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

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

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

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

Daily September E-mini S&P 500 Index

Daily Swing Chart Technical Analysis

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

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

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

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

Daily Swing Chart Technical Forecast

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

Bearish Scenario

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

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

Bullish Scenario

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

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

Tech-Heavy Nasdaq Ignores Hawkish Fed News to Advance

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

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

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

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

S&P 500 Video 18.06.21

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

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

JPMorgan Chase Could Sell Off to 140

Dow component JPMorgan Chase and Co. (JPM) could trade lower in coming weeks after CEO Jamie Dimon warned the banking giant will book about $6 billion in second quarter trading revenue, down 38% over the same period in 2020. Citigroup Inc. (C) CFO Mark Mason reiterated this bearish theme, warning about a 30% decline. Windfall revenue in these divisions bolstered profits during the pandemic, keeping a floor under the banking industry’s equity prices.

Mixed Catalysts Heading Into Third Quarter

Federal Reserve Chairman Jerome Powell eased investor anxiety on Wednesday, declaring the U.S. economy had recovered faster than expected, setting the stage for interest rate hikes that have been off-the-table during the pandemic.  Higher rates steepen the spread between the prices that banks pay for capital and the prices paid by corporations seeking loans, improving profits. However, higher rates can also curtail lending volumes, especially after two or three hikes.

Dimon ended his comments on an upbeat note, reminding listeners that “The quarter last year was exceptional. The last quarter is exceptional. This quarter is what I call more normal…which is still pretty good.” Meanwhile, Mason examined reasons for the surge, noting “If you think back to the second quarter of 2020, at least for Citi, we were looking at Markets revenues back then that were up 50%. We had seen record levels of debt issuances from our clients.”

Wall Street and Technical Outlook

Wall Street consensus on JPMorgan remains bullish despite mixed catalysts, with an ‘Overweight’ rating based upon 15 ‘Buy’, 2 ‘Overweight’, 6 ‘Hold’, and 1 ‘Underweight’ recommendation. In addition, 3 of 27 analysts recommend that shareholders close positions and move to the sidelines. Price targets currently range from a low of $110 to a Street-high $200 while the stock is set to open Thursday’s session more than $15 below the median $171 target.

A JPMorgan uptrend topped out at 141 in January 2020, ahead of a steep pandemic decline. The subsequent uptick reached the prior high in January 2021, yielding a February breakout that added 26 points into early June’s all-time high at 167.44. The pullback since that time has sliced through the 50-day moving average while accumulation has dropped to a 4-month low. This price action raises odds for downside that could offer a buying opportunity in the low 140s.

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

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

Stocks Retreat As Fed Expects Two Rate Hikes In 2023

Stocks Remain Under Pressure After Yesterday’s Pullback

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

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

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

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

Gold Declines Below $1800

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

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

Initial Jobless Claims Increased To 412,000

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

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

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

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

American Dollar Retaliates

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

The SP500 is still safely above the main uptrend line.

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

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

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

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

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

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

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

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

Fed Dot Plot Changes. US Equities Lower Post-FOMC Statement

So, we now know that the Fed expects to hike interest rates in 2023.

That could be ok. However, there was some contradictory language yesterday surrounding inflation. Is it transitory in the eyes of the Fed, or is it something more? Yesterday’s press conference seemed to play both sides of this coin, and stocks sold off on the uncertainty.

That’s ok too.

In reality, the selloff wasn’t too bad, with the $SPX losing 0.54%; and the $VIX rising by 6.64% on Wednesday. The benchmark 10-year yield $TNX tacked on 4.67% and finished yesterday’s session at a 1.568% yield. There was a pocket of strength in financial names and a few select market sectors. However, it makes me wonder, will asset managers be taking a different view on equities going forward? 2023 is a long time from now, but the idea of the punch bowl being taken away combined with an uncertain inflationary environment could paint a different picture going forward. We just don’t know yet.

Fortunately, some of the ETFs that we have been following fared well on Wednesday. Strength surfaced in solar and green names, which shows that we are on the right path, as capital had to make its way into something other than cash, financials, and volatility yesterday.

Figure 1 – SPDR S&P 500 ETF February 17, 2021 – June 16, 2021, Daily Source stockcharts.com

So, even though it seemed like the sky was falling if you were watching business news coverage after the Fed statement, it was just a pedestrian down day on decent down volume. For SPY traders that have been waiting for a pullback, there could be an opportunity in the cards soon; if we get some follow-through selling. However, I personally favor the IWM at this time, as discussed thoroughly in the May 27th publication.

Turning bearish of an event like today usually turns out to be the wrong move, in my experience. So what, rates will go up in 2023. They have to go up at some point; there is plenty of warning and plenty of time between now and then. Buying the pullback would still be the prudent move based on probabilities (it is still a bull market).

Speaking of the IWM , it fared better than the SPY in Tuesday’s session, giving up only 0.21%. It could be due to the reconstitution theme that we have been discussing.

Figure 2 – iShares Russell 2000 ETF December 29, 2020 – June 16, 2021, Daily Candles Source stockcharts.com

That is a pretty healthy daily candle for the type of session that the major indices experienced on Wednesday.

