Trade The Journey

Trade The Journey

Getting back in Form

Good Afternoon Traders, it’s good to be back. The last two weeks have been a blur as I’ve been going through a character building period in my life. To be honest, I’m still a little jaded but I feel like I should be working on something to keep my mind occupied. Why not focus my attention on something I love doing?

Moving on, I hope everyone is enjoying this extended weekend due to the Memorial Day holiday on Monday. The holiday shortened week brings some key data that will provide further clarity on the path of rates. Markets have scaled back their forecasted rate cuts to just twenty-five basis points due to stubborn inflation and a resilient economy.

Upcoming Week:

Tuesday: Dallas Fed Manufacturing

Fed Speakers: Cook, Kashkari

Wednesday: MBA Weekly Index, Richmond Fed Index, Beige Book

Fed Speakers: Williams, Bostic

Thursday: GDP – 2ND Estimate, Initial Claims

Fed speakers: Williams, Logan

Friday: PCE, Chicago PMI

Fed Speakers: Bostic

Fed Minutes:

The meeting reviewed developments in financial markets, noting persistent inflation and a generally resilient economy. These factors led to an adjustment in policy rate expectations, with fewer anticipated rate cuts for the year. Treasury yields increased, reflecting higher inflation compensation and higher expected real policy rates.

Despite rising yields and lower equity prices tightening financial conditions, the economy showed stability with strong labor market conditions and robust economic activity. Inflation, while slower than the previous year, remained above 2%, necessitating continued attention and adjustments in monetary policy.

Participants discussed the economic outlook and agreed to maintain the federal funds rate target range at 5.25% to 5.5%, citing solid economic growth and persistent inflation. The Committee also decided to slow the pace of balance sheet reduction by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion while maintaining the cap on agency debt and mortgage-backed securities at $35 billion.

This decision aims to facilitate a smooth transition from abundant to ample reserve balances and ensure market stability. Members emphasized the importance of monitoring economic indicators and expressed readiness to adjust the monetary policy stance if necessary. The meeting concluded with unanimous votes to maintain current interest rates and continue efforts to reduce the Federal Reserve’s securities holdings, reflecting a strong commitment to returning inflation to the 2% target.

Nvidia Earnings

Revenue: $26.04 Billion (Forecasted – $24.59 Billion)

EPS: $6.12 (Forecasted – $5.58)

NVIDIA reported record revenue of $26.0 billion for the first quarter of fiscal 2025, an 18% increase from the previous quarter and a 262% increase from the same period last year. Data Center revenue also reached a record $22.6 billion, up 23% from the previous quarter and 427% from last year. They announced a ten-for-one stock split effective June 7, 2024, to make shares more accessible, and increased their quarterly dividend by 150% to $0.01 per share after the split.

GAAP earnings per share were $5.98, up 21% from the previous quarter and 629% from last year, while non-GAAP earnings per share were $6.12, up 19% from the previous quarter and 461% from last year. The company’s growth was driven by high demand for AI and data center products. NVIDIA expects revenue of $28.0 billion for the next quarter, with gross margins in the mid-70% range. The report highlights NVIDIA’s strong performance and significant growth in AI and data center markets.

On to the markets, the S&P 500 made a new high this past week spurred higher by  earnings, a resilient economy and of course, Nvidia. After dipping below the 5000 level, the S&P 500 recovered and reached a new all-time high for the week of $5,341.88. However, the RSI never broke through the overbought level, failing twice this past week.

The Nasdaq also made a new high and showed a similar chart pattern. Its RSI looks poised to retest the overbought level and possibly break through. The Dow Jones Index ended the week giving back most of its gains from the prior week and is basically using the 50 SMA as support. The Dow Jones Transportation Index has been in a sideways trend for the better part of two years. Its most recent high was made back in November 2022.

The Russell 2000 broke out of its most recent sideways trend only to enter into another sideways trend. $2,134 remains a solid resistance level. Higher rates could be constraining the Russell from forming a solid trend as the Russell is mostly made up of small cap companies.

