US equity benchmarks coughed up a strong start to the week on reinvigorated recession fears after Apple said it would slow hiring and spending on some teams, notes Bill Baruch, president of BlueLineFutures.com.
Just as we said one week ago when Alphabet announced it would slow hiring through 2023, we view this as a positive over the intermediate term.
The job market is frothy and companies, especially those in tech, were forced to hire under poor circumstances, providing exorbitant benefits packages to many with unaligned goals and little motivation. The “recession” allows these companies to cut ties and therefore run leaner. Let us also remember the Federal Reserve wants to see this froth come out of the job market and as the economy absorbs these maneuvers it puts the central bank closer to its goal.
The US Dollar is atop everyone’s mind, pointed to in earnings, as we near Thursday’s ECB policy announcement, and ahead of next week’s Fed meeting. IBM blamed the strong US Dollar for its earnings beat last night, the stock is -6% ahead of the bell. Johnson & Johnson also beat both top and bottom line estimates, but US Dollar strength slowed its outlook. The stock is trying to hang in positive territory. It is our belief the US Dollar tops in the early stages of a hiking cycle. However, in today’s scenario, a steadfast rise in inflation has forced the Federal Reserve to continually move the goal posts. Last week’s spike in the US Dollar Index has eroded and has the makings of a blow-off top. Additionally, Gold all too often trades at the mercy of the US Dollar. According to the CME’s CoT, Managed Money (hedge funds) officially went net-short Gold in the week ending last Tuesday, joining Silver and Platinum. For those unaware, this is a counter-trend indicator and one supporting the idea we are in the later innings of the US Dollar’s ascent, if not already realizing its peak.
Novartis AG (NVS), the Swiss drugmaker, beat on EPS but missed revenue estimates early this morning. Three weeks ago, the company announced a plan to cut 8,000 jobs and save as much as $1 billion through 2024. The stock is trading higher by 3% after the mixed report and the leaner narrative seems to be buoying sentiment.
Halliburton beat estimates and is +1.5% ahead of the bell. Lockheed Martin missed expectations this morning and lowered its outlook, dragging the stock down by about 5%. Netflix will be front and center after the close. Building Permits and Housing Starts are due at 7:30 am CT.
Price action is on the mend from yesterday’s break and retest of the 21-day moving average. As we stated through the last two weeks, we find the battle at the 21-day moving averages to be pivotal for near-term momentum. Furthermore, the 21-day for each aligns closely with the buildout of a second right shoulder which should help emphasize the constructive inverse head and shoulders. We believe a continued hold of these supports, defined below, will pave the way for higher prices and much higher prices could quickly feed on themselves as managers are under-positioned and cash gets put to work.
Crude Oil had a hot start to the week and price action is now settling in a bit with virus cases in China weighing on sentiment. This can be seen as both Crude Oil and Copper are trading lower this morning. About two-thirds of the 699 reported cases are in two rural provinces, but it is the expansion of testing in Shanghai that has traders on edge; if you test, you will find cases. Daily cases in Shanghai are lingering around 20, down from earlier this month and it is unclear how many are outside of quarantine zones. Additionally, early estimates for weekly inventory data are for +0.33 mb Crude and +1.2 mb of Distillates, with Gasoline only -0.73. Traders also want to keep a pulse on Nord Stream 1, which was supposed to restart Thursday and is expected to be delayed.
Volatility is high with the roll of the August contract. Price action has retreated since pinging above $100 in the September contract early this morning. The dip has tested first key support at 96.97, the low upon the rally that took hold on traditional intraday open yesterday, and continued action above here through the morning will be seen as very constructive.
Gold and Silver started the week on strong footing Sunday evening and through the early hours of Monday, but this quickly deteriorated through US hours. Price action in the metals has not reacted as positively as we would have imagined to the US Dollar slipping from last week’s spike high. However, we do believe a continued weakening of the US Dollar will underpin a strong rebound in precious metals. The metals complex is working through extreme negativity. According to the CME’s CoT, Managed Money (hedge funds) went net-short Gold in the week ending last Tuesday for the first time since 2019. Managed Money is now net-short Silver for the second week, increasing its position. In 2018, a plunge in the Chinese Yuan versus the US Dollar due to the trade war brought continued pressure and negativity to the metals complex, and Managed Money went net-short Gold in the later stages. The only other instance of net-short Managed Money in Gold came in 2015, right at the historic 1046 low. As we noted in the S&P/NQ section, we view this as a counter-trend indicator.
The technical landscape remains very similar to that of yesterday. First key support levels are out in front of last week’s low and a continued battle above 1703.6-1704.5 in Gold will help encourage a consolidation. Still, it is all about clearing resistance and Gold failed at 1719.7-1721.1 yesterday.
Learn more about Bill Baruch at Blue Line Futures.