STOCKS: Short Covering Today Bargain Hunting Follow Through Wednesday

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Global equity markets overnight rebounded with the exceptions the markets in Tokyo, Sydney, and Hong Kong. While company specific fundamental developments are mostly discounted in the current macroeconomic focus, news of a halt in Tesla Shanghai production, a decline in April Tesla sales, a significant washout in Rivian, and further signs of slowing Chinese port activity provides the market with a negative fundamental bias this morning. Earnings announcements will include Sysco before the Wall Street opening while Occidental Petroleum, Electronic Arts, Global Foundries and Coinbase Global report after the close.

E-Mini S&P 500

Even though the S&P has rejected early selling today, the June S&P forged a fresh lower low for the move and extended a bearish chart set up. However, we see the potential for a moderation of inflation fears which in turn should provide a slide in interest rates and a noted wave of short covering and fresh buying of equities. For aggressive traders we see a near term upside target of 4150 but the bulls are heavily dependent on an “as expected” 0.2% gain in US CPI tomorrow.

OTHER US INDEXES

The charts in the Dow futures also remain bearish but the 32,000 level appears to be a temporary zone of support for the market. While our bullish view is predicated on a soft CPI reading tomorrow, today could bring an extension of classic short covering. We see near term upside targeting in the Dow futures at 32,999. With the NASDAQ forging a 3-day washout of 1200 points, a moderate corrective bounce is likely. However, with Tesla halting production in Shanghai, Netflix offering Ad discounts and a lower repricing of the buyout of price of Twitter the bear camp has the capacity to slow short covering.

MARKET IDEAS

We see further short covering gains, with the potential for bargain-hunting gains tomorrow. In other words, we are expecting an intermediate bottom and a relief rally ahead.