U.S Equity Markets ended a volatile week with a late rally, as the Dow led the gains closing higher by 1.06%. The stock market bears are making the case for a financial-crisis type collapse… Wall Street money managers and traders are data mongers. They are constantly crunching numbers to discover levels where they think investments are cheap or expensive. By doing this, their proprietary models tell those investors when to buy or sell. But they also look at stock market activity for signs of historical precedence. And lately, they are worried all the pandemic-driven stimulus has overheated demand for all types of goods and expectations for corporate profits. So, when those institutional investors are uncertain, they tend to sell first and ask questions later. That way, they have money to invest when the environment turns rather than doing nothing as the value of their holdings plummets. Worries about slowing economic activity and the potential for reduced corporate earnings guidance mean there could be additional near-term downside for the S&P 500 Index… Wall Street is hearing and reading stories about how the leverage-buyout market is seizing up . According to Bloomberg, the major banks cannot unload assets from their balance sheets to free money to lend. So they are charging more to borrow as funding scarcity increases the value of loans. At the same time, the Federal Reserve is preparing to raise interest rates further. Chairman Jerome Powell recently suggested there will be a 0.75% increase at the July 26 to 27 policy meeting. So, if you’re a bank, why be in a rush to loan money now when you can lock in a better rate in another month or two? But Wall Street has seen this before, during the financial crisis from 2007 to 2009. Money managers are concerned banks could get stuck warehousing loans once more. Then, if they can’t unload and values plummet, lenders could have to take markdowns on their balance sheets. That is a hallmark of the financial crisis. But, considering the pressures weighing on stocks, let’s take a look at the situation…Do we have housing bubble signs? A measure of the average loan size would say we still need more correction back to the long-term average… Is credit risk rising? The spread in Investment Grade bond yields relative to 10-year Treasurys is usually a good indicator. When it is rising, it is a signal lenders are worried about risk in relatively safe investments. And right now, the difference between the two is back above the long-term average… And credit default swaps, the cost of buying insurance against a company going under is rising. That is telling us institutional investors are worried about business levels, another financial-crisis hallmark. But the stock market bears are worried investors are still too optimistic. However, the Volatility Index (VIX) is not showing outsized fear. So, the upcoming earnings season will be a major test for the S&P 500. It kicks off in the middle of this month when JPMorgan Chase releases results. Wall Street will be looking for companies to lower their full-year outlooks due to rising inflation eating into consumer and corporate spending. The risks to the economy and the stock markets do not seem as dire as they did during the financial crisis. Banks are much better capitalised for a severe recession based on the recent release of the Federal Reserve’s stress tests results. But that does not stop investors from selling first and asking questions later. Given the uncertainty, Wall Street will want more clarity to become constructive on risk assets like stocks. And until there’s more detail, hedge-fund managers and momentum investors are paying close attention to the stock-market drawdown from the financial crisis relative to the current drop… Look for corporate earnings to remove some of the angst. The event could prove to be a short cover rally. But it is much more likely the Fed shifting gears and slowing the pace of rate hikes going forward will be a bigger market catalyst in the fall for a longer-term rebound in the S&P 500. European Markets closed lower. Euro-Zone CPI was higher than expected, making a new high, and supporting the case for more rate hikes. ECB Governing Council Member Robert Holzmann said he would like to see monetary policy become restrictive sooner than later. Elsewhere, Oil rose 2.8% while Gold fell 0.4% on a stronger Dollar.
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For anyone following my Platinum Service it made 380 points on Friday which was the first trading day of July after closing June with a gain of 3371 points June, while making 3651 points in May, having made 762 points in April, following a gain of 5883 points in March. The Platinum Service made an impressive 5324 points in February, after ending January with a gain of 3878 points, more than making up for December’s 932 points loss. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points. I have a YouTube Channel which contains recent interviews I have given This can be viewed by clicking HERE Please subscribe to this for new interview notification
Equities
The S&P 500 closed 1.06% higher at a price of 3825.
The Dow Jones Industrial Average closed 321 points higher for a 1.06% gain at a price of 31,097.
The NASDAQ 100 closed 0.71% higher at a price of 11,585.
The Stoxx Europe 600 Index closed 0.9% lower.
This morning, the MSCI Asia Pacific Index rose 0.5%.
