmation of these trends within a few more days or weeks depending on how the markets react and trend.  As of right now, we can clearly tell you that the markets appear to be starting a reversion event and that we believe the overvalued markets have clearly been telegraphing this setup for many months.

The likelihood of a broad market collapse targeting the March 2020 COVID-19 lows is still quite high.  The confirmation of the Wave 5 peak is all that is needed to confirm a potentially broad downside ABC price trend/wave that may target $2800 or lower.  Should you protect your assets and learn to better prepare for these types of technical setups? Yes.  Learning how to identify and trades these bigger cycle phases while using proven trading strategies is the key to success for anyone wanting to efficiently trade these markets for many years.

If you are simply speculating in the markets and want to “play with your money” while you are chasing the wild trade setups, you’ll quickly learn how dangerous that type of trading can be.  Yes, you may see some really big wins at times, but eventually you’ll realize you need a strategy that is more consistent than just guessing at what to buy.

Right now, near what appears to be a market peak, 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.

Want to know how our BAN strategy is identifying and ranking various sectors and ETFs for the best possible opportunities for future profits? Please take a minute to learn about my BAN Trader Pro newsletter service and how it can help you identify and trade better sector setups.  My team and I have built this strategy 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.

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

Have a great day!

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

 

Inflation Nation: Pressure Builds, Underwater Beach Ball

Did you watch Fed Chair Powell testify in front of the Senate and House last week? It seemed to be like watching certain angry congresspeople calling for interest rates to be kept lower for longer. Do they want hyperinflation? Other groups of Senators reflected on what the inflationary environment was like in the early 1980s.

As Chair Powell testified, bonds rose (yields fell), and the S&P 500 was mostly lower. Clearly, there was a bid under the bonds (keeping interest rates lower). All of this came over a two-day period following the monstrous CPI print.

Recapping Tuesday through Friday in the E-Mini S&P 500 Futures Last Week:

Figure 1 – E-Mini S&P 500 Futures July 12, 2021 – July 16, 2021, 10:00 PM ET, 30 Minute Candles Source stooq.com

A. Tuesday 8:30 AM: CPI Data 0.9% vs. 0.5% expected, highest run rate ex-food and energy in 30 years.

B. Tuesday 1:00 PM: Weak 30-Year bond auction offered at 2.00% yield

C. Wednesday: Fed Chair testimony

D. Thursday: Fed Chair testimony

E. Friday: NY Cash Market Open

We can see the large CPI print was bearish for the index, and the market recovered. Then, we had the bond auction, which had very weak demand at 2.00%, and the index sold off again. It recovered once again, tested the highs, and was rejected. The Fed testimonies on Wednesday and Thursday kept the S&P 500 bid and sideways.

As all of this was occurring last week, I was eyeballing the index all day, each day, wondering when it would all become too much to keep the index afloat.

On Friday, we got a bullish Retail Sales number at 8:30 AM before the NY cash open, and then a bearish UoM Consumer Sentiment Print at 10:00 AM. The NY open was lower even before the bearish UoM print at 10:00 AM. It seemed like the index finally couldn’t bear the inflation data. The weak bond auction, and the congressional rhetoric during the Fed 2-day testimony any further and had to break. It actually made sense.

I want to illustrate the above A through E points in terms of interest rates last week.

Taking a look in terms of the 10-Year note yield:

Figure 2 – 10-Year Treasury Yield July 12, 2021 – July 16, 2021, Daily Candles Source stockcharts.com

The question I pose here: What if interest rates were rising towards the end of last week?

It doesn’t seem like the current market would be able to handle it. However, the Fed must use tools to curb inflation. This inflation seems anything but transitory or temporary at this point.

If bond yields were going higher on Friday with the market lower, how much would the INdex have dropped? That is the million-dollar question.

Rates do need to rise. But, if the Fed is not going to begin tapering (slowing bond purchases) or raising rates incrementally, what will happen with inflation?

If you hold a beach ball underwater, it eventually will pop up. You can’t keep it underwater forever.

This is food for thought as we begin the week.

Now, let’s cover all nine markets we are following for Premium Subscribers.

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

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

 

Post-Covid Stimulus Payouts & The US Fed Push Global Investors Deeper Into US Value Bubble – Part II

In this second part of our research into how capital is being deployed across the globe and why traders/investors continue to pour capital into the US equities markets, we’ll explore how the US major indexes have reacted to the continued investments by the US and foreign investors compared to foreign market trends.

Using methods like this to determine where capital is being allocated and why traders/investors decide to move capital into and out of various global indexes, suggests one of the most important aspects of swing trading is to stay keenly aware of how capital is moving and deploying across the globe.

In October of 2019, we attempted to highlight how capital is shifting and how trends are setting up in currencies, global major indexes, and other global sectors.

While reviewing our past research posts, we found this one particularly interesting because it was posted only 4 months before the COVID-19 peak and indicated our long-term predictive modeling system suggested a volatility surge may take place in late 2019 or early 2020.

October 29, 2019: LONG-TERM PREDICTIVE SOFTWARE SUGGESTS VOLATILITY MAY SURGE

Even though our predictive modeling system can’t attempt to predict unknown outside global events, like COVID or wars, it can make some really uncanny and accurate predictions related to price activity and volatility in the markets that come true.

GLOBAL CUSTOM SMART CASH INDEX CONTINUES TO FLATTEN

This first chart shows our Custom Global Smart Cash Index Monthly Chart. The point we want you to focus on with this chart is the sideways and weaker price action over the past 6+ months as well as the +84.25% rally from the COVID lows.

