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Potential Junction for Equities


Today is a potential junction for equities as three weeks of bullish sentiment and bullish resiliency in the face of negative developments could be coming to an end. In fact, corporate earnings results this week have yawned at positive results and embraced negative results. Earnings from large banks were mixed while earnings from regional banks were disappointing, leaving a negative bias from corporate financial company headlines. A prime example of the bearish preference in the market’s interpretation of earnings, Tesla shares fell 10% because of narrowing “profit” margins. Earnings announcements will include American Express and Schlumberger before the Wall Street opening.

While the S&P has bounced from the spike down reversal yesterday, we see key support today at the overnight low of 4528.00 being violated today as global economic sentiment continues to moderate and some investors continue to bank profits from the very aggressive July rally. The Dow has shown the most bullish resiliency of the markets today with prices overnight tracking in positive territory and remaining near yesterday’s upside extension. the NASDAQ is the most vulnerable index into the last trading session of the week as Tesla and Netflix woes leave investor sentiment toward tech undermined. While the rest of the market might support the NASDAQ today.

bull and bear


DOLLAR: While the dollar has forged a 7 day high in the early action today, the lack of US scheduled data today could rob the index of additional buying fuel. However, yesterday’s contraction in US initial claims (the lowest reading since May 12th) should leave the dollar with fundamental underpin. The logical near-term target is the pivot point of 101.00 with key support today pegged at 100.40.

EURO: Like the US Dollar, the euro zone had an empty scheduled report slate today leaving technical weakness and prevailing dollar strength in control of the euro. While the euro has initially respected yesterday’s low and in turn posted a double low, we see the currency on a path to retesting the 1.110 level today or early next week.

YEN: While Japanese national consumer price inflation was softer than expected, it was higher than last month and remains very high historically. Therefore, the Japanese economy continues to face a conundrum of stubborn headwinds from inflation and a very anemic economy. Therefore, the large range down extension overnight is justified and the next target is 70.60.

SWISS: Even though the Swiss managed to reject a trade yesterday below 1.16, the market has failed at that level again this morning and is poised for further declines. In fact, considering the July low to high rally of 550 points, a small measure of corrective action today could extend aggressively.

POUND: Like the Swiss, the Pound has managed to respect yesterday’s spike low but weak GBP consumer confidence readings for July and a contraction in GBP retail sales for June result in both fundamental and technical signals pointing downward. The next downside target in the Pound is 1.278.

CANADIAN DOLLAR: With the Canadian this week holding up in the face of a developing uptrend in the dollar it appears to have separated from other nondollar currencies increasing the chances of extending the July uptrend. Uptrend channel line support from the July lows is right on the low this morning at 75.90 and therefore we give the bull camp a thin edge.


Obviously, the surprise decline in US initial claims yesterday (the lowest point since May 12th) has punctured the bullish bias in place from the mid-July low to this week’s high on Wednesday. With the US economic report slate empty today a top line Reuters story from London titled ‘Tightening on the QT’ dredges up a very bearish topic for treasury prices. In other words, hiking interest rates is one thing and has been a force throughout this year, but chatter of a global central bank reduction of balance sheets is a major psychological negative. Furthermore, another long-term historical fundamental premise citing the typical delay in the impact from tightening monetary policy should begin to surface with the markets now 16 months beyond the first-rate hike back in March 2022. In fact, if the Fed hikes interest rates by 25 basis points next week that will bring the total increase to 525 basis points, which is a historically large fast jump! While some economists suggest that the rate hikes have yet to influence the economy, data seems to suggest otherwise with definitive progress in US recovery drifting into mixed data and the feeling of deceleration. On the other hand, US and international inflation measures continue to soften which should give central bankers confidence to finish their job of reversing inflation. Therefore, the shift in treasury price action away from buying on ideas of overtightening has apparently drifted from the equation and have been replaced with selling interest off the expectation that the global interest rate structure is poised to continue to grind higher over time and return to more normal structures. However, if the US economy is indeed faltering and that is signaled by another downside breakout in US nonfarm payrolls, that could put the brakes on the current downtrend in treasuries 2 weeks from today. The North American session will start out with May Canadian retail sales which are expected to have a sizable downtick from April’s 2.9% year-over-year rate. The June Canadian new housing price index is forecast to have a minimal downtick from May’s 0.7% year-over-year rate. Earnings announcements will include American Express and Schlumberger before the Wall Street opening.


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