So, keeping the above in mind, is it really prudent to suddenly get bearish on the indices based on the Fed guidance towards rate hikes in 2023? Probably not. At least not today, anyway. Bull markets like this don’t just go out with a whimper on most occasions. Let’s see how things transpire across the major indices once the new Fed guidance is digested by market participants.

Now, for more bearish folks, I’d like to turn our attention to the IWM/SPY ratio that we discussed in our May 27th publication surrounding the Russell 2000 reconstitution trade.

Figure 3 – IWM iShares Russell 2000 ETF / SPY S&P 500 ETF Ratio August 27, 2020 – May 26, 2021. Source tradingview.com

While the spread hasn’t moved too much to the upside since May 26th, it has tacked on a penny, moving from 0.53 to 0.54. Percentage-wise, there is nothing wrong with that, and this is a theme that could continue to work through June 28th. This trade is long the IWM and short the SPY .

While it may be too early to tell how the broader markets will react to the Fed’s change in stance, it is also not necessarily a time to make rash decisions. Looking for pullbacks when more emotional traders decide to short the market could be a good idea. For now, we will see how Asia and Europe digest the message of the Fed in the overnight session followed by another US trading session. Time will give us more clues regarding the market’s interpretation of the Fed.

Now, for our premium subscribers, let’s look at what was working, even in yesterday’s down session ( a few of the ETFs we have been analyzing were green on the day ). There are also more buy idea levels that could be triggered soon. 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!

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

 

E-mini S&P 500 Index (ES) Futures Technical Analysis – Weakens Under 4194.75, Strengthens Over 4207.00

September E-mini S&P 500 Index futures are weaker, but off their lows in the pre-market session on Thursday after the Federal Reserve raised inflation expectations and forecast rate hikes as early as 2023.

The benchmark index fell on Wednesday after the Fed’s initial statement and economic projections, but managed to post a strong intraday rally after comments from Fed Chair Jerome Powell. However, those gains faded into the close, leading to today’s early follow-through selling.

At 02:14 GMT, September E-mini S&P 500 Index futures are trading 4197.50, down 15.50 or -0.37%.

Daily September E-mini S&P 500 Index

 

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart, however, momentum has been trending lower since the formation of the closing price reversal top on June 15 and its subsequent confirmation on June 16.

A trade through 4258.25 will negate the closing price reversal top and signal a resumption of the uptrend. A move through 4155.50 will change the main trend to down.

The short-term range is 4155.50 to 4258.25. The index is currently straddling its retracement zone at 4207.00 to 4194.75

The minor range is 4258.25 to 4183.00. Its 50% level at 4220.75 is potential resistance. This level will move lower if the index continues to weaken.

The main range is 4020.00 to 4258.25. If the main trend changes to down then its retracement zone at 4139.00 to 4111.00 will become the next downside target area.

Daily Swing Chart Technical Forecast

The direction of the September E-mini S&P 500 Index on Thursday is likely to be determined by trader reaction to 4194.75.

Bearish Scenario

A sustained move under 4194.75 will indicate the presence of sellers. Taking out the intraday low at 4183.00 will indicate the selling pressure is getting stronger. This could trigger an acceleration to the downside with 4155.50 the next target.

The trend will change to down on a trade through 4155.50, making 4139.00 to 4111.00 the next target zone.

Bullish Scenario

A sustained move over 4194.75 will signal the presence of buyers. This could trigger the start of a labored rally with potential targets 4207.00 and 4220.75. Sellers could come in on a test of these levels, but overtaking 4220.75 could trigger an acceleration to the upside with 4258.25 the next likely target.

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

FOMC Maintains Stimulus, Brings Rate Hike Forecast Forward to 2023

New projections saw a majority of 11 Fed officials pencil in at least two quarter-point interest rate increases for 2023, even as officials in a statement after their two-day policy meeting pledged to keep policy supportive for now to encourage an ongoing jobs recovery.

The Fed also made technical adjustments to prevent its benchmark interest rates from falling too low. It raised the interest rate it pays banks on reserves – the IOER – held at the U.S. central bank by five basis points, and also lifted to 0.05% from zero the rate it pays on overnight reverse repurchase agreements, used to set a floor on short-term interest rates.

In a question and answer period after the statement, Chairman Jerome Powell said the Fed will provide advanced notice before changing asset purchases and that considering tapering of these purchases at coming meetings would be appropriate, if progress allows.

MARKET REACTION

STOCKS: The S&P 500 extended losses to -0.83%%

BONDS: The 10-year U.S. Treasury note yield jumped to 1.5720% and the 2-year yield rose to 0.1991%

FOREX: The dollar index turned higher. It was last up 0.72%

COMMENTS

PETER TUZ, PRESIDENT, CHASE INVESTMENT COUNSEL, CHARLOTTESVILLE, VIRGINIA

“I’m not too surprised by the statement or the reaction. You would have had to have your head pretty buried in the sand not to pick up on inflation rising in many parts of the U.S. economy. So the Fed acknowledged that. The market’s reaction to the Fed acknowledging rising inflation is also not a surprise because now people are wondering if and when are you going to do something.”

STEVEN RICCHIUTO, U.S. CHIEF ECONOMIST, MIZUHO SECURITIES USA LLC, NEW YORK

“The policy statement is verbatim from what we had last time, essentially. And that is going to drive the post-meeting press conference, which is going to drive home the point that this Fed is going to stay the course, which is not what the market wanted. A lot of people wanted the Fed to say something more aggressive and the Fed took the least aggressive tact that they could. That’s the right decision for them to make.