Gold made a double top this past week and pulled back from its recent high of $2,454. Gold could be forming a sideways trend near the top. The dollar broke above $105 at the beginning of the week but pulled back to $103.986, a level of support that held. It ended the week back at the $104 level. Copper made a new recent high of $5.199, breaking through short-term resistance before pulling back to its 20 SMA. Copper ended the week at $4.759. Crude is still below the $80 level and formed some support at $76.71. Crude ended the week at $77.72.

Yields are mostly lower than they were a month ago except for the short end of the curve. The 2-year is close to breaking above the 5% level as the Fed signaled rates will need to remain higher. The ten-year yield rose four basis points to 4.46%. The thirty-year yield rose one basis point to 4.57%. Interest rate swaps rose on the short end, up twenty-four basis points for the one year and thirteen basis points for the five-year.

Around the world, China kept its short-term & medium-term prime rates unchanged at 3.45% and 3.95% respectively. Industrial profits over the past year will be reported later today. Foreign direct investment plunged 27% over the past year, a severe drop. Investment rose in the accommodation and catering sector.

In Japan, machinery order rose over the past year as did imports/exports. Foreign Investors piled into bonds while shunning stocks. Manufacturing in Japan entered into expansionary territory while services edged lower. Its CPI over the past month was unchanged but fell to 2.5% from 2.7% this past year. Its core inflation rate also fell.

In the Euro Area, construction output rose 0.1% after falling 1.8%. Labor costs rose 4.9% over the past year. New car registration is up 13.7% this past year. While manufacturing remained in contractionary territory, the services sector was unchanged. The Euro Area’s composite PMI rose several points and remained in expansionary territory. Consumer confidence remained in negative territory although talks of a rate cut in June grew louder.

Back in the US, there wasn’t much on the calendar although several Fed speakers took the podium. Existing home sales fell 1.9% over the past year, falling by the same amount over the past month. The median sales price rose nearly 5% over the past year to $407,600. There’s a current supply at the current sales pace of 3.5 months. All regions in the US posted declining sales.

Homes at the higher end continue to see increased sales and inventory. First-time home buyers increased as did second home buyers. Foreclosures and short sales were unchanged.

New home sales fell 4.7% in April as the median sales price was $433,500 and the average price was $505,700. At the current sales pace, supply is 9.1 months. New home prices are near their highest. Sales fell or stayed close to the previous month for most price ranges, only rising for the $400,000 to $499,999 range. New home sales fell for homes sold during the period but rose for homes for sale at the end of the period.

The weekly MBA index showed that mortgage application volume rose 1.9% from the week prior. The refinance index rose 7% and the purchase index fell 1%. The share of application volume for refinancing rose 2% to 34%. The thirty-year average rate for conforming loans fell seven basis points to 7.01%, its third consecutive week of decline. The average rate for a thirty-year jumbo loan fell four basis points to 7.18%.

Initial claims came slightly below forecasts of 219,000 to 215,000. The four-week moving average increased slightly to 219,750. Continuing claims edged higher to 1.794 million but remained in a range.

Durable goods remain in range, rising 0.7% in April. New orders rose 0.2% near last month’s levels while shipments rose 1.2% after coming in nearly flat the previous month. Excluding transportation, new orders rose 0.4% and shipments rose 0.2%. Computers and related products came in positive after declining the previous month. New orders for transportation equipment declined but remained in positive territory while shipments rose noticeably.

New orders for communication equipment rose sharply. Capital goods declined by 1.5% for new orders but rose for shipments. Unfilled orders were virtually unchanged at 0.2% and total inventories edged up by 0.1% after coming flat the previous month.

Technical Story:

Trading Review will resume next week.

Cash Flow in Review:

To be honest, I wasn’t cost conscious for the last two weeks. I’ve noticed I tend to overspend or overcompensate when I’m hurt. Luckily, I was able to pay down some of my credit card balances. This past pay period, I saved little to no money. As I begin to resume my routines and get back to my usual positive nature, I expect my spending to moderate.

Grade: D

Reason: Poor emotion/financial control

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