Markets gapped modestly higher Monday (+0.33% in the SPY, +0.45% in DIA, and +0.10% in the QQQ).  However, the bears immediately stepped in to sell off the market to reach the lows of the day at about 1:15 pm.  At that point, we reversed on a dime as the bulls took over to lead a strong rally for 45 minutes.  Finally, we started a sideways roller-coaster ride of smaller moves for the last 2 hours of the day. This action has left us with black-bodied, Hammer Type candles with long, lower wicks in all 3 of the major indices.  It is also worth noting that all 3 indices are also getting a little extended below their T-line (8ema) and both the SPY and QQQ are testing the breakout area of their Dreaded-h patterns.

On the day, 3 of the 10 sectors are in the green, but none of them were significantly higher.  Consumer Defensive (+0.21%) was the largest gaining sector while Energy (-1.95%) and Technology (-1.94%) paced the losses.  Meanwhile, the SPY was down 0.72%, DIA was down 0.34%, and QQQ was down 1.08% (to a 2-year low).  The VXX was up just less than 2.49% to 21.43 and T2122 was up, but remains in the oversold area at 13.38.  10-year bond yields remain at 3.888% since the bond market was closed and Oil is down 2% to $90.75/barrel.  Overall, it was an indecisive down day.

In economic news, midday, Chicago Fed President Evans continued to chorus from the Fed, saying that fighting inflation is still the top priority, even if it means job losses.  At roughly the same time, JPM CEO Jamie Dimon told CNBC that said that the US economy is “actually doing very well” at the moment.  However, he sees a “very, very serious” combination of headwinds that are likely to push the US and global economies into recession in the next six to nine months. He went on to say that Europe is already in recession and blamed the Fed for waiting too long to fight inflation and then doing too little.  His opinion stands in contrast to others like Ark Investors CEO Cathie Wood who released an open letter to the Fed Monday warning that their tight policy could very well cause deflation if they don’t ease.  Elsewhere, in the afternoon, the union that represents workers who build and maintain rail tracks voted to reject the offer made by the committee representing the major freight rail carriers.  This brings the total to date to only four of 12 unions that have voted to accept the offer.  However, the parties have agreed to a “cooling off period.”  So, no rail strike is immediately imminent and negotiations will resume.

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In stock news, Bloomberg reported Monday afternoon that XOM is considering buying DEN.  No final decisions have been reached, but DEN has been seeking strategic options.  BA rival Airbus (an OTC stock) increased deliveries in September, delivering 55 aircraft to bring the YTD total to 437.  BA will announce its own numbers Tuesday.  The Wall Street Journal reported that BIO is in talks to merge with QGEN.  Elsewhere, the European Commission has informed TEVA that its preliminary view is that the company has breached European Union antitrust rules.  Relate to climate and green initiatives, HON announced it has a new technology that can convert ethanol into jet fuel.  This would reduce emissions and help airlines comply with standards that can let them qualify for incentives as laid out in the US Inflation Reduction Act.  Finally, after-hours LEG cut its 2022 guidance by between $100 million and $200 million.  LEG stock was down 8% in after-hours trading.

In Russian news, on Monday, the Putin regime retaliated for the weekend bombing of his bridge over the Kerch straight (to Crimea).  Russia launched well over 100 cruise missiles, 30 kamikaze drones, and more than 40 rockets.  About half of the missiles and nearly all of the drones were shot down by Ukrainian forces.  However, that left about 50 missiles and 40 smaller rockets that hit their non-military targets, many of which were not even of an infrastructure nature.  The G-7 will hold an emergency meeting to discuss responses to the Russian attacks today and Ukrainian President Zelenskyy will speak.  Elsewhere, pro-Russian hackers briefly took airport websites in Chicago, Los Angeles, Atlanta, and New York offline Monday.

The Bank of England was forced to step into UK bond markets again Tuesday.  A day after it extended its emergency measures to backstop pension funds, the BoE said it was seeing “fire sale dynamics” in the UK bond market as it began buying inflation-tied bonds (in addition to its other bond buying).  One of the important UK financial think tanks (IFS) said it estimates the new UK government will need to come up with $66 billion in spending cuts before the new budget is announced (a month early to shore up markets) on October 31.