“If the Fed had told you that they’re going to be aggressive and start tapering, yields would have continued to move down. The fact that they’re not doing that means that yields, people were a little bit too aggressive in terms of what was going to happen.

GENNADIY GOLDBERG, INTEREST RATE STRATEGIST, TD SECURITIES, NEW YORK

“The market reacted quite hawkishly and I think that was largely to the 2023 dot actually moving up even more than we had anticipated. We had expected it to move to one hike, it actually moved to two, so certainly a bit more optimism there. The statement was a little bit more upbeat but I would say there weren’t that many changes there that warranted this kind of reaction. So really the crux of the reaction really came down to the dot.”

“On the front-end it does look like the Fed just decided to move preemptively. They effectively raised IOER and RRP and that should help support the money market complex and just prevent any further flirtation with negative rates, at least for now. I think everyone was basically anticipating this hike at some point, the move today was basically done just to be preemptive.”

JASON WARE, CHIEF INVESTMENT OFFICER & CHIEF ECONOMIST, ALBION FINANCIAL GROUP, SALT LAKE CITY

“I think the market is taking it as a bit more hawkish in the initial reaction. In the coming days we will see what investors truly think. The reason traders are a bit skittish is that in some ways the results of the meeting, at least so far in the statement and the pulling forward of the timeline of the first rate hike, just that change is enough to make those that are ultra-short-term-focused re-position. But for longer-term investors, it is still extremely loose financial conditions and ultra-accommodative for equity investors.

“Another element is they increased their headline inflation expectations which demonstrates they are paying attention to the latest CPI reports. They brought that up. That’s a good thing. That helps underscore and solidify the Fed’s credibility.”

“I think there were an increasing number of market participants that expected a more robust conversation about when tapering might begin. Our expectation is we will probably see the stage being set for tapering in August at Jackson Hole.”

STEPHEN MASSOCCA, SENIOR VICE PRESIDENT, WEDBUSH SECURITIES, SAN FRANCISCO

“Basically they are living off this theory that all these inflationary numbers are the result of a disorganized economy exiting Covid and that once the economy reorganizes price pressure will return and inflation will vanish, that is the argument they are making. I actually kind of think it is a good one. Before they react I think waiting for a few months is prudent and I think the market understands that.

“The one guy remaining in power, Powell, knows what he is doing. And if you scream PPI, look at that number, it is just because the economy is so disorganized now coming out of Covid that once it organizes that will be a mirage that goes away. It really does make a lot of sense. If it doesn’t happen that is going to be a real problem for the market. But right now that argument makes sense and everybody is buying it.”

GUY LEBAS, CHIEF FIXED INCOME STRATEGIST, JANNEY MONTGOMERY SCOTT, PHILADELPHIA

“The IOER hike is really about relieving some of the strains in the front-end of the curve related to a tsunami of cash in the financial system. Banks are overreserved, money market funds are finding it hard to get positive yield anywhere and so it addresses some of those problems. But it will also have the effect of pulling yields out the curve a little bit higher, probably out to about three years, because the relative value of a two-year or three year note is in part dependent on what a bank can get in overnight rates, which is now somewhat higher.”

“I don’t think that there’s a ton of information at this stage conveyed in the dots because you’re measuring a median forecast at a time when economic variability is massive.  It’s also a conditional forecast and I think the conditions on which the forecast is based are at best volatile and somewhat unlikely.”

KARL SCHAMOTTA, DIRECTOR OF GLOBAL PRODUCT AND MARKET STRATEGY, CAMBRIDGE GLOBAL PAYMENTS, TORONTO

“We may not be seeing a taper tantrum but we are seeing a hissy fit on currency markets. The interesting thing is that the Fed has gone beyond simply acknowledging that inflation is rising and that the U.S. economy has a lot of momentum, and it has essentially shifted to a much more hawkish stance in this set of projections.”

JACK ABLIN, CHIEF INVESTMENT OFFICER, CRESSET WEALTH ADVISORS

“I think this is pretty close to what the market wanted. The market wanted the Fed to tell investors that there is nothing to see here, keep moving, nothing going on in the economy or inflation, and we’re just going to stay aggressively easy.”

“The Fed is not in complete denial, the way the market would have liked. They do recognize that they will have to respond sometime in the future. But I will call that a tilt – not a change in direction. The Fed is still maintaining its head-in-the-sand policy.”

RYAN DETRICK, SENIOR MARKET STRATEGIST, LPL FINANCIAL, CHARLOTTE, NORTH CAROLINA

“The market’s a little lower but you see that on Fed days.

“There was a big jump in (the Fed’s) inflation expectations, a point above March projections, and with the likelihood of first rate hike now in 2023, there was a knee jerk reaction and the market is trying to digest it.

“But the market was expecting this. The market is having typical Fed day volatility.

“It’s like you get all worked up and excited when the Fed has an announcement and the market sleeps on it overnight and go the other way the very next day.

“They upped the GDP forecast, we’ve got a stronger economy and stronger inflation. Those shouldn’t be surprises to anyone.”

“The action in the bond market is pretty calm. The stock market is having typically volatile Fed day shake-out but the bond market seems to be taking it in stride, and that’s a key takeaway.

