1-Day Settlement Starts And Big Data Week

Marketed opened higher on Friday as SPY gapped up 0.35%, DIA opened 0.13% higher, and QQQ gapped up 0.36%.  From there, SPY and QQQ rallied higher until 11:15 a.m.  At that point, both grounds sideways in a tight range the rest of the day.  Meanwhile, after the open, DIA just meandered sideways until 2:15 p.m. when it very modestly sold off the for 45 minutes and the ground sideways in a very tight range the last hour of the day.  QQQ remained well above its T-line while SPY crossed back above its own.  DIA stayed well below its T-line without even an attempt to retest.  This action gave us white-bodied, Bullish Harami / Spinning Top candles in the QQQ and SPY with a black-bodied, Harami Doji in the DIA. (All of these indicate indecision.) This all happened on far-below-average volume in all three major index ETFs.

On the day, nine of the 10 sectors were in the green with Utilities (+1.11%), Consumer Cyclical (1.08%), and Basic Materials (+1.06%) in front leading the rest of the market higher.  At the same time, Healthcare (-0.08%) was the only red sector (barely) lagging well behind the other nine. Meanwhile, SPY gained 0.67%, DIA was flat at -0.01%, and QQQ gained 0.95%.  VXX fell just under 3% to close at a very low 11.25 and T2122 popped up into the center of its midrange to close at 53.42.  Elsewhere, 10-year bond yields fell slightly to 4.467% and Oil (WTI) gained 1.20% to close at $77.79 per barrel. So, Friday was a modestly divergent rest day.  The SPY and QQQ saw Bulls bounce back a good part of Thursday’s losses, but still printed inside day candles. In fact, QQQ closed at a new all-time high close and 0.27% from its all-time high.  At the same time, DIA was clearly the weakest and both indecisive and flat after a very modest intraday run up. 

For the week, QQQ was again the leader, up for a 5th straight week (+1.37%) on the week) and well above its T-line (8ema).  Meanwhile, SPY printed a flat (-0.00%) long-legged Doji after four straight up weeks…again, well above its T-line.  However, DIA (-2.33%) gave us a huge down black candle on the week, closing at its weekly T-line after four up weeks..

The major economic news scheduled for Friday included April Core Durable Goods, which came in appreciably stronger than expected at +0.4% (compared to a forecast of +0.1% and March’s reading of +0.2%).  At the same time, the headline April Durable Goods came in down a tick but far above expectations at +0.7% (versus a forecast of -0.9% and March’s +0.8% value).  Later, Michigan Consumer Sentiment was a bit stronger than anticipated at 69.1 (compared to a 67.4 forecast and previous reading).  At the same time, Michigan Consumer Expectations were also better and expected at 68.8 (versus a forecast and previous reading of 66.5).  In terms of inflation, Michigan 1-Year Inflation Expectations were up a tick to +3.3% (compared to a forecast of +3.5% but above the previous +3.2%).  Finally, Michigan 5-Year Inflation Expectations was flat at +3.0% (versus a forecast of +3.1% and in line with the prior +3.0% value).

In Fed news, Fed Governor Waller spoke Friday.  He talked about the R-star interest rate (which is the theoretical short-term interest rate that would exist if the economy is at full employment and inflation is stable).  Waller said this rate may have increased from the past and may increase in the future.  The reason that change is important, is that if that interest rate did rise, then the Fed’s 2% inflation target would be too low.  (In other words, Waller was saying that it may be that if the Fed does drive inflation to 2%, that would cause economic contraction on its own, because inflation would be below the stable economy rate.  With that background, we can go to Waller’s comments.

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Waller said, “There has been a lot of debate during the past year as to whether or not ‘R-star’ has increased.”  He went on to explain, that in the historically, R-star declined over the longer-term.  However, in recent years, demographic shifts, accelerated US Treasury borrowing (government spending and Fed pandemic policies), and changes to technology have reversed that trend.  If that trend did reverse, this would mean that the stable economy inflation rate has gone up.  Government spending could be a key trigger.  Waller said, “If the growth in the supply of U.S. Treasuries begins to outstrip demand, this will mean lower prices and higher yields, which will put upward pressure on R-star.” (Meaning the Fed would need to adjust its inflation target upward.)  On a related topic, Waller said, “Notwithstanding the drumbeat of warnings from some that the U.S. dollar is in danger of losing its primacy in global trade and finance, it remains by a very large margin the world’s reserve currency.” He concluded, “U.S. government debt, likewise, remains the primary form of low-risk asset, which is reflected in the huge stock of Treasury securities held as foreign exchange reserves around the world.”

