Before the Bell May 2

Inspiration – 

Unruly minds are a big source of trouble for traders as well.  If you can’t manage to get off the P&L emotional roller coaster or if you can’t trust yourself or your decisions what have you really got? Taming your mind and dealing with whatever demons are undercutting your performance are Job 1 for the aspiring trader. It’s the hardest work you’ll ever do, but necessary if you want to cross the bridge toward consistent profitability.

 Earnings

This will be a pivotal week of earnings as much of mega-cap tech reports. Make note of when the big names report, especially if you are in the Q’s or individual names. These names can / will move the entire market.

Today’s Companion Video  

The video is a detailed technical review of the indexes and FATMAAN names. All the key trading levels are identified along with commentary and trade plans for each ticker. Trade ideas are also discussed.  Run the video at  1.5x to maximize efficiency without loss of clarity.

Find the Companion Video HERE

Macro Data Releases Week of  May 2

• Monday –  PMI / ISM / Construction Spending
• Tuesday – Factory Orders / JOLTs
• Wednesday – ADP / International Trade / PMI Composite / Oil inventory / FOMC 2pm / JPOW Presser 2.30pm
• Thursday – Challenger Job cuts / Jobless Claims / Productivity / NatGas inventory
• Friday – April Jobs Report

FULL TILT

Growth and Recession fears gripped the markets at the back end of last week to close out April as one of the worst months for the Nasdaq on record. As we’ve been discussing for quite a while the regime shift by the FOMC from full on QE and increasing balance sheet to an aggressive interest rate rise with a QT component is up-ending markets.  I actually think JPOW was probably delighted with the down market in April. Delighted not because he enjoys people losing money but because he is determined to effect a “reverse wealth effect” to knock down demand. A lot of folks seem to think the FOMC will blink on Thursday due to the market drop. I dont think so. I think lower is better for the Fed. Not expecting the FED to relax the hiking cycle for quite a while. Yes, there will be sharp bear market rallies to be ready for, and to trade, but until the landscape changes, lower for longer is the base case.  THis will be an especially tough for Ponzi, bubble and fraud names.  Also, until MSFT and AAPL break the QQQ’s wont go appreciably lower. I think JPOW needs those to go too.   Stay nimble out there.

Here are the key support levels I have for the indexes. 

• SPY  $415. 50, $411   Testing the Feb lows at $411. 
• QQQ $317.35    Price broke Below
• IWM $188         Price Broke Below

SAXO Theme Basket April Month -end performance

Not many places to hide in April. In general the higher flying groups with high or even negative P/E’s got hit the worst.

Amazon Non-Growth

As you know by now, AMZN had its worst 1-day stock performance since 2011 after reporting earnings THursday after the bell. Q2 revenue growth is expected to slow to levels not seen since the GFC.  Management reported that they have too much physical space and too many employees. You know what that means.  I think its important to simply realize that AMZN is a retailer operating in the real world where wage increases, gas price rises, cardboard increases and all other costs of doing business are going up. THey have Prime Fees and AWS to dull the sting but their financials are still feeling it.  What does that say about more traditional retailers that are totally exposed?  As inflation rages I can only imagine consumers will be dialing back on discretionary purchases.  Restaurants, Apparel etc

Diesel Prices in NY and Eurozone hit records

Refiner margins remain healthy and are a bright spot within the energy complex.   VLO / PSX / PBF / MPC etc

FOOD Pricing Stress Escalates

Cooking oils are the latest sub-group within the AG complex to do a moonshot. Visiting my local grocer over the weekend, the cooking oil section was wiped out.  Ukraine is a big supplier of Sunflower and Rape seed oils. ( Canola )

Macro Framework until further notice

Shrinking Liquidity

The combination of aggressive rates hikes and balance sheet run-off are bearish for markets.  Markets thrive in times of ample liquidity and starve in times of low liquidity.  JPOW & Co. now have a singular mission to knock down inflation by the reverse wealth effect. These guys won’t stop until the market is down substantially. There will be lots of trades both bullish and bearish between now and then, but they’ve made themselves clear, they will insist on the market going down. This will be the over-arching theme from now through the summer. Here is an excellent 75min video that explains the linkage between global liquidity and capital markets.   HERE

Persistent Inflation

While inflation may moderate later this year, I think that inflation will be persistent for at least a year. The FOMC’s rate hikes will tighten financial conditions and thus make it tough on financial assets, but it wont affect oil or gas prices, a grain shortage or a myriad of other commodity based inflation inputs that are the root causes of the problem.  s

Commodity Super Cycle

“Spot Prices cure Surpluses; Long-Term Contracts solve shortages”  Jeff Currie Head of Commodities at Goldman Sachs.  Commodities, historically speaking, tend to trend in broad 10 year Boom –  Bust cycles. This is also coincident with capital funding of the sector. The commodity boom of 2000-2008 was met with a wall of capital investment. THis greatly expanded capacity of all manner of commodities. Then from 2012 – 2020 was a period of capital destruction and collapsing returns. The emergence of ESG has constrained re-investment into these “dirty Sectors”.  We are now in the upswing of the commodity cycle.  We are probably in just the first year of the upswing. We are literally YEARs away from seeing supply expand because no capital is yet flowing into the sector.  The exception of course is a recession. A recession will kill demand and cause most asset classes , including commodities.  Here is a 60min podcast that summarizes the commodity situation.  Find it HERE

Earnings Season & Bracket Trades

As earnings season kicks into gear, a reminder that this is prime time for Bracket Trades. Bracket Trades are those trades created when a stock gaps up or down from a news driven event. Bracket Trades are set up as “2nd day trades” where you alarm the high and low of the prior day’s trading range, then patiently wait for price to either break lower or higher from the range.  You then follow price out of the range. I will do my best to help identify them for you, but you can easily find them yourself by doing a sort for “GAP ups” and “GAP Down” on your trading platform.  I add additional filters for only stocks above $10 and at least 500,000 shares traded. You can add additional filters to cut down the sort further. Generally speaking, stocks favor continuing in the direction of the gap higher or lower.

You can find out more about Bracket Trades in the video Run the Player at 1.5x      HERE.

INDEX CHARTS

Use the following pivots and levels in your active and swing trading. Added color is provided on the video.  Link above.

IWM Weekly

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