This chart reflects a fairly even and global response by traders after the March 2020 COVID lows to expect a global reflation rally bringing global indexes back up to the pre-COVID-19 peaks. In this case, that rally phase completed by September/October 2020. After the November 2020 US elections, a second rally phase was initiated that pushed the Custom Global Smart Cash Index to recent highs (near $210). These current highs represent a new high price valuation level, even higher than the 2018 peak levels, which suggests that large amounts of capital shifted back into the global markets after the November 2020 election.

Currently, though, this chart shows a broad sideways weakening price trend that may suggest an early stage peak has setup – similar to the peak in 2018. As capital seems to be fleeing the global market indexes and sectors, it is likely to move away from risks related to this inflated secondary rally phase and into assets that provide better safety and security.

C:\Users\pc\Desktop\Technical Traders\Articles\CustomSmartCashIDX_M_F.png

Custom US Stock Market Index Chart Shows A +34.42% Greater Rally Than Global Index

This second Custom US Stock Market Index chart shows an incredible rally phase after November 2020 that includes an additional +34.42% extended rally to the current $1266.42 highs. Comparatively, the Custom US Stock market index, which includes the NASDAQ, Russell 2000, SPY, Real Estate, and Retail Sales, highlights the incredible strength and resilience of the US economy and consumer over the past 12+ months. While the Global Custom Index has stalled over the past 6+ months, the US Custom Index has rallied an additional 13.5% higher.

At this stage of the rally, though, we need to see the Custom US Stock Market Index find support above the May 2021 lows, near 1164.38, and attempt to setup a new momentum base for any further upside price trending. The fact that the Global Custom Index is weakening while we’ve seen a fairly broad breakdown in commodities and the Russell 2000 recently suggests this extended rally may be pausing.

Normally, price moves in a rotational manner setting up new peaks and troughs as it trends. Recently though, the continued stimulus and global central bank actions have prompted a type of rally that we’ve not seen in many years – a hyper speculative rally based on expectations of very strong economic and recovery trends. As this phase of the post-COVID rally phase completes, the next phase may be much more difficult for traders to navigate going forward.

C:\Users\pc\Desktop\Technical Traders\Articles\CustomUSStockMktIdx_M_F.png

Post-COVID Recovery Cycles Will Change How Capital Seeks Opportunities In The Future

Recently, I shared a new research article related to the “Transitory Inflation” expectations that have been stated by Jerome Powell, and others, and how traders need to prepare for fairly broad rotations in the recovery data over the next 12 to 24+ months.

C:\Users\pc\Desktop\Technical Traders\Articles\CovidSineStructre.png

I strongly believe the global markets are going to contract into a sideways, slightly downward trend before the end of 2021 in alignment with the post-COVID cycle phases. Over the next 8+ months, my analysis of these phases suggests we will start to see weaker economic data, weaker consumer engagement, and eventually, the potential for another round of moderately negative economic data as the Month-over-Month and Year-over-Year data transitions into lower/weaker representation of the cycle phase (see the chart above).

Given the amount of capital deployed throughout the globe and within the US equities markets, this may prompt a series of fairly large price rotations over the next 18 to 24 months (or longer) and may not settle until after 2024. What the global central banks do, or don’t do, over the next 24+ months could compound these cycle phases and trends.

More than ever, right now, traders need to move away from risk functions and start using common sense. There will still be endless opportunities for profits from these extended price rotations, but the volatility and leverage factors will increase risk levels for traders that are not prepared or don’t have solid strategies. Don’t let yourself get caught in these next cycle phases unprepared.

Want to know how our BAN strategy is identifying and ranking various sectors and ETFs for the best possible opportunities for future profits? Please take a minute to learn about my BAN Trader Pro newsletter service and how it can help you identify and trade better sector setups.  My team and I have built this strategy 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.

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

Have a great day!

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

 

U.S. Small Caps Waver as Reflation Trade Wobbles

The Russell 2000 index, which tracks smaller companies, has underperformed the S&P 500 in each of the last four months. Investors pulled nearly $108 million out the iShares Russell 2000 index exchange traded fund during the week that ended July 14, the third straight week of outflows that combined to total nearly $965 million and represent the ETF’s longest losing streak since April.

Small caps stocks have been among the beneficiaries of the so-called reflation trade, which also saw investors bet on shares of banks, energy firms and other economically sensitive companies and lighten up positions in U.S. Treasuries on expectations of a powerful economic rebound. The Russell 2000 is up 11.6% this year, compared to an 16.3% rise for the S&P 500.

Some now believe that bounce has run its course and the economy will slow in coming months, sparking a rotation back into the technology and high-growth stocks that have led markets higher over the last decade.

Yields on the benchmark 10-year Treasury, which move inversely to prices, edged higher Friday but remained near their lowest levels since February. In testimony before Congress earlier this week, Federal Reserve Chairman Jerome Powell said rising inflation is likely to be transitory and that the U.S. central bank would continue to support the economy, adding to pressure on yields.

“We have perhaps passed peak inflation fears, and we’ve also passed peak growth optimism,” said Brian Jacobsen, senior investment strategist at Wells Fargo Asset Management.

His firm has been paring its overweight on small caps and is now neutral on the asset class due to expectations that the economic boom from the coronavirus recovery will be short-lived.

Overall, fund managers have unwound their bullish bets on small caps relative to large caps back to levels last seen in October 2020, before the announcement of effective coronavirus vaccines helped fuel an outsized rally in cyclical and small-cap stocks, according to a global survey of fund managers by BofA Research.

Low bond yields will likely continue to weigh on small-caps as investors opt for sources of income such as dividend stocks rather than look for capital gains, said Lamar Villere, a portfolio manager at Villere & Co.

“People are trying to chase any yield that they can and that comes at the expense of small caps. You’ve got this huge demand on the client side for blue chip dividend paying stocks right now because it’s the only place you can get any sort of yield,” he said.

