Markets opened flat and then roller-coastered their way sideways (slightly bearish in the large-cap indices and slightly bullish in the QQQ).  This lasted all the way to 1:30 pm.  However, then Fed Chair Powell strolled to the mic and confirmed that we may get a smaller rate hike later this month.  That was all the bulls needed to hear and the market took off like a rocket the rest of the day, closing very near the highs on all three major indices.  This action gave us Morning Star signals in the SPY, DIA, and what could be seen as one in the QQQ if you squint and relax your Doji standards.  All 3 also crossed above their T-lines as well as breaking out of their recent pullbacks.

On the day, all ten sectors were in the green.  The Energy sector (+1.03%) lagged and the Technology sector (+4.85%) led the market higher.  Meanwhile, the SPY was up 3.06%, the DIA was up 2.27%, and the QQQ was up a whopping 4.54%.  The VXX fell by 3.68% to 14.92 and T2122 shot up into the overbought territory again at 92.43.  10-year bond yields fell to 3.633% and Oil (WTI) is up 2.98% to $80.54 per barrel.  So, Wednesday was a wait-and-see day until Powell spoke and then a moonshot after he started talking.

In economic news, ADP Nonfarm Payrolls increased 127k jobs, which was far below the +200k forecasted and even further below the October value or +239k.  However, Q3 GDP came in above expectation at +2.9% (compared to the forecast of +2.7%) and at the same time Q3 GDP Price Index came in above expectation at +4.3% (compared to the forecasted +4.1%).  At the same time, Oct. Goods Trade Balance came in well below the expected value at -99 billion (compared to -90.20 forecasted and -92.22 billion in September).  Meanwhile, Oct. Retail Inventories were higher better than was expected at  -0.4% (versus the -0.2% forecasted, but worse than the Sept. drawdown of -0.9%).  Later, the Chicago PMI came in far below expectation at 37.2 (compared to 47.0 forecasted and 45.2 in October).  October JOLTs were slightly above average at 10.334 million (versus 10.300 million forecasted but better than the previous periods 10.687 million).  In addition, October Pending Home Sales fell 4.6% which was better than the forecasted -5.0% and much better than the September value of -8.7%.  Still, the most unexpected number of the day was a huge drawdown in EIA Weekly Crude Oil Inventories of 12.580 million barrels (compared to an expected drawdown of 2.758 million barrels).

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In stock news, JNJ sued AMGN for infringing two of JNJ’s patents related to JNJ’s Stelara (which accounts for $9.1 billion in annual sales for JNJ).  Elsewhere, GM announced that its robotaxi division (Cruise) will have thousands of vehicles in service in 2023.  This includes service in San Francisco CA, Phoenix AZ, and Austin TX as well as “a large number of other markets.”  Meanwhile, the CEO of BHP told a Reuters conference that he expects the Chinese economy to grow in 2023 and for at least the next 20 years.  (China accounts for 50% of the world’s demand for raw materials.)  In other news, LH and CRL stocks both fell Wednesday after the US Dept. of Justice indicted their primary supplier of natural health products (in Cambodia) and both said an alternative supplier will be difficult to find.  In acquisition news, Reuters reported that GE, LHX, and TXT are all competing to acquire AJRD (after a previous acquisition by LMT was killed by regulators last February).  At the same time, CTVA announced it has acquired unlisted Stoller for $1.2 billion in cash.

In miscellaneous news, as mentioned above, the main story of the day was that Fed Chair Powell confirmed that smaller rate hikes are ahead and could start as soon as this month.  However, he also said it will be quite some time before inflation starts to come under control and policy could begin to become less restrictive.  In addition, in what might have been a “clap back” to Elon Musk (who earlier had said the Fed must cut rates immediately to avoid a severe recession), Powell also said “the Fed won’t crash the economy with interest rate hikes.”  Later, in a separate speech, Fed Governor Cook echoed those same thoughts.

