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Opening Bell: U.S. Futures Slip As Bulls Draw Breath Ahead Of GDP Data

Published 07/28/2022, 07:04 AM
Updated 07/09/2023, 06:31 AM
  • Futures slide suggests bulls bit off more than they can chew
  • Odds are against Fed's ability to lower inflation without recession
  • Dollar drops

European stocks opened higher on Thursday in an attempt to catch up with yesterday's exuberant Wall Street rally after comments from the US Federal Reserve Chair Jerome Powell suggested the central bank will temper its pace of tightening from here on out.

However, US futures on the Dow, S&P, NASDAQ, and Russell 2000 ran out of steam and were trading in the red today led by NASDAQ 100 contracts. The NASDAQ led yesterday's rally in the US market and closed twice as high as the Dow and about 1.5% higher than the S&P 500.

So, what's going on? I was taken aback by the market's risk-on reaction. After all, the Fed is hiking interest rates at the fastest pace in a generation. Furthermore, Powell put another jumbo increase on the table. However, yesterday traders preferred to focus on the Fed boss's comments that hikes will slow down, eventually.

However, traders may be focusing on what they want to hear. Powell himself said in June that policymakers expect to raise rates to roughly 3.4% this year and 3.8% by the end of 2023. These official Fed projections are above current market expectations. Why? I am not sure.

Traders will be keenly watching today's US GDP data in the hope that it shows that the economy did not post two consecutive quarters of negative growth which is an established indicator of a recession.

Furthermore, bulls seemed to have forgotten about the inverted yield curve yesterday, which is a leading indicator of a recession.

10-2 year Treasury Yield Daily

The inversion steepened, with the 2-year yield rising about 32 basis points higher than the 10-year, which declined after the rate announcement.

The yield curve was already at a multi-decade low earlier in the day but hit a new one after the policy release.

The 10-year yield is down for the fourth straight day for the first time in two and a half months.

10-year Treasuries Daily

Rates are below the neckline of an H&S top. If the price closes at this level, up to 2.8%, it will have completed the H&S top.

Powell repeatedly said that the US economy needs to slow down in order to bring down inflation. However, he also said that policymakers didn't think that a recession was a foregone conclusion. In other words, Powell is expressing confidence in being able to "thread the needle" and manage to navigate between soaring inflation and a recession. But remember this is the same Fed that either didn't identify or refused to acknowledge the problem of rising inflation, insisting it was "transitory."

Meanwhile, European shares hit a 7-week high, with solid earnings, including quarterly profits for Shell (LON:RDSa), reinforcing overall optimism. However, the STOXX 600 Index is showing signs of weakness.

STOXX 600 Daily

The pan-European benchmark retreated from session highs, forming a shooting star (bearish on a closing basis) distancing from the downtrend line from the index's all-time high.

Most of Asia's stocks took a cue from yesterday's US session, while investors are awaiting news on a call between US President Joseph Biden and his Chinese counterpart, Xi Jinping.

The dollar opened lower, extending yesterday's 0.73% drop, the steepest since the 1.45% selloff on June 16. The lack of forward guidance appeared to bulls as less hawkish. Technically, I expect demand for the greenback to rise.

Dollar Index Daily

The dollar may develop a Falling Flag, bullish after the preceding 5.42% jump in nearly a straight line. The DXY has been ranging for eight sessions as the currency neared the June 15 highs. Also, the rising trendline is nearing.

Gold opened higher, soaring amid a weakening dollar. I also expect the yellow metal to go higher after completing a bullish pattern.

Gold Daily

The price completed an H&S bottom. Although the range's size does not imply a distant target, the fact that it developed on the lows since June 2020 may increase a rally's momentum. The H&S's implied target is $1,775, coinciding with the channel top.

After yesterday's surge, Bitcoin slowed its advance to a standstill.

Bitcoin Daily

The cryptocurrency may be slowing down, having reached the top of its short-time rising channel.

Oil advanced for the second day on improving risk appetite, compounded by low inventories and Russia's cuts in gas exports. Technically, I remain bearish.

Oil Daily

The current rally is nothing more than a return move to test the Symmetrical Triangle after the price found support by lows on Feb. 28. If the Symmetrical Triangle endures, the price will also complete a Descending Triangle, with an implied target of $56.

Up Ahead

  • Eurozone CPI is published on Friday.
  • US PCE Price Index is printed on Friday.
  • On Friday, Canadian GDP figures are released.

Disclaimer: The author currently does not own any of the securities mentioned in this article.

Latest comments

Hi Mr. Cohen, wanted to know your opinion. How far can go up NASDAQ 100 if this is a bear market rally? Would be interesting to see your article about this topic.
Another day another error
wti 56?! maybe 3 years from now. Idon't know how you get that informativo. wti Will not go down than 90$ on the next 3 months.
I suggest you re-read my article, carfully. I did not say WTI will get to $56. I said that's the pattern's "implied target," and how I "get that information" is by measuring the height of the pattern, from the point of breakout. Breakouts tend to repeat the price and duration of the preceding patterns, as the same interest unwinds.
Thank you for sharing the article 💯
You got it, Mohd
There are no clear values growing right now. Everything down : stocks, bond, cryptos... even gold and real estate. So people, even if economy is crumbling, are still investing in stocks...  It may change during the summer
Investors are forward looking.
The markets will have a devastating reality check when they realize they actually depend on middle class people spending their salaries on their products to turn a profit.Or they'll just lay off everyone and pocket the bonuses all the same
They will, unless the Fed will miraculously tame inflation without causing a recession.
GDP comes negatively, so as per definition, we are in a recession, but markets seem happy about it as they are guessing the slowdown in the rate hikes. It seems to me a pool of fools. What is your take on that?
BTW solid analysis. Keep up the good work. :)
I agree, but I am no prophet.
It's ironic how crude rallies two days in a row after the fed rate hike, but the again, fuel and food isn't factored into the CPI.  Personally, I'm not convinced the Fed is anywhere close to taming inflation.
I agree.
As always appreciate your solid daily updates… can’t help but think this excessive exuberance will have a horrible ending for many..
Thanks, Jack. I agree. Happy trading!
can market move according to amz and other major results day
Of course
Market in big crash next day
Market is fickle on a day-by-day basis. Risky to lock into an assumption.
Very interesting analysis but in the last month, you predicted S&P500, Bitcoin, Ethereum to go significantly dow. The complete opposite was true. what's going ? are you still bearish or bullish ?
 Agreed. I've been saying it's a bear market rally the whole time.
 I always appreciate your articles for their thorough analysis and sound reasoning, Pinchas!
 Thanks, Jeremy!
I think this is a deception, they want to get everyone out of the company's shares as much as possible, then they will grow without us by 70%, almost all papers are traded much lower???
Why are they?
Been loading up on Shorts for mid to long term, been doing me great so far and ain't stopping anytime soon
SPXU here
Happy trading, G D!
Thank you Cohen, you too :) People have been living off QE money for so long with 2008 and now 2022 that they've forgotten the basics of a capitalist system. Globally we have a debt and credit crisis and that Evergrande thing over at China that's just a measley 7 trillion dollar problem which surely (!) won't spill over to other countries. Oh, not to forget Chinese cheap loans out to poorer countries to divide the global economy in half to finance a cold war, growing ties with African and Middle Eastern countries to exploit their economic weakness in this crisis to create a "local" economy alongside Russia.
I was suprised at the rally yesterday as well. It looks suspiciously like a bull trap. Solid analysis as always though.
Thanks, William. Happy trading!
Thanks man. Always a pleasure to read your articles.
Thanks, Zman!
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