His firm has not added any new positions in small-caps over the last six months, he said, and has instead added companies such as media giant Viacom Inc to its portfolios.

Investors will get additional clues as to how broadly the U.S. economy is expanding in the week ahead through data showing new housing starts on Tuesday and an index of leading economic indicators on Thursday.

Netflix and Twitter, meanwhile, are also expected to release their latest quarterly earnings results in the week ahead, giving investors a deeper read into how the reopening of the economy has affected revenue growth.

Signs that high inflation will persist longer than the Fed expects could bolster small caps, said Jim Paulsen, Chief investment strategist at the Leuthold Group.

Overall, the Russell 2000 should post a 50% growth in earnings over the 2021 fiscal year, compared with a 44% earnings growth in the large-cap S&P 500, according to Jefferies.

That outsized growth rate and high valuations in the S&P 500 could make small caps a contrarian play over the remainder of the year, said Saira Malik, chief investment officer of global equities at Nuveen, who said that she has been adding to financials in expectation that the 10-year Treasury yield will end the year near 2%.

“We definitely think it will be tougher in the second half, but there will be some permanence to inflation and that would be positive to small caps,” she said.

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

(Reporting by David Randall; Editing by Ira Iosebashvili and Raissa Kasolowsky)

 

Stocks Slide, Bond Yields Dip as Inflation Worries Linger

The Commerce Department said retail sales rose 0.6% in June, contrary to an expected decline, adding weight to those who say inflation will run faster than the Federal Reserve forecasts and force interest rates to rise sooner than it projects.

Yet bond yields pared most initial gains, with the benchmark 10-year U.S. Treasury note trading at 1.2987%, or a scant 0.2 basis points higher on the day. The Fed’s dovish outlook outweighed fears of a prolonged inflation spike.

Equity markets declined as investors turned risk-averse, with defensive stocks gaining both on Wall Street and in Europe.

MSCI’s all-country world index, a gauge of global shares, closed down 0.62% at 719.17. The index scaled a record peak earlier in the week, but lost 0.61% by week’s end.

In Europe, the FTSEurofirst 300 index fell 0.38% to 1,754.64. European defensive shares rose, with real estate, utilities and healthcare up between 0.5% and 1% as worries about the coronavirus mounted.

England’s coronavirus crisis could return again surprisingly quickly, the British government’s chief medical adviser said, before lifting all pandemic-led restrictions on Monday despite rising COVID-19 cases.

In California, Los Angeles county will reimpose a mask mandate this weekend, the latest sign of public health officials struggling with rising cases of the Delta variant.

The slide on Wall Street is surprising given earnings from the companies that have reported second-quarter results so far have surpassed estimates by 22.1%, Credit Suisse said in a note.

Removing year-ago comparisons show earnings are up decently from levels two years earlier and inflation is likely running about 2.6%, once last year’s low baseline is removed, said Jason Pride, chief investment office for private wealth at Glenmede in Philadelphia.

“That should ultimately be acceptable to the (equity) market and permit an ongoing upward grind,” Pride said. “My one hesitation is equity market valuations are high.”

Economically sensitive industrials, energy, financials, consumer discretionary and materials are projected to more than double earnings, while so-called big tech and non-cyclicals are expected to grow 36% and 10%, respectively, Credit Suisse said.

The Dow Jones Industrial Average closed down 0.86%, the S&P 500 slid 0.75%, and the Nasdaq Composite lost 0.80%.

For the week, the Dow lost 0.53%, the S&P 500 fell 0.97% and the Nasdaq shed 1.87%. The S&P 500 real estate index rose to a record high on Friday.

Gold prices dipped as a stronger dollar dulled bullion’s appeal, while bond yields were subdued after Fed Chair Jerome Powell this week pledged “powerful support” to ensure the U.S. economic recovery does not falter.

Mark Haefele, chief investment officer at UBS Global Wealth Management, adviser to many of the world’s super-rich, said he expected rates to move higher as the recovery fully takes hold.

“We believe the downward trend in yields will reverse as confidence in the economic recovery mounts. However, we see a rebound in 10-year yields to 2% by year-end as consistent with a continued rally in equities.”

In Europe, Germany’s 10-year yield fell to a new three-month low in cautious trade ahead of next week’s European Central Bank meeting.

Oil ended the week lower, sapped in volatile trade by expectations of growing supplies just when a rise in coronavirus cases could lead to lockdown restrictions and depress demand.

Brent crude settled down 12 cents at $73.59 a barrel. U.S. crude rose 16 cents to end at $71.81 a barrel.

U.S. gold futures settled 0.8% lower at $1,815 an ounce.

In foreign exchange, major currencies were little changed on the day but the dollar headed for its best weekly gain in about a month. The dollar index, which tracks the greenback versus a basket of six currencies, rose 0.10% to 92.675.

The euro slid 0.02% at $1.1810, while the yen rose 0.17% at $110.0500.

Overnight in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan lost 0.4%, weighed down by a 1.1% drop in China’s blue-chip index and a 0.8% fall for Taiwanese shares.

The Asian weakness was in large part driven by lackluster earnings from TSMC, Asia’s biggest firm by market capitalization outside China, which saw its shares fall 4.1%.

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

(Reporting by Herbert Lash, additional reporting by Hideyuki Sano, Swati Pandey, Sujata Rao and Dhara Ranasinghe; Editing by Marguerita Choy, David Gregorio and Sonya Hepinstall)

 

Nasdaq Ends Lower as Investors Sell Big Tech

Amazon, Apple Tesla and Facebook all fell. Nvidia tumbled around 4%.

The S&P 500 technology sector index ended a four-day winning streak. Earlier this week, investors’ favor for heavyweight growth stocks pushed the S&P 500 and the Nasdaq to record highs.

