On Tuesday, stocks started the year off with a bull trap head-fake as the major indices all gapped higher (SPY gapping 0.54% higher, DIA gapping 0.33% higher, and QQQ gapping 0.91% higher) and then following through to the upside for 10-15 minutes.  However, as I said, this was a bull trap that was met with a selloff that lasted until 12:50 pm when we hit the lows of the day.  From that point, stocks have churned to the side in a fairly tight range before a minor rally in the last 90 minutes.  This action gave us black-bodied candles with wicks on both ends that gapped up to open above the T-line and then crossed back down.  The SPY, DIA, and QQQ all ended as Dark Cloud Cover signals but not ideal ones with the lower wicks in place.

On the day, seven of the ten sectors were in the red with the Energy sector (-4.23%) way out front leading the way lower as the Communication Services sector (+0.91%) held up best.  Meanwhile, the SPY was down 0.42%, the DIA was down 0.03%, and the QQQ was down 0.68%.  This took place on lower-than-average volume, with the QQQ notably lower than the two large-cap indices.  At the same time, the VXX was down just less than 1% to 13.99 and T2122 fell but still remains in the mid-range at 40.70.  10-year bond yields fell to 3.767% and Oil (WTI) was down 3.84% to $77.21 per barrel.  So, overall, it was a “gap and crap” bull trap day to start the year off by staying in the consolidation of the last 2+ weeks.

In economic news, December Mfg. PMI came in exactly as expected at 46.2 (which was down from the November value of 47.7).  Elsewhere, US construction spending in November unexpectedly rebounded, climbing 0.2% and lifted by nonresidential structures.  (Forecasts had expected a decrease of 0.4%.) Single-family homebuilding still fell for the month despite the overall increase.

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In stock news, LUV has been sued for not providing refunds to all the passengers left stranded by the more than 15,000 flights it canceled around Christmas.  (Instead of a refund, LUV gave people impacted 25,000 airline points.) In a letter to the CEO of LUV, US Sec. of Transportation Buttigieg had said last week that the law requires refunds unless the passengers accept rebookings.  At the same time, NVDA has announced a partnership with Taiwanese contract manufacturer Foxconn to make “electronic control units” for use in self-driving vehicles.  Elsewhere, a small portion of MSFT employees (video game testers at the subsidiary Zenimax Studios) have voted to form the first union among the tech giant’s workforce.  MSFT released a statement saying they would avoid a formal election process overseen by the NLRB by voluntarily recognizing the union after the overwhelming vote by the 300 employees.  Late in the day, the state of Kentucky warned C, JPM, and BLK of potential divestment from those stocks over those companies’ refusal to finance projects of fossil-fuel energy companies.  After the close, South Korea fined TSLA $2.2 million for misleading customers about the driving range of its vehicles in lower temperatures. (Cold weather can cut the range of TSLA vehicles by up to 51%.)  Finally, also after the close, AMZN said it has reached an agreement with unspecified lenders for an $8 billion unsecured loan (which is odd, considering they have 35 billion in cash and cash equivalents on hand).

In miscellaneous news, the FBI arrested two Washington state men in connection with Christmas Day attacks on electric substations in the Tacoma area.  (It was not reported whether the attack in Washington was linked to the North Carolina and South Carolina substation attacks earlier in December.)  Elsewhere, NYMEX front-month Natural Gas futures broke below $4/mmBtu, down 11% on the day.  This brought natty down 40% from the best December price and down 60% from the August high.  In Britain, UK rail workers went on strike Tuesday and will continue their strike for a week.  Later in the month, both ambulance drivers and nurses announced they will strike as well. Finally, TSLA got hammered again Tuesday, closing down 12.24%, which was actually 3.5% better than its low for the day.

In government news, after failing to elect a new Speaker of the House during the first three rounds of voting, Republicans adjourned the House for the day.  It appears that 20 extreme GOP members have dug in with their opposition to presumptive Speaker McCarthy and his supporters are not backing down either.  This is the first multi-ballot vote for Speaker of the House in 100 years (and only the second such situation since before the Civil War). The House will reassemble and resume voting for a Speaker again at noon eastern.

Overnight, Asian markets were mixed with Hong Kong (+3.22%) shooting higher on the backs of BIDU and BABA Hong Kong shares after Ant Group was given permission to expand into consumer finance.  South Korea (+1.68%), Australia (+1.63%), and New Zealand (+1.00%) rounded out the leaders.  On the other side, Japan (-1.45%) and India (-1.04%) paced the losses.  Meanwhile, in Europe, the exchanges are mostly green at midday.  The FTSE (+0.65%) lags, with the DAX (+1.64%) and CAC (+1.74%) leading the region higher.  There are only a couple of exchanges in the red, chiefly led by Norway (-1.24%) in early afternoon trade.  As of 7:30 am, US Futures are pointing toward another green start to the session.  The DIA implies a +0.21% open, the SPY is implying a +0.26% open, and the QQQ implies a +0.43% open at this hour.  At the same time, 10-year bond yields are plunging this morning to 3.681% and Oil (WTI) is off another 2.90% to $74.72/barrel.

The major economic news events scheduled for Wednesday include December ISM Mfg. PMI, Nov. JOLTs Job Openings (both at 10 am), FOMC Meeting Minutes (2 pm), and API Weekly Crude Oil Stock (4:30 pm).  The major earnings reports scheduled for the day are limited to UNF before the opening bell.  There are no major earnings reports scheduled for after the close.

In economic news later in the week, on Thursday, Dec. ADP Nonfarm Employment Change, Weekly Initial Jobless Claims, Nov. Trade Balance, Dec. Global Composite PMI, Dec. Services PMI, and EIA Weekly Crude Oil Inventories are reported.  Finally, Friday, we get Dec. Avg. Hourly Earnings, Dec. Nonfarm Payrolls, Dec. Participation Rate, Dec, Unemployment Rate, Nov. Factory Orders, and Dec. ISM Non-Mfg. PMI.

This is another very light week for earnings as on Thursday we get reports from CAG, STZ, HELE, LW, MSM, RPM, SCHN, and WBA.  Finally, on Friday, GBX reports.

In late-breaking news, Bloomberg reports China is pausing its massive investments into creating its own semiconductor industry meant to compete with the US.  Beijing will instead focus efforts on pumping liquidity into the property sector as a massive wave of Covid is pressuring the housing system.  Meanwhile, in the US, mortgage demand fell 13.2% last week compared to two weeks earlier.  This came as 30-year fixed-rate mortgages increased from 6.34% to 6.58% (nearly double the 3.33% that ended 2021).

With that background, it looks like all three major indices are trying to gap up to retest their T-line (8ema) this morning. Just remember yesterday’s “gap and crap” before you go chasing the move. At least at the open, all three look like they will still be in that consolidation that has been holding as we have chopped around the last two weeks. So, be careful about getting too bullish too soon. Sitting on your hands is not the worst idea ever. However, if you trade, continue to either be very nimble or prepared to wait out any short-term pressure your position might face. The volumes are likely to pick up this week after the holidays but don’t be surprised if the big money eases back into the market slowly. (Remember, the big money does not chase. They buy strictly in a price band and will wait for the price to come back to them.)

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: TEVA, VZ, SH, CLF, QID, and AUPH. 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.

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🎯 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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