In stock news, on Friday, FDX announced it had resumed service to Ukraine after a two-year hiatus of service.  (Services to Russia and Belarus remain suspended.)  At the same time, LLY announced it is investing $5.3 billion to expand manufacturing for its high-demand anti-obesity drugs Zepbound and Mounjaro at its Lebanon, IN plant.  Later, BA announced it had updated its employee initial training to include 1-2 weeks of additional quality skills.  In a related story, BA said it has seen a six-fold increase in product and service safety submissions from employees in the first two months of 2024.  (After the January 5 incident with the ALK flight 737 MAX 9 having a door plug blow out during flight.)  At the same time, Indian e-commerce company Flipkart told Reuters that as part of its latest funding round, both WMT and GOOGL will be joining as a minority investors.  (GOOGL will take a $350 million position while WMT will invest $600 million.)  Later, WMT and COF announced they are ending their consumer credit card agreement (COF was the exclusive issuer of WMT-branded credit cards).  This comes after WMT had sued and won a ruling it could end the relationship after WMT accused COF of being slow to process transactions and replace lost cards.  At the same time, C asked 600 employees to return to the office rather than continue to work remotely.  Later, (in perhaps the most BA headline ever) BA said it has convinced NASA to allow BA proceeding with the launch of its first crewed Starliner.  This comes despite BA not having solved the helium leak that caused a scratch of the launch three times. The new launch date is June 1.

In stock legal and governmental news, on Friday, the NHTSA said it had learned of nine more incidents that raise concerns about GOOGL’s Waymo self-driving vehicles.  This followed the agency’s opening of an investigation after 22 reports of robotaxies violating traffic laws and 17 “unexpected behaviors” that resulting in collisions.  Later, NVAX told Reuters that it has advanced a new version of its COVID-19 vaccine that is targeted on the new JN.1 (aka KP.2) variant that has become dominant in the US over the last month.  NVAX said it expects the FDA advisers to discuss their vaccine as well as those from PFE and BTNX as well as MRNA at a June 5 meeting.  (NVAX said it will take the companies 100 days or more to manufacture an adequate supply for the market.)  At the same time, the UAW filed a complaint with the NRLB against MBGAF.  The complaint alleges the employee vote (which the union lost 44% to 56%) was unfair due to relentless anti-union campaign by management and seeks a second vote.

After the close, META submitted proposed changed to its UK privacy compliance proposals.  Also after hours, the US FDA advisory panel voted 7-4 against the use of NVO’ weekly insulin drug in patients with Type 1 diabetes. (The FDA itself could still approve, but very seldom goes against the advisory panel recommendation.)  Later, families of the 2022 elementary school shooting in Uvalde, TX filed suit against META, ATVI (which is now MSFT) and a gunmaker.  The suit alleges the companies cooperated to market dangerous weapons to impressionable teens, including the Uvalde shooter.  Still later, two chemical companies and a plastics industry group filed suit against the CA Attorney General seeking to block the AG from subpoenaing documents related to plastic waste and its disposal.  At the same time, the US Trade Representative said it has extended Section 301 tariff exclusions on 352 Chinese imports from 77 categories through May 31, 2025.  However, the agency also said that the tariff exclusions for 102 other categories will fall away as they expire next month.

 Overnight, Asian markets were slanted toward the red side.  Only two of the 12 exchanges held onto green.  Meanwhile, Shenzhen (-1.23%) paced the losses (out in front of the next biggest loser by more than six-tenths of a percent).  In Europe, a similar picture is taking shape at midday with just two of 15 bourses in the green.  The CAC (-0.56%), DAX (-0.01%), and FTSE (-0.26%) lead the region lower in early afternoon trade.  In the US, as of 7:30 a.m., Futures are pointing toward a mixed start.  The DIA implies a -0.11% open, the SPY is implying a +0.11% open, and the QQQ implies a +0.24% open at this hour.  At the same time, 10-year bond yields are just below flat at 4.463% and Oil (WTI) is up by 1.70% to $79.04 per barrel in early trading.

The major economic news scheduled for Tuesday is limited to Conference Board Consumer Confidence (10 a.m.).  We also hear from Fed Governor Bowman and Fed member Mester (both at 12:55 a.m.) and Kashkari (9:55 a.m.).  The major earnings reports scheduled for before the open are limited to BNS, DAC, ESLT, and MOMO.  Then, after the close, HEI reports. 

