Markets opened flat on Wednesday and then, after an hour of waffling sideways, began a slow but consistent roller coaster ride lower. All three major indices have now fallen below their T-lines (8ema) and the DIA is also dropped through its 50sma (the other two have been below their own 50sma for some time). The SPY also fell through its support level (which had held it up since 12/19). For its part, QQQ closed at a new low close for the year, and looks like it is on the hunt to reach a new 2022 overall low. This action gave us black-bodied candles in the DIA, SPY, and QQQ. (They could be seen as Evening Star signals in the DIA and SPY.) Yet again, this is happening at a very low volume.
On the day, all ten sectors were in the red with the Energy sector (-2.43%) leading the way lower while the Healthcare sector (-0.55%) held up best. Meanwhile, the SPY was down 1.22%, the DIA was down 1.14%, and the QQQ is down 1.32%. At the same time, the VXX was down 0.21% to 14.31 and T2122 fell back into the oversold territory at 14.31. 10-year bond yields surged from the early lows to 3.888% and Oil (WTI) is down just over one percent to $78.66 per barrel. So, overall, it was a bearish, but low-volume day.
In economic news, November Pending Home Sales came in well below expectations at -4.0% (versus the forecast of -0.8% but better than the October reading of -4.6%). Then, after the close, the API Weekly Crude Oil Stock Report showed that inventories fell by 1.3 million barrels last week (compared to a drawdown of 3.069 million barrels in the week prior). This was the second straight week of oil inventory declines. However, the API also showed a build in gasoline inventories by 510k barrels and an increase in distillate stocks by 388k barrels.
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In stock news, LUV continues to struggle as it was forced to cancel 60% of its flights (another 2,500) on Wednesday. The airline is in serious trouble as it has already had to cancel nearly 60% of Thursday’s flights. Elsewhere, GILD purchased the remaining rights for an experimental cancer therapy from JNCE for $67 million. (GILD already owned a portion of those rights. This deal also eliminates the GILD potential liability of needing to pay JNCE up to $685 million in milestone payments as well as percentage of sales royalties if the drug does get to market.) Meanwhile, ABB completed the sale of its 19.9% remaining stake in the power grid business which it had previously sold 80.1% to Hitachi. Late in the day, the US 9th Circuit Court of Appeals revived a lawsuit against GOOGL, HAS, MAT, and other companies for violating the privacy of children (luring kids under age 13 to their websites and then tracking online them without parental consent). The decision was unanimous by a 3-0 vote.
In energy news, Reuters reported Wednesday that Russian natural gas exports are now expected to come in 45% lower in 2022 than they did in 2021. This includes the increase in exports to China. As a result (and partially offsetting the volume loss), the global average price of natural gas has increased 45% during 2022. More significantly, the trends are expected to accelerate in 2023 since the EU ban on Russian natural gas has now come into effect. In related news, ship insurers said Wednesday that they are cancelling war risk coverage across the Russia, Ukraine, and Belarus region as of January 1. This is a response to the re-insurers cancelling coverage due to sanctions. However, under pressure from the Japanese government, Japan’s own insurers have decided to continue covering ships in Russian waters. Finally, XOM has filed suit against the EU in a move aimed to block the new windfall profits tax (which could cost XOM up to $2 billion by the end of 2023).
In miscellaneous news, the US announced Wednesday that it is reinstituting rules that require passengers 2 years of age and older to get a negative covid test to enter the US from China, Hong Kong, and Macau. In Europe, Italy announced they will begin testing incoming passengers from China and they also asked the EU to institute tighter restriction on travelers from the China region. Finally, related to the Russian invasion of Ukraine, Russia fired another massive salvo of more than 100 missiles at Ukrainian civil infrastructure targets (mostly electrical grid, water facilities, and housing targets).
Overnight, Asian markets leaned to the downside. Thailand(+0.85%), Malaysia (+0.78%), and India (+0.38%) managed to stay green. However, the rest of the region was in the red, led by South Korea (-1.94%), Japan (-0.94%), and Australia (-0.94%). In Europe, markets are leaning to the upside on modest moves at midday. The FTSE (-0.19%) is one of the few laggards while the DAX (+0.25%), and CAC (+0.13%) are more typical of the region in early afternoon trade. As of 7:30 am, US Futures point toward a green start to the day. The DIA implies a +0.22% open, the SPY is implying a +0.42% open, and the QQQ implies a +0.58% open at this hour. At the same time, 10-year bond yields are flat at 3.879% and Oil (WTI) is down 1.43% to $77.83/barrel in early trading.
The major economic news events scheduled for Thursday are limited to Weekly Initial Jobless Claims (8:30 am) and EIA Weekly Crude Oil Inventories (11 am). There are no earnings reports scheduled for the day.
In economic news on Friday, we get the Chicago PMI.
This is an extremely light week for earnings with no reports scheduled for either Thursday or Friday.
With that background, it looks like the three major indices are looking to open up with modestly bullish, inside candles. This is welcome news for the bulls after the DIA gave up T-line and 50sma support and the SPY fell through a significant support level on Wednesday. Over-extension is not a problem yet in any of the major indices, despite the T2122 reading. Just remember that the very light volume of a holiday-sandwiched short week can exaggerate market moves. So, don’t go chasing too many new positions unless you can get in and out very quickly or you are willing to ride the trade through the new year. It’s time to get your 2022 trading book squared up, book your tax losses, and prepare for next year. This is not the time to be trying to save the month or year.
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 absolutely 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 money is 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.
Ed
Swing Trade Ideas for your consideration and watchlist: No Trade Ideas Today. You can find Rick’s review of tickers on his YouTube Channel here. Trade your plan, take profits along the way, and smart. Also, remember to check for impending earnings reports. Finally, remember that any tickers we mention and talk about in the trading room are not recommendations to buy or sell.
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🎯 Friday 6/21/19 (10:09 am) Aaron B: Today, my account is at +190% since January. Thanks, RWO HRC Flash Malcolm Thomas Steve Ed Bob S Bob C Mike P and everyone that contributes every day. I love our job.
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