Stocks gapped modestly lower Tuesday. At that point, both the large-cap indices immediately filled the gap before joining QQQ in an all-day selloff that closed just up off the lows. In the process, all 3 major indices gave back all of Monday’s gains as well as falling through their respective T-lines.  All 3 printed black candles.  On the day, SPY lost 1.26%, DIA lost 0.83%, and QQQ lost 2.22%.  The VXX gained 1.5% to 24.81 and T2122 fell all the way back to 32.34, still in the mid-range but approaching the lower end of the range.  10-year bond yields spiked higher to 2.552%, which allowed them to get the “2s vs 10s” out of inversion, but the “5s vs. 30s” still remains inverted.  Oil (WTI) fell 2.15% to $101.06/barrel. 

The main story driving markets Tuesday was Minneapolis Fed President (and Vice-Chair nominee) Lael Brainard (normally a dove who favors loose FOMC policy) spooking markets mid-day when said she expects the Fed to start reducing its balance sheet in May.  What really gave the bears strength was that she said she foresees the FOMC doing so at “a rapid pace.”  She also said that rate hikes may come at a more aggressive pace than the 0.25% increments the Fed did in March and has been normal.  Later in the day, San Francisco Fed President Mary Daly (also a dove) told a different group that rates are going higher and said she does not think this will cause a recession. This news and hawkish tone from two of the FOMC’s doves raised fears among investors. this continues to scare markets this morning as futures bets are now pricing in half percent hikes at several Fed meetings over the remainder of the year.

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On the Russian invasion story, President Biden, the EU, and G7 are set to announce another round of coordinated sanctions on Russia in response to the recently found war crimes.  This round will include targeting more Russian Banks, Kremlin officials, and their family members.  A ban on new investment in Russian state-owned firms will also be included.  Most importantly, the EC will ban $4.3 billion of Russian coal in phases. This will be the first real hit to Russia’s most important sector, Energy. In fact, early this morning European Council President Von der Leyen said she expects eventual sanctions directly on Russian oil and gas imports to Europe.

Spiking rates continue to crush mortgage demand.  The average 30-year fixed-rate mortgage rose from 4.80% to 4.90% during the week.  They even went above 5% on Tuesday, a first since 2018.  This caused refinance loan applications to fall another 10% week on week, while new home purchase applications fell 3%.  Overall, mortgage demand is down 40% from one year ago.

Overnight, the Asian markets leaned heavily to the red side.  Only Malaysia (+0.50%) managed any real gain.  Meanwhile, Hong Kong (-1.87%), Japan (-1.58%), and South Korea (-0.88%) paced the losses.  In Europe, the lone, minor exception of Russia (+0.20%) stocks are red across the board at mid-day.  The FTSE (-0.33%) lags again, but the DAX (-1.69%) and CAC (-1.88%) are typical of the continent in early afternoon trading.  As of 7:30 am, US Futures are pointing to a gap lower at the open.  The DIA implies a -0.57% open, the SPY is implying a -0.81% open, and the QQQ implies a -1.35% open to start the day.  10-year bond yields are spiking again to 2.633% and Oil (WTI) is up 1.35% to $103.32 in early trading.

Major economic news scheduled for release on Wednesday is limited to Crude Oil Inventories (10:30 am) and FOMC Meeting Minutes (2 pm).  There will also be a Fed speaker (Harker at 9:30 am).  The only major earnings reports scheduled for the day are RPM, SCHN, and GBX before the open as well as LEVI after the close. 

The words of two Fed doves gave markets a scare Tuesday and apparently, markets came to realize this was not something we should shake off overnight. So, we are looking for a gap down after yesterday/s all-day reversal of Monday. Again we have basically no market-moving news scheduled and basically no earnings which might drive markets. So, traders’ eyes will continue to focus on interest rates, the fear of recession, and the talking heads (fund managers) are likely to promote the idea that the Fed should not do half-percent raises. Volatility still remains a concern, but the very short-term trend is back in control of the bears. Position yourself accordingly.

The first rule of making big money in the market is to not lose big money in the market. Don’t be stubborn, and protect yourself from yourself. If you are wrong, just admit it and take your loss. Stick to those trading rules and manage the things that you can control while trying not to worry about the things you have no control over at all. Trade with the trend, don’t chase, keep consistently taking profits when you have them, and move your stops in your favor. Trading is a marathon, not a sprint. So, focus on the process and enjoy yourself.

Ed

Swing Trade Ideas for your consideration and watchlist: ZBH, DG, GSK, DRE, JNJ, ALL, IP, GILD, ABBV, NWL, FMC, WFC, AEO, STX, DISCA, COF, SYF, PATH, AIG. 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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