Cabrera Capital Daily Game Plan

Thursday May 19, 2022                                                        Trading
Desk: (312) 236-8907

TODAY’S GAME PLAN:  from
the trading desk, this is not research

DATA/HEADLINES   
8:30ET Weekly Jobless Claims, Philadelphia Fed manufacturing index; 10:00ET Existing Home Sales, Leading Indicators; 4:00ET Fed’s Kashkari speaks

TODAY’S HIGHLIGHTS:   

• Biden to meet leaders of Finland, Sweden on NATO expansion
• Brazil sees a rare snowfall
• Melvin Capital to shut down
  
• China’s top diplomat again warned the US over its increased support for Taiwan
  

The selloff in global equities continues, after big-box retailers in the US showed the world how painful inflation and supply chain problems
can be. Stocks of retailers and consumer-discretionary companies posted some of the biggest losses in Asia and Europe after US investors questioned the lofty valuations of companies like Target against the backdrop of rising interest rates.  Credit market
risk premiums are soaring globally as investors increasingly price in the risk that economies won’t be able to weather central banks’ rate hikes.  Meanwhile, President Biden meets with the leaders of Sweden and Finland  at the White House today to discuss
their NATO applications. All 30 NATO members need to approve the applications while Turkey has raised questions about including the two countries in the alliance. In emerging markets, Sri Lanka fell into default for the first time in its history as the government
struggles to halt an economic meltdown and warned inflation may surge to 40%.                  

US EQUITIES: 

US stock futures declined, signaling a continuation to yesterday’s brutal selloff that erased $1.5 trillion in market value. Stocks posted their
biggest daily drop in almost two years, sending the S&P 500 down 4%, with a plunge in consumer discretionary and staples of over 6%. Earnings results from retailing giants WMT and TGT the last two-days is raising real concerns for consumer spending trends.
Target tanked 25% after warning of a bigger margin hit due to rising fuel and freight costs, a day after Walmart trimmed its profit forecast.  Cisco Systems slid 12% in extended trading on a disappointing revenue outlook.  Early signs of “capitulation” among
retail traders have emerged, according to Vanda Research, which cited put option trading near record highs. S&P and Nasdaq futures managed to stay just above last week’s low, while Russell futures rest some 3% above last week’s low just below 1700.        

E-mini S&P futures -0.7%, Nasdaq -1%, Russell 2000 futures -0.65%, Dow futures -0.5%. Fear & Greed currently at 9, so has some room to go before
major extreme that has seen key reversals…   

Kohl’s shares fell after it lowered its earnings outlook, piling onto an already tough week for consumer companies. Net sales are now seen flat
to rising 1% this year, below the previously 2-3% projected. Under Armour fell 4% after the sudden exit of CEO Patrik Frisk.  Shares of networking equipment makers also drop: Broadcom (AVGO) -3%, Juniper Networks (JNPR) -4%. Spirit Airlines (SAVE) shares drop
2% after its board unanimously recommended that stockholders reject the tender offer from JetBlue Airways.   On the positive side, BJ’s Wholesale (BJ) shares climb 4% after the warehouse club operator reported 1Q profit that beat. Canada Goose (GOOS) rises
10% after topping expectations. Synopsys (SNPS) rises about 4% after the supplier of software used to design semiconductors boosted its profit and revenue guidance.   

European stocks extended declines as a sharp selloff in US equities fueled concerns of an economic slowdown.  The Stoxx
600 declined more than 2%, with all industry sectors in the red and personal care and financial services leading the decline. Technology and retail shares also underperformed.  Among individual movers, HomeServe Plc shares jumped as much as 12% after Brookfield
Asset Management agreed to buy the home emergency and repair services company. Nestle SA slumped 5% after a downgrade by Sanford Bernstein, saying the shares will “struggle” if market sentiment improves and investors exit havens. The FTSE 100 fell over 2%;
Royal Mail -13%, Diageo -5%. DAX -1.5%, CAC -1.7%. Food & Bev -3.3%, Fin Services -2.5%, Technology -2.2%, Retail -2.15%.   