“There’s no sign of tapering, but we’ll see with the Q&A.”

FRANCES DONALD, GLOBAL CHIEF ECONOMIST, MANULIFE INVESTMENT MANAGEMENT, TORONTO

“The dot plot is now showing two rate hikes by 2023. That’s enough of a hawkish surprise for the bond market and its getting all of the attention.”

“What’s interesting here is that the Federal Reserve has increased its estimate of when the first rate hikes will come but not materially changed its 2022 and 2023 projections for growth and inflation. What that tells us is that while the outlook hasn’t dramatically changed it seems that the Fed’s confidence in returning to a normal environment has.”

“There has not been a material change of tone. This statement has only a few adjustments.

“The market is reacting to a few strands of information in the dot plot. Now it will be Powell’s time to try to dissuade the market from reading too much into the dot plot.”

TOM MARTIN, SENIOR PORTFOLIO MANAGER, GLOBALT INVESTMENTS, ATLANTA

“The market wants to see the Fed communicate that it’s going to provide the accommodation that the country will need while being on the lookout for inflation, and to me, what you got with this announcement is what the market wanted.

“On average, the market does want the Fed to be measured, which they absolutely were with this release.

“I don’t see that the movements in the S&P and Nasdaq mean much.”

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

(Compiled by the U.S. Finance & Markets Breaking News team)

 

E-mini S&P 500 Index (ES) Futures Technical Analysis – Trader Reaction to 4227.75 Determines Direction

September E-mini S&P 500 Index futures are trading lower at the mid-session, with investors being cautious before potential hints from the Federal Reserve on when it would taper its massive monetary stimulus. The central bank’s latest policy statement is expected to be released with fresh economic projections at 18:00 GMT.

The Fed has previously tried to assuage concerns that rising inflation would prompt it to tighten its ultra-loose monetary policy, but data on Tuesday showing a jump in producer prices has again raised expectations the central bank could begin debating closing the taps at its meeting this week.

At 16:49 GMT, September E-mini S&P 500 Index futures are at 4226.25, down 10.25 or -0.24%.

In stock-related news, Citi shares slumped 3.8% after Bloomberg reported the bank warned of rising costs and slipping revenue. Chief financial officer Mark Mason said he expected second-quarter expenses to increase to somewhere between $11.2 billion and $11.6 billion, according to Bloomberg.

Daily September E-mini S&P 500 Index

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart, however, momentum may have shifted to the downside following the confirmation of yesterday’s closing price reversal top.

A trade through 4258.25 will negate the closing price reversal top and signal a resumption of the uptrend. A move through 4155.50 will change the main trend to down.

The minor trend is also up. A trade through 4197.25 will change the minor trend to down. This will confirm the shift in momentum.

The minor range is 4197.25 to 4258.2. The index is currently straddling its 50% level at 4227.75.

The second minor range is 4155.50 to 4258.25. Its retracement zone at 4206.75 to 4194.75 is the next potential downside target and possible support. Taking out 4194.75 will indicate the selling pressure is getting stronger. This could trigger an acceleration into the main bottom at 4155.50, and the short-term retracement zone at 4139.00 to 4111.00.

Daily Swing Chart Technical Forecast

The direction of the September E-mini S&P 500 Index into the close on Wednesday is likely to be determined by trader reaction to 4227.75.

Bullish Scenario

A sustained move over 4227.75 will indicate the presence of buyers. If this move creates enough upside momentum then look for a test of 4258.25. This is a potential trigger point for an acceleration to the upside.

Bearish Scenario

A sustained move under 4227.75 will signal the presence of sellers. This could trigger a fast break into 4206.75 to 4194.75. Look for an acceleration to the downside if 4194.75 fails as support. This could trigger a steep sell-off into the main bottom at 4155.50, followed by the short-term retracement zone at 4139.00 to 4111.00.

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

S&P 500 Price Forecast – Stock Markets Continue to Flatten Out

The S&P 500 has been somewhat flat over the last couple of weeks, but it should be noted that we are still rising in value. As the world awaited the statement coming out of the FOMC, the question will be whether or not the Federal Reserve still sees inflation as “transitory”, or if they are starting to become concerned about inflation. It comes down to whether or not they are even “thinking about thinking of tightening.” The reality is that the Federal Reserve will do nothing to sink the stock market, as the game has been played the same way for at least 13 years.

S&P 500 Video 17.06.21

To the downside, the 50 day EMA continues to see a lot of attention paid to it, and it is rising to go towards the 4200 level. The 4200 level has been supportive, but even if we break through all of that I think there is even more support at the 4000 handle, where there is a nice gap that could come into play as far as lifting the market.

To the upside, the market does take off then it is likely that we will eventually go looking towards the 4300, and then eventually the 4400 level as this market does tend to move in 200 point increments. To the downside, if we were to break down below the 4000 handle, then I might be a buyer of puts but there is no way that I would step in front of this market and try to start shorting it, at the very least I want to have my risk laid out ahead of time.

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

Dow Jones And Transportation Index Breaching Critical Price Support Ahead Of FOMC Meeting

Over the past few weeks, we have watched the markets continue their attempt to melt higher. Recently the Down Jones and the Transportation Index have breached a lower upward sloping support channel that suggests traders are preparing for a surprise Fed statement or a breakdown in the current bullish price trend.  My team and I believe this warning sign may be suggesting the reflation trade is over. Traders believe the US Fed will soon begin to act to contain inflation by raising rates.

