Updates for Monday 7/26/21

We trade 3x ETFs such as TQQQ TNA SOXL LABU using proprietary analysis of volatility.

Updates 12:30 AM EST - Monday 7/26/21

Big week coming up
The  economic calendar for this coming week is full of important events. 

Mon:     New Home Sales
Tue:      Durable Goods Orders; Case-Shiller Home Price Index
Wed:     FOMC announcement (2 PM EST)
Thu:      GDP; Jobless Claims
Fri:         Employment Cost Index; Personal Income & Outlays

The various reports will bring forth data and discussions on two key issues:

• Is the economy growing at a reasonable rate?  Too hot?  Too cold?
• When will the Fed tighten liquidity?

Into this mix is the other central question: Will the Delta variant derail the economy by causing shutdown?

Earnings: Hotter than July
Only 25% of S&P companies have reported so far, but the data has been very impressive:  "Overall earnings are now expected to grow 76% year over year for the period, the best growth since 2009." - CNBC

However, market participants know that 20201 2nd quarter (Q2) is a historic quarter, and is likely to be peak earnings growth for this year. Still, analysts are projecting 27% rise for 3rd quarter, and 20% rise for 4th quarter (compared to a year earlier).   

Profit margins have been very impressive so far:  13% for Q1, 12.8% for Q2.

But Delta chill is looming
Ah yes, that pesky Delta variant.   In late August, students will start to head back to school.   More activities will move indoor when the cold weather arrives.  That's the typical setup for flu season to start, and it will be the setup for the Delta variant to spread even more.   

However, market participants are not expecting the government to shut down everything like March 2020.   Instead, they expect the government to keep pushing vaccination as the key to keeping COVID under control in the long term.   What started out as a pandemic will most likely become endemic as time goes on.   

Inflation, yields and the Fed
June’s inflation index jumped 5.4% from a year ago, the highest reading since August 2008.   There are certainly many economists who feel that inflation going to get out of control with the Fed too-easy monetary policy.   

But the bond market so far is disputing that theory.   Since mid-March, US10Y and US30Y have both been dropping.   They may spike back up a bit, but investors are still piling into bonds with the belief that inflation likely isn’t the biggest problem facing the U.S. and global economy.   Instead they are worried that growth will slow again.   

Interestingly enough, according to WSJ: "One possible consequence of the bond rally is that lower Treasury yields, all else being equal, can help lift stock prices by lowering borrowing costs for businesses and pushing investors to buy riskier assets in search of better returns."

In the short term, we think that the economics effect of the Delta variant is still a big enough concern.   This will most likely keep the Fed from raising rates,  or aggressively tightening the easy money supply any time soon.

Market internals:  still diverging bearishly
Despite the fact that equity has seen record inflow in the first half of 2021, market internals continue to trend bearish.   

NYSE A/D:  Since early June, NYSE cumulative A/D chart have been forming triple top pattern, diverging bearishly with $SPX.   This pattern has improved a bit last week.

Nasdaq A/D:  Since early February, Nasdaq cumulative A/D chart have been forming massive multi-top and lower high pattern, diverging bearishly with $NDX.  This pattern has improved a bit last week.

Percentage of NYSE stocks above 50 MA:   Only 40% on the weekly chart, a huge drop from 85% at the start of the year.

Percentage of Nasdaq stocks above 50 MA:   73% on the weekly chart, a big drop from 95% at the start of the year.

$VIX  $VXN $RVX
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$SPX $NDX IWM
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