The S&P 500 energy sector index fell more than 1% and tracked a drop in crude prices on expectations of more supply after a compromise agreement between leading OPEC producers.

Fresh data showed the number of Americans filing new claims for unemployment benefits fell last week to a 16-month low, while worker shortages and bottlenecks in the supply chain have frustrated efforts by businesses to ramp up production to meet strong demand for goods and services.

Federal Reserve Chair Jerome Powell told lawmakers he anticipated the shortages and high inflation would abate. Yet many investors still worry that more sustained inflation could lead to a sooner-than-expected tightening of monetary policy.

“People are very nervous and concerned about inflation, tax rates and the (2022 midterm) election. Those three things are very much on people’s minds,” said 6 Meridian Chief Investment Officer Andrew Mies, describing recent phone calls with his firm’s clients.

Unofficially, the Dow Jones Industrial Average rose 54.52 points, or 0.16%, to 34,987.75, the S&P 500 lost 14.29 points, or 0.33%, to 4,360.01 and the Nasdaq Composite dropped 101.82 points, or 0.7%, to 14,543.13.

Morgan Stanley dipped as much as 1.2% after it beat expectations for quarterly profit, getting a boost from record investment banking activity even as the trading bonanza that supported results in recent quarters slowed down.

Second-quarter reporting season kicked off this week, with the four largest U.S. lenders – Wells Fargo & Co, Bank of America Corp, Citigroup Inc and JPMorgan Chase & Co – posting a combined $33 billion in profits, but also highlighting the industry’s sensitivity to low interest rates.

Blackstone said late on Wednesday it would pay $2.2 billion for 9.9% stake in American International Group’s life and retirement business. AIG and Blackstone both rallied.

Johnson & Johnson dipped after it voluntarily recalled five aerosol sunscreen products in the United States after detecting a cancer-causing chemical in some samples.

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

(Reporting by Noel Randewich; Additional reporting by Devik Jain and Shreyashi Sanyal in Bengaluru; Editing by Maju Samuel)

 

Bond Yields Slipping, How Long Can Inflation Be Transitory?

Capital markets seem to be a bit confused as to what to do next. As Federal Reserve Chair Powell testified in front of House and Senate committees over the last two days, there doesn’t seem to be any additional clarity in my eyes.

I wanted to wait until the Fed’s 2-day testimony concluded before publishing today’s opinion piece to gain any additional clarity on the markets.

There is a conundrum that exists right now. We keep getting higher inflation readings, and the Fed has already telecasted that higher rates are in the cards in 2023 (maybe 2022). Inflation is a problem and needs to be tamed. One way of taming it is to raise interest rates. There are other tools at the Fed’s disposal to tame interest rates like tapering and more. The question becomes, at what point is action going to be taken?

As the Fed testified in Congress yesterday and today, interest rates fell and the price action seemed anything but typical following Wednesday’s poor 30-year bond auction. We get it, the markets are addicted to low interest rates, but unless hyperinflation is the goal, it feels like something needs to change soon. When will the Fed begin tapering bond buying? How about some incremental tapering or very fractional interest rate increases such as an eighth of a percentage point or something? If something doesn’t change soon, we could be heading for a 1981 style inflationary environment. Rates are going to have to rise, and the stock market is not going to like it. However, action needs to be taken.

Will the US equity markets be able to maintain their upward trajectory?

All of this stimulus, decade-plus near-zero interest rates, bond buying, and market addiction to easy monetary policy will have repercussions eventually.

Since we have been analyzing TLT, let’s take a look at the 30 Year Bond Futures:

Figure 1 – U.S. Treasury Bond Futures July 8, 2021 – July 15, 2021, 1 Hour Candles Source stooq.com

The puzzling price action (or perhaps not so puzzling in retrospect given the 2-day Fed testimony) is the creep higher after the weak demand shown in Wednesday’s 30-year bond auction. If you were short bonds at this time via TLT or any product, things were looking good. Since that auction, we had the Fed testimony, which showed many select congress members pleading for interest rates to be kept low. Unfortunately, if rates remain at rock bottom levels, it seems like inflation could spiral out of control. This continued inflation would be bad for the American people.

It is unusual price action; to say the least. The 30-year bond auction was priced at 2%, and demand was extraordinarily weak. There is a solid explanation of this most recent bond auction on Barrons.

However, today, we have 30-year bonds catching a bid near 1.94%. Yes, it is illogical. Yes, markets can be illogical for extended periods.

Looking at the 30-year bond from a perspective of yield:

Figure 2 – U.S. 30 Year Treasury Bond Yield July 7, 2021 – July 15, 2021, 1 Hour Candles Source stooq.com

Fed’s James Bullard, Federal Reserve Bank of St. Louis President urged for tapering of bonds earlier today.

At the time of writing, we have the bonds continuing to be bid with the $SPX moving lower. The message of the market is exhibiting signs of change in my eyes. I don’t want to sound any overall warning bells just yet, but I am tuned in all day, every business day.

Now, let’s review the markets we are monitoring along with analyses on the other seven markets we are covering for Premium Subscribers.

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!

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

Thank you.

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.

 

What Does The Fed Mean By “Transitory Inflation” And Why Is It Important To Understand?

As the markets react to the somewhat shocking CPI and Inflation data while Q2:2021 earnings continue to roll across the news wires, we wanted to take a minute to explore the recent Fed comments related to “Transitory Inflation” and what that really means.