As we move closer to the FOMC statements and decisions related to the economy, inflation, and future expectations, the US major indexes usually move into an apprehensive sideways trend.  This happens because US federal reserve decisions can have a very big impact on how consumers and corporations perceive monetary policies and future opportunities.  The US markets will likely react to the US Fed statements this week with increased volatility and trend strength.  If you have not already protected your trades in preparation for the FOMC comments this week, get ready for a potentially wild ride.

FASTEN YOUR SEATBELTS AND MAKE SURE YOU HAVE YOUR “E-TICKETS” READY

The Dow Jones Industrial Weekly chart below shows how price has been moving higher (melting upward) throughout the early part of 2021 and has just recently broken below the YELLOW upward sloping price channel line.  It is our opinion that this move, below a key support level, may be an early indication that traders and the markets expect a policy change from the US Federal Reserve.  Quite possibly, the inflationary aspect of the recovering global economy is sparking greater concern for the US Fed and they may decide to act in steps that will help curb run-away inflation earlier than expected.

We’ll know soon enough as the FOMC statement is due on Wednesday, June 16, 2021.  We are expecting an increase in volatility with the potential of the FOMC comments driving a new upward or downward trend.  If the Fed issues a statement where they are taking no action and don’t believe inflation is a core issue, then the markets will likely continue to move higher.  If the Fed issues a statement that inflation and other concerns are big enough to warrant a surprise rate/policy change, then the markets may react to the downside.

This next Weekly Transportation Index chart highlights a similar type of price pattern.  The Transports have broken below a more recent upward sloping price channel, from the February 2021 lows, and has yet to break below the major upward sloping price channel line, from the COVID-19 lows.  Still, this “rollover” in the Transportation Index suggests traders are changing perspective related to future economic activities 90 to 120+ days into the future.  This sideways rollover suggests traders believe the commodity rally and inflationary pricing pressure will “abate” as we move into the end of 2021.

Logically, we would expect the Transportation Index to continue to move lower if these expectations become rooted in the broad market perspective.  If the Fed takes any action to help curb inflationary expectations, this downward trend in the Transports could move in a much more aggressive manner.

Are the Dow Jones Industrial Average and Transportation Index setups warning that the Fed may be backed into a corner?  Are we starting to see a change in trader/investor sentiment related to the current commodity rally and/or economic activity throughout the rest of 2021?  Only time will tell at this point.

What we do know is that later today, being Wednesday, June 16, 2021, The FOMC decisions and statement will likely set a tone in the markets that will drive increased volatility and trending.  This could prompt some very big trends in major market sectors such as precious metals, oil, and others.  Now is the time to get ready for some bigger trends that will likely last throughout the rest of 2021 and into 2022.

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

Oracle Cloud Initiative Could End Uptrend

Oracle Corp. (ORCL) is trading lower by more than 5% in Wednesday’s pre-market after beating fiscal Q4 2021 estimates and lowering Q1 2022 profit guidance. The software giant earned a respectable $1.54 per-share during the quarter, beating estimates by $0.21, while revenue rose 7.5% year-over-year to $11.23 billion, nearly $200 million higher than consensus. Shareholders hit the exits after the company warned it would “roughly double its Cloud CapEx spending in fiscal year 2022 to nearly $4 billion”.

Investing Revenue in Cloud Growth

Cloud computing is more profitable than overall business operations and Oracle is trying to increase market share and improve margins going forward. As a result, it’s “confident that the increased return in the Cloud business more than justifies this increased investment and margins will expand over time”.  However, disappointed investors held a less bullish view, voting with their feet to exit positions.

Success in the new investment is no sure thing because Oracle’s transition into cloud computing has been slower than its rivals, who have already built large and diverse customer bases.. As a result, it will be hard to take market share from Amazon.Com Inc.’s (AMZN) AWS or Microsoft Corp’s (MSFT) Azure in coming quarters, raising doubts about the initiative. In addition, while this high tech venue is growing at a rapid rate, so is competition, with many operations throwing their hats into the ring.

Wall Street and Technical Outlook

Wall Street consensus is skeptical as well, with a ‘Hold’ rating based upon 5 ‘Buy’, 1 ‘Overweight’, and 18 ‘Hold’ recommendations. In addition, three analysts recommend that shareholders close positions and move to the sidelines. Price targets currently range from a low of $60 to a Street-high $115 while the stock is set to open Wednesday’s session about $2 above the median $75 target. This mid-range placement suggests that Oracle is now fully-valued.

Oracle failed a 2019 breakout over the 2017 high at 53.14 during 2020’s pandemic decline and turned higher, breaking out in the fourth quarter. The uptick added more than 40% into early June’s all-time high at 85.03, ahead of a pullback that’s now accelerating to the downside. The decline has settled on the 50-day moving average in the pre-market, generating the first test since February, It’s likely to hold for now but the stock may be headed into months of sideways action.

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

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

Stocks Lack Direction Ahead Of Fed Interest Rate Decision

Bond Markets Stay Calm As Traders Shrug Off Inflation Fears

S&P 500 futures are swinging between gains and losses in premarket trading as traders wait for the Fed Interest Rate Decision.