In supply chain news, in a bipartisan vote, the US House of Representatives voted 290-137 to block a rail strike and mandate that the railroads must provide paid sick time for rail workers (which was the main sticking point in negotiations).  The measure must still pass the Senate and be signed, but President Biden supports this legislation.  The first date a strike could happen would be December 9.  Railroads impacted include UNP, CSX, NSC, KSU, and BRKA’s rail unit BNSF.

After the close, CRM, PVH, SNPS, SPLK, FIVE, LZB, PSTG, OKTA, and SNOW all reported beats on both the revenue and earnings lines.  However, VSCO missed on revenue while beating on earnings.  It is worth noting that CRM, SNPS, PSTG, OKTA, and SNOW all raised their forward guidance.  At the same time, PVH and LZB both lowered their own guidance.

Overnight, Asian markets green across the board, taking their lead from the US but in a more muted move.  Shenzhen (+1.40%), Australia (+0.96%), and Japan (+0.92%) led the region higher.  Meanwhile, in Europe, we see a similar picture taking shape at midday.  The FTSE (+0.08%), DAX (+0.75%), and CAC (+0.18%) lead by volume as many of the smaller exchanges are up more than one percent in early afternoon trade.  As of 7:30 am, US Futures are pointing toward a start to the day just on the red side of flat.  The DIA implies a -0.16% open, the SPY is implying a -0.06% open, and the QQQ implies a -0.13% open at this hour.  10-year bond yields are falling again to 3.589% and Oil (WTI) is up another 1.3% to $81.60/barrel in early trading.

So far this morning, KR, TD, and GIII reported beats on both the top and bottom lines.  Meanwhile, DG, BMO, and CM beat on revenue while missing on earnings.  On the other side, PDCO missed on revenue while beating on earnings.  However, BIG and DBI both missed on the top and bottom lines. It is worth noting that KR raised its forward guidance in its report.

The major economic news events scheduled for Thursday include Oct. PCE Price Index, Oct. Personal Spending, and Weekly Initial Jobless Claims (all at 8:30 am), Nov. Mfg. PMI (9:45 am), Nov. ISM Mfg. PMI (10 am), and a Fed speaker (Bowman at 9:30 am).  The major earnings reports scheduled for the day include BMO, BIG, CM, DBI, DG, KR, PDCO, and TD before the open.  Then, after the close, MRVL, ULTA, and VEEV report. 

In economic news later this week, on Friday, we get Avg. Hourly Earnings, Nov. Nonfarm Payrolls, Nov. Unemployment Rate, and Nov. Participation Rate.  In earnings later this week, on Friday, we hear from CRBL and GCO.

In late-breaking news, China gave a hopeful signal to its own people and the rest of the global economy. The top Chinese Health Official said that its fight with covid-19 is entering a “new phase” as the Omicron variant becomes less deadly and vaccinations reaching more people. (Side note, the Chinese vaccines are ineffective against omicron, but whatever.) As a result “some infected people” in the most populated districts will be allowed to self-quarantine at home and “other easing” measures will follow. This would seem to be an attempt to placate the masses who publicly protested the “Zero Covid” policy and began calling for the end of President Xi. Regardless, if this does lead to easing, that will help bolster the Chinese GDP, global supply chains, and the global economic outlook (not to mention the profits of all the companies that sell into and are supplied from China).

With that background, it looks like markets want a breather after the frantic rally yesterday afternoon. This is a very normal thing and healthy for a rally. We also have more economic data coming this morning, including Jobless Claims, Personal Spending, and the PMIs. At this point, the DIA has taken out its near resistance and has room to run. However, the SPY and QQQ still have to deal with resistance levels from prior highs and lows as well as the long-term downtrend. So, be careful. A lot of buyer were “used up” in the rally and chase yesterday (which showed well above average volume for the first time in a long time) and it takes more than one day to get the broader public pouring back into the market. Also, note that we are extended both in terms of the T-line (8ema) and T2122. Just beware of buying into a pullback.

As always, be deliberate and disciplined…but don’t be stubborn. Remember it’s 100 times more important to avoid big mistakes than it is to pick big winners. 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: RIG, HD, NFLX, PANW, and NKE. 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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