For those of you not familiar with the word ‘transitory’ (in conjunction with inflation) according to the Merriam-Webster Dictionary, Transitory means:

The COVID-19 Cycle Phase Setup

The COVID-19 market collapse happened at a time when the general US stock market was continuing to transition into stronger upward price trending and where consumers were engaging in the economy at fairly strong levels.  Initial Jobless Claims in November and December 2019 averaged near 221k per week. Real Consumer Spending averaged more than 2.80% throughout all of 2019.  The Consumer Price Index (a measure of price inflation) averaged only 0.18% throughout all of 2019.  One could say jobs were strong, consumers were spending moderately robustly and inflation concerns were relatively mild or non-existent.

All of that changed in 2020 as news of the COVID-19 virus started spreading across the globe. By mid-February, we were starting to see COVID cases through many areas of the world with little information about how dangerous this virus was or what types of risks we were facing.

President Trump, and other world leaders, acted to try to stop the spread of the virus first by shutting down international travel to and from some countries. Next, the States started locking down business and other aspects of society and suddenly, weekly jobless claims jumped to more than 3 million by March 26, 2020, alone.  By the following week, the jobless claims jumped to over 6.6 million. Real Consumer Spending dropped from +1.8 in January 2020 to -34.6 in June 2020.  CPI stayed relatively flat for the first 5+ months of the COVID virus event.  This suggests that inflation was not a real concern at that time.

By April 2020, the US Government and many foreign nations had a real problem on their hands.  A spreading COVID-19 virus, millions of people out of work, economies shutting down and a real lack of infrastructure to deal with this problem.

The US Federal reserve and the US Congress jumped into help US citizens (and others) with the first round of stimulus and new Executive Orders to help prevent collateral damage to the most at-risk people. But the time these support systems start reaching Americans, the country had lost more than 40 million jobs and Real Consumer spending fell to -34.6%.  From an Economist view, this spells real trouble.  From a Month-over-Month or Year-over-Year perspective, it looks pretty dang ugly.

And that leads us to the reason why the US Federal Reserve is expecting Transitory Inflation over the next few months – it’s all in the cycle phases and what’s to come.  What they are not telling you is that over the next 12+ months, we are likely to go through a series of highs and lows while the cycle phase reverts back to more normalized levels. We all need to get ready for the potential of some really big swings in the US major indexes, major sectors, asset values, and the global markets over the next 12 to 24+ months.  We are not even close to the end of this new cycle rotation at this stage.

Cycle Components: Amplitude and Wavelength

All Sine Waves function on two core components, Amplitude and Wavelength.  Amplitude is measured as the crest or trough value furthest away from a centerline.  Wavelength is measured by the amount of time it takes for two consecutive crests or troughs to complete.  Wavelength can also be considered as “time”.

Elevation is the total range measurement from trough to crest along the Amplitude scale.

A Dampening Sine Wave Structure – The Cause Of Transitory Inflation & Other Issues

The way I like to explain a Dampening Sine Wave Structure to people is to think of a very calm pond or small body of water and what happens on the surface when you toss in a fairly large rock.  First, the rock impacts the surface and displaces the water creating a trough and the initial “impulse wave”.  This disruption of the fluid dynamics of water then creates a Dampening Sine Wave process of reverting back to normal water levels/activity – such as we see in the example below.

The example, below, also aligns with the COVID market collapse and the subsequent recovery/reversion process that is likely to continue to play out over the next few months and years. Allow me to explain.

When COVID-19 disrupted the global economy, it was just like a big rock landing in a fairly small pond – it disrupted the normal economic activity by a fairly large degree.  Then the US Federal Reserve and other Global Central Banks jumped in with liquidity and other efforts to attempt to minimize the damage to the global economy.  In a way, this activity actually amplifies the Amplitude range of the subsequent cycle phases – not the initial downside cycle phase.  It does this by over-leveraging and hyper-inflating certain sectors/assets with new/easy money policies.

I believe the recovery from the March 2020 lows has been amplified by the continued efforts of the US Federal Reserve and Global Central Banks to prompt a very large recovery phase (upward crest), indicated on the chart below as “New Current Peak in Sine Wave Structure”.

After this crest peaks and rolls over, we’ll start a move that will likely attempt to bottom well below normal economic levels (possibly 10% to 20% below normalized historical levels) and may result in a deleveraging/price exploration event that many traders/investors are not prepared for.  In fact, over the next few years, we may see multiple various forms of this repeating cycle phase continue to roil the markets until we settle back into more normalized market trending.

So, by definition, I believe the Transitory Inflation suggestion by the US Federal Reserve relates to these Dampening Sine Wave cycle phases (above) and is why traders may not be prepared for what the Federal Reserve expects.

If I’m right, the US Federal Reserve and the Global Central Banks may still have quite a bit of work ahead to continue to navigate these cycle phases and the risks associated with each event cycle.  We may watch asset values peak and revalue over and over again throughout the next 7+ years as these phases continue to play out.  If another COVID variant hits the globe again, which may further amplify these cycle phases, we may start a new secondary Dampening Sine Wave cycle that will further complicate the recovery process going forward.

No matter how it plays out, these cycle phases suggest the markets are going to be full of big trends, various appreciation and depreciation phases, and the US Fed and Global Central Banks will be trying to navigate some very difficult times ahead.  Traders and Investors should look forward to some incredible setups and trends over the next 2 to 5+ years and get ready for the current crest to peak before the end of 2021.  Just like that first big climb of a roller-coaster – when you reach the peak, the real fun is just getting started.

Want to know how our BAN strategy is identifying and ranking various sectors and ETFs for the best possible opportunities for future profits? Please take a minute to learn about my BAN Trader Pro newsletter service and how it can help you identify and trade better sector setups.  My team and I have built this strategy 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.