Most likely, the market will be unable to make any material moves before traders have a chance to see Fed’s commentary and economic projections.

Bond markets remain calm, and the yield of 10-year Treasuries has firmly settled below 1.50% which means that traders are not worried about inflation at this point. Meanwhile, the U.S. dollar is flat against a broad basket of currencies.

However, the situation may change quickly if the Fed hints that it is ready to think about discussing when it would be appropriate to reduce support to the economy. The Fed has previously stated that it will warn markets in advance to avoid panic, and traders will carefully watch for any signs that the Fed is less dovish.

Housing Starts Grew By 3.6% In May

U.S. has just released Building Permits and Housing Starts reports. Building Permits declined by 3% month-over-month in May compared to analyst forecast which called for growth of 0.9%. Housing Starts increased by 3.6% compared to analyst forecast of 2.5%.

It remains to be seen whether these reports will have any material impact on the market today as traders stay focused on the upcoming Fed Interest Rate Decision.

WTI Oil Managed To Settle Above The $72 Level

The rally in the oil market continues despite the recent sell-off in other commodities, and WTI oil managed to settle above the $72 level.

Oil traders stay focused on the robust rebound of oil demand and the significant support from OPEC+ deal, while the lack of progress in negotiations with Iran serves as an additional bullish catalyst.

Interestingly, oil-related stocks failed to develop significant upside momentum in recent trading sessions, although shares of oil majors have finally started to move higher.

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

What’s Your Trade Ahead of the Fed? Wooden Opportunity?

Major US equity indices traded lower ahead of the Fed meeting, and the debate over growth versus value stocks continues. Is there any magic language or policy stance that can come out of today’s Fed meeting to provide clarity in this market?

PPI data came out stronger than expected yesterday. This data adds more fuel to the inflationary theme, while Retail Sales were weak. The markets should have been lower from this data, and they were, albeit slightly.

As the anticipation builds to today’s FOMC statement at 2:00 PM ET today and the subsequent press conference at 2:30 PM ET, it seems like a good time to revisit a market that we are following – lumber .

If you have been following along and read the June 9th publication , you know that we are eyeballing the lumber markets for an ETF trade possibility. While the lumber market has been just insane to the upside in 2021, it has recently pulled back substantially. The question remains: are these higher lumber prices sustainable? If so, is there a way to participate via an ETF?

While this may seem like an obscure sector or at least an underappreciated one, let’s take a look at the front-month lumber futures to get caught up on the most recent price action.

Figure 1 – Random Length Lumber Futures Continuous Contract February 21, 2020 – June 15, 2021 Daily Source stooq.com

Front-month lumber futures made a pandemic low of 251.50 on April 1, 2020. Its recent and all-time high is 1733.30, which was put in on May 10, 2021. Taking a 50% retracement of this move, we have a value of 992.40. Yesterday’s low in front-month lumber futures was 943.70 and a close of 1009.90. Yesterday’s trading was also on higher than average volume. It is important to note that it traded below the psychologically important level of 1000, through the 50% Fibonacci retracement, and then reversed intraday and closed higher. This kind of price action really gets me going.

Let’s also illustrate this price action described above via weekly candlesticks:

Figure 2 – LBS1! Random Length Lumber Futures Continuous Contract September 2019 – June 2021 Weekly Candles Source tradingview.com

Isn’t that something? I wanted to illustrate this via the weekly candlesticks to add a little more clarity. The weekly candlestick that is being formed this week could be a sign of things to come. Now before we go any further:

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

Lumber is a very thin contract and may only trade a few hundred contracts per day. But with such intriguing technicals, I want to circle back to an ETF that we covered in the June 9th publication : WOOD iShares Global Timber & Forestry ETF.

Figure 3 – iShares Global Timber & Forestry ETF (WOOD) Daily Candles November 10, 2020 – June 15, 2021. Source stockcharts.com

So, we see some interesting potential weekly candlestick formation in the Lumber futures and an interesting daily candle in WOOD. While the 2 instruments do not trade a perfect or near-perfect correlation, a correlation exists.

I like the idea of getting long the WOOD ETF based on the action in the Lumber futures markets.

While trying to catch a falling knife can be a precarious proposition, I view this as buying a pullback in a bull market. While we discussed certain levels in the June 9th publication , I would like to explore some different levels and a potential scaling/tranche entry strategy today.

And, while the price of gold certainly hasn’t caught an inflation bid (at least not yet), this could be a wooden opportunity. Maybe a wooden opportunity is the new golden opportunity.

Now, for our premium subscribers, let’s look to pinpoint potential entry levels in WOOD , and recap the eight 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.

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.

 

Oracle Shares Slump As Earnings Guidance Misses Estimates

Oracle Corporation shares slumped about 5% in extended trading on Tuesday after the world’s largest database management company called for a lower earnings outlook for the fiscal first quarter than equity analysts had previously expected.

The Austin, Texas-based computer technology corporation reported earnings per share of $1.54 per share, beating analysts’ expectations of $1.31 per share. The company’s revenue came in at $11.23 billion, topping the Wall Street consensus estimates of $11.04 billion.