Overnight, Asian markets were mixed again, but leaned heavily to the downside.  Taiwan (-4.35%), Japan (-2.64%), and Hong Kong (-2.23%) led the region lower on fears of economic slowdown and the impacts of President Biden’s chip export (to China) bans.  Meanwhile, Shenzhen (+0.53%), New Zealand (+0.35%), and Shanghai (+0.19%) managed to stay green.  In Europe, with the exception of Russia (+1.42%), stock exchanges are red across the board at midday.  The FTSE (-0.94%), DAX (-0.87%), and CAC (-0.54%) lead the region lower in early afternoon trade.  As of 7:30 am, US Futures are pointing a down start to the day.  The DIA implies a -0.52% open, the SPY is implying a -0.62% open, and the QQQ implies a -0.60% open at this hour.  10-year bond yields are up to 3.924% and Oil (WTI) is off 2.34% to $88.96/barrel in early trading.

There major economic news events scheduled for Tuesday are limited to a pair of Fed speakers (Harker at 11:30 am and Mester at noon).  Once again, there are no major earnings reports scheduled for the day.

In economic news later this week, on Wednesday we get September PPI, the WASDE Ag Report, September Fed Meeting Minutes, and the API Weekly Crude Oil Stocks report and Fed member Bowman speaks.  Thursday, September CPI, Weekly Initial Jobless Claims, EIA Weekly Crude Oil Inventories, the Federal Budget Balance are reported.  Finally, on Friday, we get September Retail Sales, September Import/Exports, August Business Inventories, Mich. Consumer Sentiment, and August Retail Inventories.

In earnings reports later this week, on Wednesday, PEP and WIT report.  Thursday, we hear from BLK, CMC, DAL, DPZ, FAST, INFY, PGR, TSM, and WBA.  Finally, on Friday, C, FRC, JPM, MS, PNC, USB, UNH, and WFC all report.

Markets seem very fragile amidst the global recession fears, new chip export to China bans (TSM was down 8% in Taiwan overnight), and the Russian War caused energy crisis (and OPEC’s support of Russia and higher oil prices through production cuts). With Inflation data coming both Wednesday (PPI) and Thursday (CPI) as well as Earnings Season kicking off again with Big Banks on Friday, it is hard to see a catalyst for any bullish turn other than a “hopium knee-jerk reaction” to some data point. So, the mood is glum and the market bias will remain bearish overall for at least the short-term.

With this backdrop, the premarket action seems pretty tame, down a half of a percent overall. (Again, perhaps because Mr. Market is waiting on another shoe to drop.) The market SPY and especially the QQQ are extended (to the downside) from their T-Lines, but the DIA remains within 1.3% in premarket and T2122 is oversold, but not extremely. So, a bounce is not set up technically. As has been true for quite a while, the one thing we know for sure this morning is that the strong bear trend is still in place and again that should be the main directional indicator we heed. The large-cap indices MAY find some support at their Dreaded-h pattern breakout levels. However, remember that level did nothing to help the QQQ bulls hold up.

Keep in mind that trading is our job. It’s not a hobby. So, treat it that way. Do the work and follow the process. Stick with your trading rules, trade with the trend, and take those profits when you have them. Demonstrate patience and wait for confirmation. Don’t be stubborn. If you have a loss, just admit you were wrong, respect your stop, and take the loss before it grows. When price does move in your direction, always move your stops in your favor (remember the “Legend of the man in the green bathrobe“…it is NOT HOUSE MONEY, it’s all OUR MONEY!). Lastly, remember that you get rich slowly and steadily in Trading…not by striking it rich on one or two trades. So, give up that lottery ticket mentality.

See you in the trading room.

Ed

Swing Trade Ideas for your consideration and watchlist: SRTY, MARA, WDC, MMM, QQQ, NFLX, DASH, RIVN. 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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