Markets continue to consolidate in the short term

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The Atlanta Fed released its latest GDPNow estimate:

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2022 is 1.3% at March 31, compared to 0.9 percent on March 24. Following this morning’s personal income and expenditure report from the U.S. Bureau of Economic Analysis, an increase in the nowcast for first-quarter real gross private domestic investment growth from -5.8% to -1 .2% was slightly offset by a decrease in the first quarter nowcast, real personal consumption expenditure growth fell from 4.2% to 3.9%. Moreover, the nowcast for the contribution of net exports to real GDP growth in the first quarter fell from -1.01 percentage points to -1.31 percentage points.

Here is the attached table:

GDPNow Estimation Chart

GDP now (Atlanta Federation)

The Atlanta Fed estimate continues to climb, although it is still at a low level. The Blue Chip Consensus has been trending lower since late December and is also quite low.

Last year was a banner year for corporate earnings:

The numbers are in: 2021 has been the most profitable year for American businesses since 1950.

Profits jumped 35% last year, according to data released Wednesday by the Commerce Department, driven by strong household demand, which has been guaranteed by government cash transfers during the pandemic. In all four quarters of the year, the overall profit margin remained above 13%, a level reached in only another three-month period in the past 70 years.

This is obviously favorable for equities. It also means that we have nowhere to go but down.

The United States releases oil from the Strategic Petroleum Reserve:

Under mounting pressure to bring down high energy prices, President Biden announced on Thursday that the United States would release up to 180 million barrels of oil from a strategic reserve to counter the economic impact of the Russian invasion of Ukraine.

With the midterm elections just months away, gasoline prices have risen nearly $1.50 a gallon over the past year, undermining consumer confidence. And the cost of diesel, the fuel used by most farmers and shippers, has risen even faster, threatening to drive up already high inflation on all kinds of goods and services.

An increase in supply obviously has a negative impact on prices. Let’s see how much the markets give.

As I noted yesterday, the markets are now in a correction phase. It is a good and wholesome thing; a sell off after a rally allows traders to take profits while attracting new entrants.

SPY, QQQ, DIA and IWM 3 Month Charts

3 months SPY, QQQ, DIA and IWM (Stock charts)

The SPY is in full 10-day EMA. The QQQ targets the 200-day EMA. The DIA has completed the 10-day EMA and is now heading towards the 20s and 200s. The IWM is heading towards the 20s.

For the three largest cap indices, the 200 day is the logical target.

Let’s explore the charts, starting with today’s action:

SPY, QQQ, DIA and IWM 1-Day Charts

SPY 1 day, QQQ, DIA and IWM (Stock charts)

All indices experienced massive selling at the end of the day. These are always of concern as they indicate that traders are not willing to take positions overnight.

SPY, QQQ, DIA and IWM 2 week charts

2 week SPY, QQQ, DIA and IWM (Stock charts)

The 2-week charts show that prices have broken through key support levels.

The key for now is the 200 day EMAs on the charts. Let’s see if that holds.

I’ll be back this weekend with my standard resume.

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