The back-and-forth volatility continued Thursday with a gap higher at the open in all 4 major indices, which was met immediately by a whipsaw-filled all-day selloff.  All 4 ended up closer to their lows than highs.  The SPY and IWM both printed Dark Cloud Cover signals, the QQQ printed a Bearish Engulfing, and the DIA nearly printed a Dark Cloud Cover.  On the day, SPY lost 0.48%, DIA lost 0.23%, QQQ lost 1.43%, and IWM lost 1.17%.  The VXX rose 1% to 25.15 and T2122 dropped back into the mid-range at 69.66.  10-year bond yields fell to 1.854% and Oil (WTI) dropped 2.23% (after having been up 2% early) to $108.28/barrel.

Again, the Russian invasion and sanctions remain the dominant story.  Overnight, Russia attacked (setting fire to) and seized the largest nuclear power plant in Europe. Thankfully, Ukrainians safely shut down the plant after Russian attacks had caused fires (which are now under control).  Elsewhere, JPM says they expect the Russian economy to contract 35% in Q2 due to sanctions that are already in place. However, the EU is now seriously considering energy sanctions (in the wake of the nuclear plant attack) and analysts say it’s only a matter of time before Oil and Gas sanctions are added (those account for 60% of Russian exports).  So, let’s take a closer look at the state of the global oil market.   

Russia exports about 5 million barrels of oil per day plus 3 million barrels of other petroleum products (a total of about 13-15% of global petroleum exports).  If those were shut down, in terms of available replacements, the US has already added just under 1 million barrels/day since the beginning of the invasion. (Whether the US sees a longer-term capacity increase is another question.)  In addition, Saudi Arabia could easily increase output by 2-2.5 million barrels per day and UAE can add another million very quickly…if they could be persuaded to do so. If a deal were reached with Iran, they could also add another 1.5 million barrels of export capacity. However, even under that rosy scenario, that still leaves world markets about 3 million barrels/day short.  

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Still, the US only imports 5% of its daily requirement of oil.  So, a complete stoppage of Russian output would have a relatively minor impact on the US (gas prices).  Europe and Asia would be the places hit worst.  However, it’s possible that things would not get all that much worse than they are now.  The Financial Times reported that 70% of Russian Oil exports are already unable to find buyers as companies are trying to avoid connection to Russia right now.  If true, the world is already down about 5.6 million barrels/day and a maximum increase by the Saudis, UAE, and/or Iran would actually make things better than they are now in terms of oil supply…even if the other 3 million barrels of Russian exports are stopped.  (And they won’t be completely stopped as China will not play ball.)

The point of all this is that things are not as bad as they seem. However, oil markets are running rampant on fear of what might happen and chasing the non-Russian supplies for appearance’s sake even though no oil sanctions have been placed on Russia yet. So, oil prices could continue to climb, but at the moment there is a path to something closer to pre-invasion pricing…if the world will play ball. If not, we could easily see $150 oil at a point where Russian supply is shut down completely. However, we are nowhere near that place yet and at the moment, we are artificially inflating oil by avoiding Russian supply so that refiners don’t look bad.

After the close, COST, AVGO, GPS, MRVL, COO, and TWI all reported beats on both lines.  Meanwhile, SQM, and AGL beat on revenue but missed on earnings.  However, VZIO and SWBI reported missed on both earnings and revenue.

Overnight, the Asian markets were red across the board.  Hong Kong (-2.50%), Japan (-2.23%), and India (-1.53%) led the region lower, but strong losses were widespread.  In Europe, we see an even worse picture at mid-day.  The FTSE (-3.40%), DAX (-3.60%), and CAC (-3.72%) are leading the continent lower in a dramatic fashion.  AS of 7:30 am, US Futures look to be leaning toward following the rest of the world lower.  The DIA implies a -0.99% open, the SPY is implying a -0.99% open, and the QQQ implies a -0.94% open at this hour.  10-year bond yields are back down to 1.782% and Oil (WTI) is spiking another 2.5% ($110.33/barrel) in early trading.

The major economic news scheduled for Friday includes Feb. Nonfarm Payrolls, Feb. Avg. Hourly Earnings, Feb. Unemployment Rate, and Feb. Participation Rate (all at 8:30 am).  There are no major earnings reports scheduled for the day. 

Markets seem to be taking a beating this morning in the face of Russia’s reckless attack on the largest nuclear power plant in Europe. However, we do have the February Payrolls data yet to come in the premarket. So, there is a chance for a rebound, but I would not hold my breath. It appears Mr. Market is deciding that Friday in the face of current news and with a weekend news cycle in front of us should be a risk-off kind of day. You might do well to consider following his lead and get light, flat, or in cash for the weekend. Also remember it’s payday. So, do not forget to pay yourself. As they say, the best time to take profits is “when you have them”…not “someday if they grow bigger.”

Once again, ask yourself whether you have an edge in this sort of volatility. If not, sitting on your hands may be the best move you could make. Remember that you don’t have to trade every day (or even week) and you definitely don’t need to chase moves. Trading is a marathon, not a sprint. So, stick to your trading rules and manage the things that you can control. Trade with the trend, don’t chase, keep consistently taking profits when you have them, and move your stops in your favor. The first rule of making money in the market is to not lose big money in the market. So, don’t be stubborn, and protect yourself from yourself. If you are wrong, just admit it and take your loss. (That’s why we set stops in the first place.)

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.

🎯 Mike Probst: Rick, Got CTL off the scanner today. Already up 30%. Love it.

🎯 Dick Carp: the scanner paid for the year with HES-thank you

🎯 Arnoldo Bolanos: LTA scanner really works $$, thanks Ed.

🎯 Bob S: LTA is incredible…. I use it … would not trade without it

🎯 Malcolm .: Posted in room 2, @Rick… I used the LTA Scanner to go through hundreds of stocks this weekend and picked out three to trade:  PYPL, TGT, and ZS.   Quality patterns and with my trading, up 24%, 7% and 12%…. this program is gold.

🎯 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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Disclosure: We do not act on all trades we mention, and not all mentions acted on the day of the mention. All trades we mention are for your consideration only.

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