Morning Quickie

The market fell again yesterday, with financials again leading the way.

The correlation between the current pull back and financials is no coincidence.  Financials have under performed since the rally off the lows in February.

This market will not find a bottom until the selling in the financial sector stops.  Yesterday it was the credit card companies getting crushed:

Storm clouds are gathering on the consumer-credit horizon.

Lenders and ratings firms are sounding alarms over weakening performance of three major areas of consumer credit -- credit cards, auto loans and student loans -- suggesting that a new round of borrower delinquencies and losses for financial institutions could be on the way.

Synchrony Financial, the largest retail-store card issuer by purchase volume and balances, on Tuesday increased its forecast for losses over the next 12 months and said it was building up reserves for future losses, according to a company filing. The lender said it expected net charge-off rates over that period to increase by 0.20 to 0.30 percentage points.

That sent tremors through a variety of financial stocks with exposure to the consumer. While Synchrony's stock was down about 12% by midday Tuesday, Capital One Financial Corp. fell about 6% and Ally Financial Inc. was down nearly 4%.

In detailing the company's changed outlook at a Morgan Stanley financial-services conference Tuesday, Brian Doubles, Synchrony chief financial officer, cited challenges in late-stage delinquencies as the main reason. "We expected to see some softening," he said. "We weren't sure when it was going to come and I think we're starting to see some of that."

Mr. Doubles added that the ability of card holders to get back on track with payments after falling behind has been "challenged all year."

The ramifications of these 'tremors' are not positive for the stock market.  What would happen if interest rates were to rise?

Exactly.  Which is why the FED will not raise rates again anytime soon.  Which brings us to todays FED announcement.

What will the market reaction be?   There will be no surprises  Expectations of a rate hike have effectively dropped to zero recently.  The announcement will be looked at closely for any changes that push rate hike expectations further out.  After the recent bout of selling in the market, I think we could see a sharp rally to the upside.  With the financials recovering some of their recent losses.

Short term momentum could be heading back up, with moving averages curling back over.  A rally into weeks end could bring prices right back to where they started the week at..... which is exactly what happened last week.

The VIX closed yesterdays session over the 20 level.  Watch the action today, if it breaks and holds under 20 this would be further confirmation that the recent sell-off has reached, at least a short term, turning point.

See you in the chat room.

Morning Reads

Futures ignore early economic data as market fixates on Fed
Stock futures barely moved following the release of the Producer Prices Index and the Empire manufacturing report. The data showed producer prices rose 0.4% in the month of May, versus expectations for an increase of 0.3%. The core PPI reading, which removes food and energy, rose 0.3%, versus expectations for an increase of 0.1%. The Empire manufacturing report had a reading of 6.01 for June, versus the expected reading of -4.90. In pre-market trading following the reports, Dow futures are 46 points above fair value, Nasdaq futures are 10 points above fair value and S&P futures are 3 points above fair value
The Empire State index bounced to 6.0
The Empire State index bounced to 6.0 in June after the May plunge to -9.0 from a slightly higher 9.56 in April and 0.62 in March, leaving a return to positive territory, as seen in March and April for the first time since July. Analysts saw a similar ISM-adjusted Empire State bounce to 50.0, after a drop to 47.6 in May from a higher 51.9 in April but a similar 51.3 in March, versus a 43.4 expansion-low in January. Analysts expect a June Philly Fed rise to 2.0 from -1.8 in May, a Richmond Fed rise to 2.0 from -1.0, a Dallas Fed rise to -12.0 from -20.8, a Chicago PMI rise to 51.0 from 49.3, an ISM drop to 51.0 from 51.3, and an ISM-NMI rise to 53.5 from 52.9. The mix should allow the ISM-adjusted average of the major surveys to rise to 50 from 49 in May, as also seen in January and February, versus 51 in April and a 53 eight-month high in March. The small net sentiment upturn since February despite the April-May setback likely reflects a diminishing oil and inventory headwind alongside a reduced net export drag with the sluggish world economy, and analysts continue to expect a bounce in U.S. GDP growth to 2.6% after an ugly Q1 performance

Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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