From all my decades of experience, I can tell you that unless you have a solid foundation related to knowing when and where opportunities exist in market trends, you are likely churning your money in and out of failed trades. I will be presenting the second of my two favorite strategies at the July Wealth365 Summit on July 16th at 12 pm. The Summit is free to attend and offers unparalleled opportunities for learning…plus a potential prize or two!

Have a great day!

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

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

 

Marketmind: “A Ways Off” and That’s Good

You couldn’t call China’s data dismal — average growth actually surpassed Q1 while June retail sales and industrial output beat expectations. But it does show authorities, who last week unleashed one trillion yuan into the financial system, will ensure conditions stay loose.

But markets’ delight after Powell told Congress he saw no need to rush the shift towards tighter post-pandemic monetary policy, has not lasted long.

World stocks are off recent record highs, tempered possibly by spiking COVID-19 cases across Asia and signs the post-pandemic bounce in company earnings is hitting a peak.

Asian shares rallied, led by a 1% rise in Shanghai but U.S. futures are mostly lower, with the exception of the tech-heavy Nasdaq. European markets too, are opening weaker and 10-year Treasury yields are down at 1.33%, almost 10 basis points off Wednesday’s high point.

The news from the corporate world is all good — the four biggest U.S. banks, Wells Fargo, Bank of America, Citigroup and JPMorgan have posted a combined $33 billion in profits. Asset manager BlackRock beat estimates, with assets at a record $9.5 trillion.

Omens in Europe are good too, with Sweden’s SEB, carmaker Daimler and food delivery firm Just Eat all reporting buoyant earnings. And earlier in Asia, Taiwanese chipmaker, TSMC, posted an 11% rise in Q2 profits.

Key developments that should provide more direction to markets on Thursday:

– South Korea held rates but signalled pandemic era record-low interest rates was coming to an end

-UK added 356,000 jobs in June

-ECB Board Member Frank Elderson speaks

-Philly Fed index

-Bank of England interest rate-setter Michael Saunders speaks

Fed events: Powell testimony continues, Chicago Fed President Charles Evans speaks

US earnings: BNY Mellon, Charles Schwab, US Bancorp, Morgan Stanley, Alcoa

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

(Reporting by Sujata Rao; editing by Dhara Ranasinghe)

 

Stocks Rebound, Yields Fall as Fed’s Powell Soothes Market

Powell said in congressional testimony that high inflation was for goods and services tied to the reopening and the U.S. economy was “still a ways off” from levels the Fed wanted to see before tapering its stimulus support.

Powell’s remarks relieved investors who were concerned inflation data would prompt the Fed to signal the beginning of tapering, said Michael Arone, chief investment strategist at State Street Global Advisors in Boston.

U.S. producer prices surged in June to the largest annual gain in more than 10-1/2 years, the Labor Department said. A day earlier, it said consumer prices rose by the most in 13 years.

“Both the CPI yesterday and the PPI today came in considerably above expectations and signaled that inflation continues to run hot,” Arone said. “Even in the face of that Powell has stood steadfast.”

The yield on the 10-year Treasury note slid 6.6 basis points to 1.3492%, the dollar eased and stocks on Wall Street rose, though gains were pared at the close of trading.

MSCI’s all-country world equity index close slightly lower, down 0.03% at 726.09, after earlier matching Tuesday’s record intra-day high of 728.77. The broad pan-European FTSEurofirst 300 index slid 0.1% to close at 1777.58, just below Tuesday’s record high.

On Wall Street, the Dow Jones Industrial Average rose 0.13%, the S&P 500 added 0.12% and the Nasdaq Composite slipped 0.22%.

Overnight in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.25% as Chinese blue-chips fell 1.15%. Japan’s Nikkei dipped 0.38%.

The Bank of Canada held its key overnight interest rate at a record low 0.25% as expected and said it would cut its weekly net purchases of government bonds to a target of C$2 billion ($1.6 billion) from C$3 billion.

The U.S. dollar edged lower against the Canadian dollar, down 0.01% at 1.2508 per U.S. dollar.

The New Zealand dollar shot up 0.92% as markets bet an interest rate hike is imminent after the central bank on Wednesday unexpectedly announced it would end its bond purchase program from next week.

The dollar index, which tracks the greenback versus a basket of six currencies, fell 0.4% to 92.364.

The euro was up 0.5% at $1.1836, while the yen traded down 0.6% at $109.9600.

President Joe Biden’s administration is still pushing for U.S. fiscal stimulus. Late on Tuesday, Democrats on the Senate Budget Committee reached an agreement on a $3.5 trillion infrastructure investment plan they aim to include in a budget resolution to be debated this summer.

German 10-year Bund yields fell to -0.319% after Germany sold 3.392 billion euros in a top-up of its 0.00% 10-year Bund.

Oil prices dropped after Reuters reported Saudi Arabia and the United Arab Emirates had reached a compromise that should unlock a deal to boost global oil supplies as the world recovers from the coronavirus pandemic.

Brent crude fell $1.73 to settle at $74.76 a barrel. U.S. crude settled down $2.12 at $73.13 a barrel.

U.S. gold futures settled up 0.8% at $1,825 an ounce.

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

(Reporting by Herbert Lash, Additional reporting by Carolyn Cohn in London, Andrew Galbraith in Shanghai; Editing by Timothy Heritage, Mark Heinrich, David Gregorio and Marguerita Choy)

Big CPI Data, Bank Earnings Beat Expectations, Mixed Sectors

Bank earnings were strong this morning; with JP Morgan Chase (JPM) and Goldman Sachs (GS) having big beats versus analyst expectations. These strong earnings results are being overshadowed mid-session with yet another giant print in CPI data.

