Asset Inflation at New Highs as we Start Another Earnings Season
The last meeting of the Federal Reserve Open Market Committee (FOMC) added a little bit of volatility back into the market for about two days. This brought the market momentarily off of its all time highs. The volatility was caused by the Fed saying that it would begin to slow its stimulus buyback efforts. This caused the U.S. dollar to rally and stocks, which are denominated in dollars, to falter. As we have seen many times lately, the “buy the dip” crowd bought the discounted market with gusto, just as good news regarding the reopening came from one of the Fed governors.
From a technical perspective, there are lots of negative indicators that just seem to be ignored by traders and investors perhaps that does not matter because of other bigger factors coming into play. What are some of these other factors?
We have been talking about inflation for months, but inflation might actually be the reason why the stock market will continue to move higher. With no interest being paid if you put the money in the bank, you have NOLA (No Other Logical Alternative) but the stock market to invest your money. With zero interest at the banks and over 3% inflation, keeping your money in the bank just loses money. So investors rush to put their money into the stock market to keep pace with rising inflation. You can’t put your money into bonds in a rising interest rate environment because those bonds will lose face value as interest rates rise.
$QQQ continues to squeeze upward, making all time highs going into the earning season. As always, keep an eye on the big five as they lead the tech heavy Nasdaq and the S&P; they are: $AMZN, $AAPL, $MSFT, $GOOG and $NFLX.
$XLU, the utility ETF is showing a possible continuation break out into a weekly uptrend. Utilities traditionally pay a high dividend and do not have a lot of price fluctuation, which makes them a great place to find safety in an uncertain market. If markets do correct, utilities tend to correct the least. In this case, there may even be up to 50% upside potential.
Are Digital Assets Done?
Bitcoin has lost half of its value in the last month and a half. It is no longer an alternative investment to keep pace with the stock market, making the stock market the only game in town.
Look here at the chart of the $GBTC, it is looking like it may be setting up for another run to the upside.
Earning Season as A Turning Point
It is our view that earnings season can be pivotal here. It could push the markets either way depending on how earnings are perceived. Technology stocks have the greatest risk in the short term, they have been the biggest beneficiary of the pandemic rally. As they’ve been pushed up by massive growth during the pandemic, their prospects for the future are now greatly reduced. They also bear the greatest risk from inflation as interest rates rise. They tend to borrow heavily and therefore are very interest rate sensitive. Very often, markets will make one final squeeze to the upside in what’s called an exhaustion rally. We also have to watch with great concern how the end of the eviction moratorium is handled by the markets. Since we have been living in a bit of a “fake reality” things have opened up, but for tenants they have yet to deal with paying their rent. At the end of July, the eviction troubles may start in earnest.
On that note, watch earnings season very closely, be cautious and enjoy your summer. Trade well!
Market Research and Analysis provided by Michael DiGioia, Director of Educational Services
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We released a new production version during the month of June: 126.96.36.199. This version includes an extensive list of enhancements and bug fixes to the DAS Trader Pro platform:
-Added option to merge all partial fill trade triangles.
-Added S5, S6, R5, R6 for Camarilla pivot points.
-Added new style config window for Data Config dialog.
-Added new style config window for Study Config dialog.
-Added new style config window for Chart History dialog.
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-Updated ALGO order type with new parameters dialog.
-Mapped Pref field long strategy name to abbreviation name.
-Short locate font size can now be set using Setup->Other Configuration.
Technical Analyst Tools
Trade Signal scanner updates includes:
-Modified number display in volume columns to display with commas separator. For example, 3567000 is now 3,567,000.
-Used short filters to support more filters in scanner.
-Support snapshot data in scanner MarketAlerts.
-Added some new filters into scanner MarketAlerts such as SMA, ChangeFromYesterdayHigh and Relative Volume, etc.
-Added new column named ‘Filter(Count)’ to show current/Max filters in TradeSignal List.
-Resolve issue where Alerts sometimes do not trigger in Alerts and Trigger.
-Bug fix – Resolve issue where Windows sometimes disappear after configuring in
-Frame Window Configure dialog.
-Bug fix – Resolve issue where there are no “up” & “down” on Level2 columns in TradeSignal.
-Bug fix – Resolve display issue where the incorrect max value when length of filter description is more than 256 in TradeSignal.
We highly recommend that you review the release notes here.
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