Fireworks In Regional Banks… Contagion?!
Markets are up ~1.75% from the Friday engulfing close of two weeks ago.
This marks a lack of downside momentum as well as a trepidation from bulls to send it all the way back to the ATH.
The lack of upside followthrough to make a bar to bar higher high on Friday is notable as Donald Trump softened his stance on China at 7:30 that morning.
In an interview with Fox, it was stated that the high tariffs on Chinese goods are “not sustainable,” further signaling that the rate will once again be used as a negotiation tactic.
Scott Bessent is scheduled to meet with Chinese Vice Premier He Lifeng in Malaysia this week to work on a resolution to the tensions.
This headline risk will be the most important headline to watch. Cancelations, pushbacks, non-resolutions will all be bearish.
Bank Earnings Kick Off Q3 Season
The big boys kicked off earnings season this week with the likes of Jamie Dimon and David Solomon reporting blockbuster numbers for both JPM and GS respectively.
Although the numbers looked good, neither the JPM or GS charts had particularly compelling moves.
Instead the fireworks were in regional banks this week with the most damage being done at Zions Bancorp.
On Wednesday after the close an announcement of a “bad batch” of loans to the tune of $60 million rocked the stock, causing an immediate 5.88% drop which followed through on the Thursday session, wiping out another roughly $1 billion in valuation.
The “bad batch” is tied to fraud allegedly committed by Cantor Group who Western Alliance is also suing for misrepresentations.
The regional banking sector fell 6.25% as a whole on Thursday, reigniting fears of a repeat situation with Silicon Valley Bank from 2023.
Headlines erupted with questions over credit quality and whether or not this is going to be an isolated incident or lead to more contagion.
On the topic of bad loans, JPM earnings report noted a realized loss of $170 million tied to the subprime auto lender Tricolor. Compare that to the $2.6 billion in investment banking fees made last quarter and suddenly its not so bad.
Bottom line is there likely aren’t large enough issues at the big banks causing enough financial stress for a crisis.
UPCOMING: Two Major Catalysts
This week earnings season continues with Tesla reporting on Wednesday after the close.
Expectations are:
- Earnings per share of $0.55 up 67% from last quarter but down 11% year over year
- Revenue of $1.53B up 30% from last quarter but down 30% year over year
Tesla does have a history of breaking out on notable earnings catalysts. It would require a substantial surprise for Tesla to see a breakout of magnitude similar to prior.
The largest base breakout in 2019 aligned with the first signs Tesla was generating consistent positive revenue beating the streets skepticism. Although as a trader I want to keep a very open mind, we don’t necessarily have that shock factor this time around.
Chart below split adjusted.
We’ll also be getting the highly anticipated CPI report as confirmed by the BLS regardless of government shutdown status.
Current forecasts are for an unchanged read vs prior month:
- Monthly core – 0.3% vs prior 0.3%
- Monthly non-core – 0.4% vs prior 0.4%
- Yearly core – 3.1% vs prior 3.1%
- Yearly non-core – 3.1% vs prior 2.9%
This doesn’t seem like too much of a stretch considering, although they typically work with a lag, the ISM Prices Paid proxies have moved sideways in services and lower in manufacturing.
If markets don’t get an upside surprise in inflation, it would seem reasonable that the response will be positive on the prospect of continued rate cuts from the Fed in order to better serve the labor side of their mandate.
The Russell 2000 index moved higher on Tuesday when Jerome Powell gave remarks indicating the Feds preference still to think of price increases as a one time shock from tariffs rather than a structural shift.
These two catalysts are certainly worth paying attention to, but as always, price action and the structure of the charts will light the way.
Trade Brigade Live Squawk
Make the most of the final trading quarter with live intra-day commentary on breaking opportunities.
Check out this recording for a taste of what each morning session is like: 07/09 Live Squawk
Onboarding support will be available through the evening and Monday morning starting at 6:30am EST before the 8am premarket-prep kick-off.
Broad Market Analysis
SPY – Weekly
Inside doji from the highest high in the trend count after an engulfing bar, that had zero downside momentum followthrough. The second arrow points to a similar situation. Key levels still: 654, 638, 613
SPY – Daily
Clear illustration of the Junk Drawer™ concept where there is zero desire to have a directional bias. Chart clarifies when and if we can exit 667 or 660.4 with even more clarity when we exit the engulfer to kick the daily trend back to up, or resolve it down.
SPY – Daily
Here is the April 9 bar where the S&P historically rose ~11%+ in a single session. Note how the action that was contained inside the bar was sloppy, and the trend finally resolved higher when the break of its high was sustained.
SPY – Hourly
Simple idea here is that the fib no-mans-land aligns with the junk drawer concept. Generally not much edge between the 61.8 or the 38.2. Daily 20 SMA and aVWAP stack offering a headache as well. Letting that range resolve is the obvious and responsible choice.
Market Internals
Friday’s internals which come on the heels of a TACO moment aren’t all that strong. You would think the headline could have spurred a whole new wave of buyers… strong buyers. Didn’t happen. This neutralizes the tone rather than remaining overly optimistic.
Market Profile
Value is completely sideways, really no progress made from buyers or sellers inside of the Friday range. Aligns with the idea to keep it simple until we break the engulfer and shift value either higher or lower.
HYG – Junk Bonds
The canary in the coal mine recently has been junk. With a positive bullish divergence already in force, the next cue would be a new high made over the pivot to signal short term risk on. You can the alerts set; I’m ready to act when and IF they get taken.
If you want the full take, including all of the nuance of breadth, risk appetite and much, much more, check out the weekend episode here:
Economic & Earnings Calendar
CPI is confirmed for release on the 24th.
Top watches: NFLX, GEV, TSLA, IBM, LRCX, INTC
Swing Stock Scans
A – Daily / Weekly
Great relative strength in the daily bull flag which is playing out as a weekly three bar play. Over 142.25 area should open the door for a larger weekly breakout up towards the 154 area.
CENX – Daily / Quarterly
Daily inside bars on the Monday expansion of range. Holding over prior quarterly pivot highs. Thematically adjacent to the metals “rare earth” trade happening now.
EXR – Daily
Double bottom daily reversal hover the moving average stack. If it can break the weekly resistance level at 153, room to run into the prior pivot highs towards 161. Not interested if this cant hold the neckline area around 148.25.
WMT – Daily
If there is going to be a more defensive rally in the market, this could be the chart to end out the year. Multi month range breaking out into the end of last week. Looking for sustained holds over 105.25 for moves over 109.15 to keep all time highs in play.
Great Charts; But Mind Earnings
GE – Daily
Great bull flag in an uptrend over prior ATHs.
GE – Daily
Multi month consolidation with possible breakout over 33.80.