Giant CPI Data Print

This morning, the market consensus was for a CPI print of 0.5%, but yet again, we got a huge number at 0.9%. This level is the highest since 2008 and has seemed to put a cloud over today’s trade in New York. The S&P 500 is essentially flat so far today, after dipping 20 handles on the 8:30 AM data release and recuperating all of the CPI news release losses by 10:00 AM. It is one of those kinds of trading sessions so far, but we still have several hours to go today. Tech continues to be strong today, with many individual names lighting up green on the screen. Is the tech trade getting somewhat crowded at these levels?

Figure 1 – E-Mini S&P 500 Futures (September Contract) July 12, 2021 – July 136, 2021, 5 Minute Candles Source stooq.com

Cash traders wouldn’t even know the movement took place.

As today progresses, it feels like the market is digesting the monster CPI print and where capital will be allocated going forward. Interest rates initially fell hard off the data release; but have since been climbing back intraday, as the $SPX has been gaining a little bit of some steam.

There is no question that the S&P 500 is in full resilience mode here. Shaking off the large CPI prints without hesitancy and resuming the upside tells us a story. What the end result of that story is going to be is still up for interpretation. As more time passes and more digestion occurs, the picture will become clearer.

At times like this, I like to allow the data to be digested before making new decisions. This reflection period allows time to manage perspective and outlook on existing opinions/positions.

Figure 2 – TLT iShares 20+ Year Bond ETF June 1, 2021 – July 13, 2021, Daily Candles Source stockcharts.com

It is starting to look more and more that we have experienced a key reversal day in TLT and interest rates. The candle formation July 7th – 9th resembles an “Evening Star” formation, and the uppermost candle on July 8th looks like it marks a short-term top.

An evening star formation is a bearish reversal pattern that continues an uptrend with a long green (up)body day followed by a gapped up small body day, then a down close with the close below the midpoint of the first day.

If you are looking to beef up your candlestick knowledge, I highly suggest checking out ChartSchool on Stockcharts. It has been a valuable resource for 20 years and continues to be an excellent reference and knowledge resource.

Right now, let’s see how the remainder of the session plays out given the big bank earnings results so far; and the large CPI data print.

I still like the idea of staying long the banks and short bonds (higher interest rates) at this time.

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.

 

Tesla Lifts Wall Street to Close at Record Highs

The S&P 500 financials, communication services and real estate sector indexes each gained more than 0.8%.

Tesla rallied over 4% and was the top contributor to gains in the S&P 500 and Nasdaq. CEO Elon Musk insisted in court on Monday he does not control Tesla, and he said he did not enjoy being the electric vehicle company’s chief executive as he took the stand to defend the company’s 2016 acquisition of SolarCity.

The S&P 500 banks index climbed 1.3% ahead of quarterly earnings reports this week from major banks, including Goldman Sachs and JPMorgan on Tuesday. JPMorgan Chase rose over 1% and Goldman Sachs rallied more than 2%, fueling the Dow’s gains.

Investors will closely watch quarterly reports for early clues on the how long the U.S. economic recovery may last, with June-quarter earnings per share for S&P 500 companies expected to rise 66%, according to IBES data from Refinitiv.

The S&P 500 has rallied about 17% so far this year, with some investors questioning how long Wall Street’s rally may last and concerned about a potential downturn.

“Earnings season is going to be warmly greeted as an opportunity for existing biases to be confirmed,” warned Mike Zigmont, head of trading and research at Harvest Volatility Management in New York. “Even if forecasts are not as rosy as what the most bullish had hoped, it’s all going to get rationalized away.”

Focus this week will also be on a series of economic reports, including headline U.S. inflation data and retail sales. As well, Federal Reserve Chair Jerome Powell is due to appear before Congress on Wednesday and Thursday for views on inflation.

Investors have been concerned about higher inflation and the spread of the Delta coronavirus variant in the past few sessions, with traders seesawing between a preference for economy linked-value stocks and tech-heavy growth names.

The Dow Jones Industrial Average rose 0.36% to end at 34,996.18 points, while the S&P 500 gained 0.35% to 4,384.63.

The Nasdaq Composite climbed 0.21% to 14,733.24.

All three closed at their highest levels ever.

Walt Disney jumped over 4% to a two-month high after it and Marvel’s “Black Widow” superhero movie took in $80 million in its first weekend. And the entertainment company plans to raise prices for its ESPN Plus streaming service.

Didi Global Inc dropped about 7% after it confirmed China’s cyberspace administration notified app stores to remove the ride-hailing company’s 25 apps and said the move could impact its revenue in the region.

Virgin Galactic Holdings tumbled 17% after the space tourism company said it may sell up to $500 million worth of shares, a day after the company completed its first fully crewed test flight into space with billionaire founder Richard Branson on board.

Volume on U.S. exchanges was 8.3 billion shares, compared with the 10.5 billion average for the full session over the last 20 trading days.

Advancing issues outnumbered declining ones on the NYSE by a 1.43-to-1 ratio; on Nasdaq, a 1.11-to-1 ratio favored advancers.

The S&P 500 posted 66 new 52-week highs and no new lows; the Nasdaq Composite recorded 85 new highs and 38 new lows.

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

(Additional reporting by Devik Jain and Shreyashi Sanyal in Bengaluru; Editing by Maju Samuel and Cynthia Osterman)

Stocks Hit Record; U.S. Treasury Yields Hover Above 5-Month Lows

Last week, a bond market rally pushed the yield of the benchmark 10-year U.S. Treasury note to a five-month low of 1.25% as investors worried that climbing cases of the variant could slow the economic recovery. The yield had risen to as high as 1.78% in March as rising vaccination rates fed expectations for growth.

The World Health Organization warned the Delta variant was becoming dominant and many countries had yet to receive enough doses of vaccine to secure their health workers.