Shares in Asia fell, with technology and consumer sectors pacing declines. Tencent Holdings slid 6.5% after an earnings
miss and was the biggest drag on the MSCI Asia Pacific Index which lost as much as 2.3%. The Hang Seng Tech Index fell nearly 4% after Tencent warned that China’s tech crackdown won’t end quickly. Japan’s trade deficit widened as exports extended double-digit
gains for a third straight month in April but surging global commodity costs inflated the country’s import bill to a record. The Nikkei 225 fell 1.9%. India’s Sensex fell 2.6% as more than 500,000 people have fled their homes in India’s northeastern state
of Assam to escape heavy floods triggered by pre-monsoon rains. Stocks in mainland China bucked the trend and edged higher with the Shanghai Composite gaining 0.35%. Hang Seng Index -2.5%, South Korea’s Kospi -1.3%, Australia’s ASX 200 -1.6%, Vietnam +0.1%.

FIXED INCOME: 
                                       

Treasuries extend Wednesday’s rally with ten year yield hitting 2.82%, 15bps lower from yesterday’s close. The belly leads
the advance while bunds outperform in a more aggressive bull-flattening move. Germany’s 10-year yield fell back below the closely watched 1% level. Chicago Fed President Charles Evans said overnight that increasing rates somewhat above the neutral level and
stopping there should help bring inflation down. There is a $14 billion 10-year TIPS auction at 1pm.

METALS: 
                               

Gold gained, drawing support from a weaker dollar, as investors weighed concerns over economic growth against expectations
of more aggressive monetary policy tightening.  Bullion stored at the BOE has been trading at a rare discount to benchmark rates in a sign central banks may be shedding holdings to raise dollars or other currencies. Spot gold is up 0.8%, silver +1.3%.        

ENERGY:     

Crude oil reversed early gains, extending declines as fears over slower economic growth outweighed lingering fears over
tight global supplies. Russia said its oil production will continue to grow in June, following an increase of as much as 300,000 b/d so far this month. China is seeking to replenish its strategic crude stockpiles with cheap Russian oil, a sign Beijing is strengthening
its energy ties with Moscow just as Europe works toward banning imports due to the war in Ukraine. European electricity prices jumped after the region’s biggest power producer, EDF, cut its nuclear output target for a third time this year. Natural gas prices
edged lower as LNG continued to arrive, helping replenish stock levels and easing concerns over supply. Brent -0.65% as it continues to hold below the short term key .618 retracement. WTI -1%.          

CURRENCIES:   
 

The safe-haven dollar fell against all other G-10 peers and riskier currencies like the Aussie dollar jumped as Shanghai
set out plans to end a COVID lockdown. Elsewhere, the Swiss franc extended its advance versus the dollar after Swiss National Bank President Thomas Jordan said policy makers are ready to act against inflation. US$ Index -0.45%, GBPUSD +0.6%, AUDUSD +0.65%,
NZDUSD +1%, USDNOK -1%, USDCHF -1.3%, USDJPY -0.4%.                

Bitcoin +0.6%, Ethereum -0.5%.

TECHNICAL LEVELS: 
  

Colors within the report:
Green
is always the 200 period (day, week). Red is always 21,
Blue = 50,
Brown =
100  *Stars have added importance

UPGRADES:

• Cisco Systems Inc (CSCO) raised to outperform at KGI Securities; PT $56
• Public Storage (PSA) raised to outperform at BMO; PT $370
• Reinsurance Group (RGA) raised to equal-weight at Morgan Stanley

DOWNGRADES:

• BNY Mellon (BK) cut to hold at Deutsche Bank; PT $45
• Healthpeak Properties (PEAK) cut to neutral at BofA; PT $32
• Life Storage (LSI) cut to market perform at BMO; PT $130
• Norfolk Southern (NSC) cut to neutral at Citi
• Physicians Realty (DOC) cut to underperform at BofA; PT $18
• Primerica (PRI) cut to equal-weight at Morgan Stanley; PT $148
• Schnitzer Steel (SCHN) cut to sector weight at KeyBanc
• Target (TGT) cut to hold at Stifel; PT $185
• US Xpress Enterprises (USX) cut to neutral at Citi
• UWM Holdings (UWMC) cut to underweight at Piper Sandler; PT $3
• Under Armour (UAA) cut to equal-weight at Morgan Stanley; PT $11
• Union Pacific (UNP) cut to neutral at Citi

INITIATIONS:

• Ardagh Metal Packaging (AMBP) rated new equal-weight at Morgan Stanley
• Dorman Products (DORM) rated new buy at MKM; PT $129

David Wienke

Cabrera Capital Markets, LLC