In economic news later this week, on Wednesday we get the Fed Beige Book, API Weekly Crude Oil Stocks, as well as hearing from Fed members Williams and Bostic.  Then Thursday, Weekly Initial Jobless Claims, Weekly Continuing Jobless Claims, April Goods Trade Balance, April Retail Inventories, Preliminary Q1 GDP, Preliminary Q1 GDP Price Index, and Preliminary Q1 PCE Prices, April Pending Home Sales, EIA Crude Oil Inventories, and Fed Balance Sheet are reported.  We also hear from Fed member Williams.  Finally, on Friday, we get April Core PCE Price Index, April PCE Price Index, April Personal Spending, and May Chicago PMI.  We also head from Fed member Bostic.

In terms of earnings reports later this week, on Wednesday we hear from ANF, AAP, BMO, CHWY, DKS, A, AEO, CPRI, HPQ, NOAH, NTNX, OKTA, PSTG, CRM, and UHAL.  Then Thursday, BBY, BIRK, BURL, CAL, CM, CBRL, DG, FL, HRL, KSS, RY, SPTN, COO, COST, DELL, GPS, GES, MRVL, NTAP, JWN, ULTA, VEEV, and ZS report.  Finally, on Friday, DOOO reports.

So far this morning, BNS and ESLT reported beats on both the revenue and earnings lines.  However, MOMO missed (big time) on both the top and bottom lines.  DAC reported closer to the opening bell.

In miscellaneous news, TX electricity use broke the May record for the second time in just the week on Friday.  Friday’s 72,550 megawatts topped Monday’s 72,261mw.  The forecast is for the record to be broken again Monday.  (The all-time peak usage in TX is 85,508mw in August 2023.)  Elsewhere, another human case of bird flu was found in MI (the second found in the state).  Meanwhile, reports from China indicate that AAPL is staging a bit of a comeback in that country.  Official data from the China Academy of Information and Communications Technology say that iPhone sales popped up 52% in April after heavy retailer discounts and AAPL slashing prices.  (AAPL is up more than 2% in premarket on the news.)

In other news, on Sunday, TSN was hit with a damning report from the Union of Concerned Scientists.  The report, entitled “Waste Deep” said that between 2018 and 2022, TSN dumped 371.72 million pounds of pollutants into US waterways, most concerningly ammonia and phosphorous.  (More than half of that was in just the states of NE, MO, and IL.)  The largest portion of this coming from industrial cleaners used on machines and carcasses.  Interestingly, this is a dramatic undercount, since the data came from only 41 or TSN’s 123 US plants.  However, TSN responded by saying its waste disposal complies with EPA and state regulations (other than a few instances).  This is probably true since those rules have not been updated since the turn of the century and even more worryingly, only about 10% of all meat processing plants in the US are required to comply with the usually-stricter EPA rules.  (This in a nod to cutting the regulatory bourdon on businesses.) 

With that background, it looks as if markets are indecisive as traders come back from the long weekend. The SPY and QQQ gapped higher to start the premarket, but have printed indecisive, wicky candles since then. At the same time DIA started the early session flat and had put in a small black-bodied candle from that point. Bear in mind that coming into a heavy data short week and ending May, the SPY and QQQ are at or very near all-time highs and DIA is about 2.5% away. The point is that the Bulls could look to end May on an up note. At any rate, SPY and QQQ are well above their T-line and DIA is below its own 8ema. The bulls remain in control in the short-term and even the DIA can be seen as nothing but a pullback in an uptrend. At the same time, the mid-term is also very bullish and the longer-term market remains very Bullish. In terms of extension, none of the three major index ETFs are too far extended from the T-line. The T2122 indicator is also back in the center of its mid-range. So, the bottom line is that the market has room to run if either the Bulls or Bears can gather the momentum. With regard to those 10 big dog tickers, they are evenly split between green and red. However, the biggest movers are all on the green side with NVDA (+3.03%), AAPL (+1.86%), and AMD (+1.28%) out front dragging the QQQ higher again today. (The biggest loser among the 10 is TSLA at -0.87% at this point.)

As always, be deliberate and disciplined…but don’t be stubborn. If you have a loss, admit you were wrong and take that loss before it gets out of hand. And when the price does move in your direction, always move your stops in your favor and take a little profit off the table. You have to keep the “Legend of the Man in the Green Bathrobe” in mind. In a winning situation, it is NOT HOUSE MONEY you’re betting, it’s YOUR MONEY! There is no reason to keep raising your bet (risk) size just because you’ve had a win. Finally, remember that trading is not a hobby, it’s a job. The gains are real and so is the risk. So, treat it that way. Do the work and follow the process. Stick to your trading rules, trade with the trend, and take those profits when you have them. Do the work!

See you in the trading room.


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