U.S. Housing Starts Have Timely Rebound, Stocks Still At Key Levels

STOCK MARKET OVERVIEW

The futures are trading in the green this morning after suffering a death drop on the charts on Monday. Markets traded lower because of fear in the market. The fear greed index hit a 21 during yesterday’s trading. If the index were to be thought of like an RSI indicator, this is an indication that the market was heavily oversold. Traders are fearing a repeat of the housing crisis, as China’s real estate giant Evergrande may fall into default. The company has over $300 billion in debt, but does not have the cash flow to finish current projects or pay the debt off. If Evergrande defaults, Financial markets will be effected globally. Reports this morning show that Evergrande missed interest payments on Monday to at least two banks.

Later today, the Federal Reserve meeting will be taking place. The fear is that the bringing of the Fed’s bond buying program to an end will lead to a rapid rise in yields. With all indexes still trading within 5% of their record highs, the downside risk remains in the market. The Federal Reserve’s mandate to promote maximum employment, stable prices and moderate long-term interest rates. Although they did make mention in their last meeting that they don’t plan to change plans for 2023, inflation is still weighing on a lot of under paid and frustrated consumers. What the Fed decides to do today could have a major effect on the U.S. economy.

In other news, our latest economic reports on the housing market could not have been more timely as the Evergrande crisis weighs in on markets. Here in the U.S. August housing starts and permits are rebounding from the sharp decline in July. Perhaps just enough to pull some fear out of the market and put the bulls back in control.

EARNINGS REPORTS

In other news today, we’ve got some earnings releases that should give us some insight into several key industries. Adobe (ADBE) will be announcing earnings today, giving us some insight on the R&D heavy tech sector today. Like much of the tech sector, Adobe is trading at an extremely high valuation, making this earnings release crucial moving forward. The application software company is currently trading at 55 times earnings, which is unfavorable versus the sector average of 27.28. On the surface, Adobe does appear to be ahead of competitors Sales Force (CRM) and Intuit (INTU) in terms of profitability, growth, and efficiency.

After market close, FedEx will be giving us a bit of insight on the state of international shipping and logistics. During their last earnings calls, FedEx set one of their main goals as increasing the profitability of their international business, starting with Europe. This earnings call will be pivotal in providing insight on the viability of these efficiency goals. FedEx is down 5.6% in the last month. The earnings growth of FedEx has significantly increased during the pandemic, but it still has twice the debt to equity loss of UPS.

Other earnings today will be Autozone (AZO) to give us some insight on the auto parts industry, Cracker Barrel (CBRL) to give us some insight into the struggles in the rest so industry and Aurora Cannabis to give us some insight in the marijuana industry. Aurora (ACB) is the number one by revenue in medical cannabis market according to their last earnings release. However, they also mentioned that there is a low barrier to entry into the market so despite selling Cannabis in 12 different countries it will be interesting to see how things pick up in their field.

TECHNICAL ANALYSIS

Although futures are trading a bit higher this morning, there are some key technical levels that weren’t broken by the close of yesterday’s session. For the Nasdaq (QQQ), clowning below 14,850 was key, we’re going to be looking to open above that today or assume the worst is not over. For the QQQ Nasdaq 100 ETF, that would be $367.50. Both are trading above these key levels ahead of the open, but after the announcement of the missed payments by Evergrande the market has been trading a bit more to the downside.

The Dow Jones failed to close above or near its 125 bar simple moving average on the daily charts, which shows there is still a lot of fear in the market. A reversion to the mean would take the market back to its April levels. For the Dow Jones, that would be around $32,750. The Dow ETF (DIA) that would be at the $332.50 level.

If either of these indexes trades below or closed below these levels, we could be in for a wild ride to close out September. Levels as low as $31,500 on the Dow have been forecasted. This is not a concern for those who play the long game, but could hurt a lot of short-term traders. Keep your eyes yes on these key levels abs mark them as support on your charts for the DIA and QQQ.