Analysts also cited a lack of supply for the drop in yields. Yields were little changed after Treasury sold $58 billion in three-year notes and $38 billion in 10-year notes, with a sale of $24 billion in 30-year bonds set for Tuesday.

Earnings season begins this week, and the market will take in U.S. inflation data on consumer and producer prices as well as comments from Federal Reserve Chair Jerome Powell.

“Earnings season is going to be warmly greeted as an opportunity for existing biases to be confirmed,” said Mike Zigmont, head of trading and research at Harvest Volatility Management in New York.

“Even if forecasts are not as rosy as what the most bullish had hoped, it’s all going to get rationalized away.”

Benchmark 10-year notes last yielded 1.3712%, from 1.356% late on Friday.

Equity gains on Wall Street were modest, with financials the best-performing S&P sector of the session ahead of results from JPMorgan Chase, Goldman Sachs and Bank of America on Tuesday, but the gains were enough to push each of the three major averages to record closing levels.

The Dow Jones Industrial Average rose 126.02 points, or 0.36%, to 34,996.18, the S&P 500 gained 15.08 points, or 0.35%, to 4,384.63 and the Nasdaq Composite added 31.32 points, or 0.21%, to 14,733.24.

European equities also advanced to close at a record level of 460.83. The pan-European STOXX 600 index rose 0.69% and MSCI’s gauge of stocks across the globe gained 0.50%, closing at a record 727.24.

Investors will watch Powell’s testimony this week after the People’s Bank of China late on Friday moved to free up $154 billion for banks to buttress the economic recovery while the European Central Bank said it will discuss a change to its forward guidance on policy direction at next week’s meeting.

Crude prices fell on concerns about dampening economic growth.

U.S. crude settled down 0.62% at $74.10 per barrel and Brent was settled at $75.16, down 0.52% on the day.

The safe-haven dollar moved slightly higher on the concerns about the pandemic and its potential to thwart growth.

The dollar index rose 0.092%, with the euro down 0.1% to $1.1861.

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

(Additional reporting by Noel Randewich; Editing by Dan Grebler, Sonya Hepinstall and David Gregorio)

 

 

Banks Kick Off Earnings Season, Are You Fading the CPI Fear?

After last week’s sudden Thursday dip and subsequent rebound on Friday to close at all-time highs in the $SPX, I hope the weekend has you feeling relaxed and rejuvenated. I say that because this week could provide some elements of fireworks; given the economic data on tap and the beginning of the Q2 earnings season.

The Banks

In the second half of last week, our analyses focused on interest rates and the banks. In case you missed it, we were specifically looking at interest rates via TLT and banks via KBE. Friday was a great day for the banks…could this be a harbinger of things to come for bank earnings?

Figure 1 – KBE S&P 500 Bank ETF January 18, 2021 – July 9, 2021, Daily Candles Source stockcharts.com

Please refer to the July 6th publication where we analyzed KBE in depth. I think there are so many reasons to like the banks here. If you are a premium subscriber, you received an alert email on Wednesday regarding some intraday trading activity and levels.

Note that the RSI(14) has not even crossed the 50 line yet. These levels could indicate that there is still time to get on board the banks ahead of earnings. Some folks are fundamentally predicting a big bank’s earnings season this week.

For example, we have Sam Stovall, chief investment strategist at CFRA Research looking for the second-best YOY quarterly gain in the last 25 years for the banks.

KBE tacked on 3.83% on Friday. If you recall, part of the reason we initially started to love the banks (KBE) was that it had pulled back over 9% from its 2021 highs; as the S&P 500 had continued to make new highs.

Putting that together with the technical action late last week and heading into earnings, it could be a great place to continue to be. We will be looking for exit levels in the coming days and weeks, with Premium Subscribers receiving the intraday alerts.

Interest Rate Action and Reaction

As banks surged on Friday ahead of earnings, interest rates rose along with them. That is part of a goldilocks scenario for banks. Has the time for banks come and the turn in interest rates along with it?

Figure 2 – Ten-Year Treasury Note Yield January 7, 2020 – July 9, 2021, Daily Candles Source stockcharts.com

Ten-year note yields rose on Friday in tandem with bank stocks. Please see the July 7th and July 8th publications for more detail on $TNX.

So far this morning, it has been a quiet session in equities and bonds. Since we have CPI data on tap for tomorrow at 8:30 AM, it is to be expected.

Our interest rate analysis led us to TLT and a potential long-term head in shoulders pattern being created. As bond yields rose on Friday, TLT fell nicely.

Figure 3 – TLT iShares 20+ Year Bond ETF July 2, 2021 – July 12, 2021, 10:35 AM, 15-Minute Candles Source stooq.com

The 15-minute candles in TLT show an exhaustion gap up to levels we were watching on Thursday; and a gap lower on Friday. Notice what may be a short-term head and shoulders pattern forming here on the intraday charts that coincides with the long-term head and shoulders pattern that we identified. I like to call this the matching pattern within the pattern. More on that another time.

This morning, we do see the equities beginning to gain a bit of steam and the bond yields dropping slightly. We have CPI data tomorrow morning, so it could be a quiet session as traders look to tomorrow’s CPI release.

Are you fading the CPI data fear? Is it possible that tomorrow’s inflation data release is not so bad, and that the inflation is indeed transitory, as the Fed has spoken about on multiple occasions? I think there is a possibility of this, and it has never been a good idea to fight the Fed.

I like the idea of being long the banks and short bonds (higher interest rates) heading into tomorrow’s CPI release and this week’s bank earnings releases.

Now, let’s cover the stop loss, take profit, and other key levels in KBE and TLT, along with analyses on the other seven markets we are covering for Premium Subscribers.

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

Rafael Zorabedian
Stock Trading Strategist

Sunshine Profits: Effective Investment through Diligence & Care

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