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Dow, S&P, NASDAQ, and Russell 2000 futures as well as European advanced as corporate earnings reports were not as bad as feared thus giving traders the confidence to increase risk ahead of today's pivotal US Federal Reserve's monetary policy decision.
All the major US contracts were well in the green, led by the NASDAQ 100 as investors rotated out of economically sensitive sectors and dived into growth stocks after earnings from Alphabet (NASDAQ:GOOGL) and Microsoft (NASDAQ:MSFT) published after the US close yesterday which met low expectations.
Russell 2000 futures posted the worst performance. Big tech and small caps have positively correlated since the Fed turned hawkish, as both underperform in a rising rate environment. However, since the outlook turned negative on recession fears, big tech and small caps decoupled with growth stocks overtaking sectors that thrive when an economy accelerates.
However, investors are somewhat cautious ahead of the rate announcement. The VIX is down at 24 after peaking at 25 following yesterday's tech reports, which afforded traders a sigh of relief.
It is worth noting that the "fear gauge" lows have been rising but the highs have been in decline which denote some disagreement in sentiment. However, the current rising trendline—demonstrating growing worries—began at the November lows. Moreover, the volatility index has been on the rise since June 2021 and if it continues on this trajectory, it will have climbed through the downtrend (dotted) line since mid-2020.
European shares on the STOXX 600 opened higher after upbeat earnings there.
The index is extending gains for the seventh session out of the last nine. Nevertheless, the price fell from session highs as the pan-European benchmark nears its downtrend line since the January all-time high.
UK headquartered, Reckitt Benckiser (LON:RKT) posted an 11.9% rise in quarterly like-for-like sales, beating estimates.
The multinational consumer goods firm completed a massive H&S bottom development since January 2021. This bottom is a diamond in the ruff of markets, as we might already be in a recession. The company is bucking the prevailing trend as investors stock up on consumer staples as a defensive measure.
Italian bank, UniCredit (BIT:CRDI) raised its guidance, with profits coming in significantly above expectations, as the bank seeks a $1 billion buyback approval. This news is especially favorable for the bank as it did not pull out of Russia after its invasion of Ukraine.
Technically, CRDI looks very different than RKT.
As opposed to the consumer's dramatic bottom, the Italian bank's is ranging, possibly forming a continuation pattern, bearish after halving in value in 5 months.
US stocks sold off yesterday after Walmart (NYSE:WMT), the world's largest retailer, highlighted the impact inflation on consumer spending and MorganStanley issued a "potential warning signal" for Amazon's (NASDAQ:AMZN) merchandise margin which unnerved investors.
Investors' apparent fickleness from pessimism, after Walmart's release, to optimism today underscores how risky the current market is. This lack of collective level-headedness is a sign of a market top. I may be wrong but I think investors are on a sugar high before they exhibit withdrawal symptoms.
Yields on the 10-year note avoided topping yesterday.
But they are making their way to that finish line, and the yield curve remains inverted.
The dollar retreated.
The greenback is struggling at the top of a potential Falling Flag, presumably bullish after the receding 5.4% rise. The flag is supported by the previous high, as it meets the uptrend line. Consider this paradigm a holding pattern.
Gold rebounded from a two-day selloff.
The yellow metal may develop a small H&S bottom above the lowest levels since mid-2020. A break above $1,740 will strengthen the case for a rebound off the lows rather than a massive double top. However, I think a rally would be temporary and considered a risk to the commodity's downside.
Bitcoin was little changed
The cryptocurrency formed a mighty hammer yesterday, with an extremely long lower shadow amid a Rising Channel. I remain bearish in the long term.
Oil rose within a range.
The price resumed struggling within a Symmetrical and Descending Triangle while trading within a Falling Channel.
Disclaimer: The author currently does not own any of the securities mentioned in this article.
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