This morning, the Nikkei closed 0.84% higher at a price of 26,153
Currencies
The Bloomberg Dollar Spot Index closed 0.2% higher.
The Euro closed 0.3% lower at $1.0441.
The British Pound closed 0.2% lower at 1.2104.
The Japanese Yen fell 0.2% closing at $135.40.
Bonds
Germany’s 10-year yield closed 10 basis points lower at 1.24%.
Britain’s 10-year yield closed 15 basis points lower at 2.09%.
US 10 Year Treasury closed seven basis points lower at 2.89%.
Commodities
West Texas Intermediate crude closed 2.8% higher at $108.51 a barrel.
Gold closed 0.4% lower at $1799.10 an ounce.
This morning on the Economic Front we have Euro-Zone PPI which will be released at 10.00 am. This is the only data due to be released today, as the American Markets are closed for the July 4th Holiday.
Cash S&P 500
The S&P saw massive chop on Friday before having a nice rally into the close. The S&P again had a nice rally off its 150 Weekly MA (3748) while closing over the May lows (3810). The major break lower in 10 Year Treasuries certainly helped the S&P on Friday. We now need the Dollar to sell-off and then the S&P can mount the vicious rally that the signal charts have been telling me for the last four weeks. Lower Yields are telling investors that Inflation is rolling over hard and that Markets are now anticipating a recession which is continually being denied by Fed Officials. July will be an interesting month with Inflation Data, a Fed Meeting and Corporate Earnings Reports which will all have to be negotiated. Unfortunately, the S&P missed my 3740 buy level before having an 80 Handle rally and I am still flat. Today, will be quiet with Futures Markets closing at 4.30 pm before re-opening again this evening at 11.00 pm. The S&P has short-term support from 3770/3790 where I will be a small buyer with a 3756 stop.
EUR/USD
My Euro plan worked well with the market trading lower to my 1.0370 aggressive buy level before rallying to my 1.0420 T/P level and I am now flat. Today I will continue to be a seller from 1.0500/1.0560 with the same 1.0605 stop. The Euro has support from 1.0330/1.0390 where I will again be a strong buyer with a 1.0275 stop.
March Dollar Index
My Dollar plan worked well as the market rallied to my 105.20 sell level before selling off overnight to my revised 104.85 T/P level and I am now flat. Today, I will again be a seller from 105.20/105.70 with the same 106.25 stop.
Cash DAX
The DAX never came close to Friday’s buy level before rallying over 200 points into the close and I am still flat. I will now raise my buy level to 12660/12760 with a tight 12585 stop.
Cash FTSE
Shortly after I posted on Friday, the FTSE rallied 100 points and I am still flat. I will now raise my buy level to 7070/7140 with a higher 6995 wider stop. I still do not want to be short the FTSE at this time.
Dow Rolling Contract
My latest long 30720 long Dow position worked well as the market rallied to my 30915 T/P level and I am now flat. Friday was the second consecutive session in which the Dow rallied 500 points off the now key 30500 support level. Internally, the market continues to improve as shown by the McClellan Oscillator which again closed back in positive territory (+68). Today, I will be a buyer on any dip lower to 30450/30750 with a tight 30295 ‘’Closing Stop’’.
Cash NASDAQ 100
The NDX just missed my 11330 second buy level before having a 200-point rally inti the close. The NDX ha support from 11300/11440 where I will be a buyer with a 11195 stop. If I am taken long I will have a T/P level at 11610. Lower Treasury Yields should support the NDX in Q3 and is the main reason why I continue to hold my April long position at 14327. I will leave my exit level unchanged at 12900 on this position.
September BUND
The Bund has just witnessed one of its largest ever rallies as the market tagged on a further 150 points on Friday. The Bund is now short-term overbought. We have resistance from 150.80/151.50 where I will be a seller with a 152.15 ‘’Closing Stop’’.
Gold Rolling Contract
My long 1794 Gold position from Friday morning worked well with the market rallying to my 1804 revised T/P level and I am now flat. Today, I will again be a buyer of Gold on any dip lower to 1780/1794 with a 1769 ‘’Closing Stop’’.
Silver Rolling Contract
No Change. I am still long Silver from last Friday at 19.80. I will continue to look to add to this position at 19.00 while leaving my 18.35 stop unchanged. My T/P level on this position will remain at 20.60.
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