According to CNBC, Oracle CEO Safra Catz called for $0.94 to $0.98 in adjusted earnings per share and 3% to 5% revenue growth in the fiscal first quarter, lower than the market expectations of $1.03 per share.

Oracle Corporation shares slumped about 5% to $77.75 in extended trading on Tuesday. The stock rose over 26% so far this year.

Analyst Comments

“Strong momentum in back-office apps and a pick-up in bookings growth gives management confidence to increase investment ahead of a potential acceleration in revenue growth. However, investors likely need more evidence in the numbers before pushing multiples higher, leaving share range-bound,” noted Keith Weiss, equity analyst at Morgan Stanley.

Oracle Stock Price Forecast

Ten analysts who offered stock ratings for Oracle in the last three months forecast the average price in 12 months of $76.10 with a high forecast of $93.00 and a low forecast of $54.00.

The average price target represents a -6.79% from the last price of $81.64. Of those 10 analysts, two rated “Buy”, eight rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley raised the stock price forecast to $77 from $73 with a high of $90 under a bull scenario and $58 under the worst-case scenario. The firm gave an “Equal-weight” rating on the database management company’s stock.

Oracle’s current low valuation at ~16.7x CY22e EPS reflects its slower growth rate compared to peers. Despite potential opportunities within existing database customers and cloud-based ERP applications, offsets from waning businesses mean 2021 likely lacks the catalysts for the positive inflection in revenue growth investors would need to see to drive multiples higher,” Morgan Stanley’s Weiss added.

“With management guiding to mid-single-digit CC revenue growth in a software sector filled with strong secular growth stories, and operating margins declining in FY22 due to heightened investment in Cloud, we remain Equal-weight while our price target moves up to $77.”

Several other analysts have also updated their stock outlook. Jefferies assumed coverage with hold rating and raised the target price to $80 from $75. JP Morgan lifted the target price to $77 from $73. Barclays increased the target price to $83 from $80. Piper Sandler increased the target price to $80 from $57.

Check out FX Empire’s earnings calendar

Today’s Market Wrap Up and a Look Ahead to Wednesday

Stocks took a breather in today’s session with all three major indices finishing the day in the red. The S&P 500, Nasdaq and Dow Jones Industrial Average were all down fractionally on Monday as investor jitters took hold while the Fed decides the fate of interest rates. The Fed’s two-day meeting began today and a statement is expected on Wednesday, in response to which the pendulum could swing either way on stocks.

One bright spot in the Dow was Boeing stock, which finished the day in the green. A nearly two-decade trade dispute between the U.S. and the EU involving subsidies for plane makers Boeing and Airbus finally came to an end, bringing some relief to the Dow stock.

Inflation Rearing Its Head

In the broader market, the pullback comes on the heels of record closes for both the S&P 500 and the Nasdaq on Monday. Investors got spooked by the latest retail sales data in which consumers did less shopping than anticipated, suggesting the economic recovery that was humming along has hit a snag.

Hedge fund manager Paul Tudor Jones warned on CNBC that if the Fed continues to stick its head in the sand on increasing prices, he would “go all-in on the inflation trades,” including:

  • bitcoin
  • gold
  • commodities.

On the economic front, retail sales for May fell 1.3% vs. expectations for a more modest 0.8% decline. Producer prices, meanwhile, are on the rise, which is fueling fears of inflation rearing its head in the economy.

Oil continues its bull run and surpassed USD 72 per barrel. Brent crude hasn’t seen this level in two years. The momentum in the oil price is expected to persist, with traders eyeing the possibility of USD 100 barrel oil once again.

Look Ahead

The Fed’s statement will be the talk of the town on Wednesday afternoon. But that’s not the only piece of economic data that will be released. Housing starts for May will be out at 8:30 a.m. ET.

This metric fell in April as construction in the residential market slowed due to factors such as rising prices and a lumber shortage. Wells Fargo is predicting a recovery in May to a pace of 1.6 million units. Homebuilder Lennar reports its quarterly earnings tomorrow.

U.S. IPOs Hit Annual Record in Less Than Six Months

With more than six months until the year ends, U.S. initial public offerings have already totaled $171 billion, eclipsing the 2020 record of $168 billion, according to data from Dealogic.

Driving the IPO rush are sky-high corporate valuations in the stock market, inflated by the Federal Reserve’s low-interest rates and monetary stimulus in the wake of the COVID-19 pandemic. This has fueled a wave of speculative frenzy that benefit not just traditional companies going public, but also special purpose acquisition companies (SPACs) formed strictly to raise money through IPOs.

The IPO gold rush is set to reach new heights in the second half of 2021, as a number of high-profile startups such as China’s largest ride-sharing company Didi Chuxing Technology Co Ltd, online brokerage Robinhood Markets Inc and electric-vehicle maker Rivian Automative LLC prepare to launch multi-billion dollar share sales.

“If the markets hang in anywhere near where they are right now, we are going to be incredibly busy this summer, and into the fall with IPOs,” said Eddie Molloy, co-head of equity capital markets for the Americas at Morgan Stanley.

“Trees don’t grow to the sky forever, so you’re not going to have a record volumes every year. But assuming stability, we’d also expect a busy 2022.”

Excluding proceeds from SPAC IPOs, traditional listings of big names, including South Korean e-commerce giant Coupang Inc, have raked in $67 billion this year, keeping 2021 on track to be the biggest year for such IPOs.

The average one-day gain for U.S. IPOs so far this year is 40.5%, compared with 28.2% during the same period in 2020 and 21.7% in 2019, according to Dealogic. The average one-week return for 2021 is 35.7%, higher than 32.2% in 2020 and 25.5% in 2019.

Capital markets bankers and lawyers estimate that companies could end up raising close to $50 billion through traditional IPOs, excluding SPACs, before the end of the September quarter. IPO proceeds have touched $24.1 billion in the second quarter through June 15, according to Dealogic.

Didi’s offering alone could raise close to $10 billion, sources have previously told Reuters.

By the end of the year, U.S. IPOs could raise $250 billion to $300 billion or more – a staggering sum once considered unthinkable, according to investment bankers.

“Five-hundred million used to be a pretty big IPO. Nowadays everything seems to be in the billions or three-quarters of a billion-plus. So there’s really been an explosion in the size of transactions as well,” said Jeff Bunzel, global co-head of equity capital markets at Deutsche Bank.

“And there seems to be adequate amount of capital out there to help support that level of activity.”

SPACS FUEL BOOM

The record numbers have been fueled largely by the boom in listings of special purpose acquisition companies.

SPACs, or blank check companies, are listed shell companies that raise cash with the sole purpose of merging with a private company within two years of the listing. The process takes the private company public.

During the first quarter alone, SPAC listings raised close to $100 billion, well above the $83 billion for all of 2020, according to data from SPAC Research.

Despite the recent slowdown in SPAC dealmaking, 339 SPACs have been formed this year, raising roughly $105 billion or nearly two-thirds of the total IPO volume. In 2020, SPAC volumes accounted for less than half of the total IPO proceeds.

“Valuations are strong, fund flows are strong, and all the ingredients that you need to have an active and successful IPO market remain intact right now,” said Bunzel.

Investment bankers and lawyers also pointed out that the capital markets boom is attracting more companies that would have otherwise stayed private for longer, making the IPO pipeline even more robust for the foreseeable future.

“Because of the surge in SPAC transactions, a lot of companies are thinking this is an opportune time to hit the market and achieve attractive valuations. I think it’s led to private companies being more receptive and interested in pursuing a public option,” said Paul Tropp, who co-heads the capital markets group at Ropes & Gray.

(Reporting by Anirban Sen in Bengaluru and Krystal Hu in New York; Editing by Richard Chang)

 

Wall Street Slips as Fed Mulls Policy, Economic Data Disappoints

With the Fed kicking off a two-day policy meeting today, investors are balancing the central bank’s insistence inflation will be transitory with fresh data showing prices growing faster than expected.

In separate reports, U.S. economic data showed an acceleration in producer prices in May as supply chains try to keep up with surging demand with the pandemic easing, while retail sales dropped more than expected as consumers turned their attention back to service industries.

The readings have investors wondering if the Fed may come out of its meeting Wednesday with any indication it is tweaking its go-slow approach.

“Rising prices are expected to subside as the supply side of the economy recovers to meet demand and inventories are restocked, but accomplishing that will not be as easy as flipping a switch,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. “It will take some time for that gap to be filled. In the meantime, upward pressure on prices are likely to continue.”

The central bank is not expected to announce any plans to ease back on its bond purchases until August, but investors are looking for any indication the Fed has begun discussing such an exit. Nearly 60% of economists in a Reuters poll expect a taper announcement will come in the next quarter, despite a patchy recovery in the job market.

“To a large extent, high US inflation has to do with the massive US fiscal stimulus. Inflation has been increasing in most of G10, but the US clearly stands out,” wrote Bank of America Securities analysts in a note. “Assuming that some of the recent increase in inflation is indeed sustained, we would argue that the Fed will react to it, supporting the USD later this year.”

After markets reached new highs in Europe, U.S. markets eased following the economic reports. U.S. Treasury yields also dipped, while the dollar ticked up.

The MSCI world equity index, which tracks shares in 45 nations, fell 0.86 points or 0.12%.

The Dow Jones Industrial Average was down 114.95 points, or 0.33% in afternoon trading, while the S&P 500 lost 9 points, or 0.21%, and the Nasdaq Composite dropped 89.10 points, or 0.63%.

OIL GAINS

Oil prices hit their highest levels since 2019 during trading Tuesday on an expected demand surge that should accompany increased travel as pandemic restrictions ease.

Brent crude was last up $1.09, or up 1.5%, at $73.95 a barrel. U.S. crude was last up $1.16, or 1.64%, at $72.04 per barrel. It previously hit a session high of $72.16 a barrel, the highest level seen since October 2018.

In currency markets, the dollar hit a one-month high against a basket of currencies Tuesday on the back of the fresh economic data. The dollar index, which measures the greenback against a basket of six currencies, was 0.06% higher at 90.544, after rising as high as 90.677, its highest since May 14.

Spot gold prices fell $9.585 or 0.51%, to $1,856.41 an ounce, while U.S. gold futures were down 0.4% at $1,857.60.

Benchmark 10-year yields were 1.4939%, slightly lower than Monday, when they rebounded from Friday’s three-month low.

(Reporting Pete Schroeder in Washington; Editing by Kim Coghill, Alex Richardson, Barbara Lewis and Peter Graff)