Wednesday started off with a Bearish gap (down 0.45% in the SPY, down 0.30% in the DIA, and down 0.48% in the QQQ).  The two large-cap index ETFs continued lower for the first hour, reaching the lows of the day at about 10:30 am before grinding sideways until about 1 pm.  At that point, the bulls led a rally back up to the opening level by 2 pm and then another sideways chop into the close.  Meanwhile, QQQ rallied the first 30 minutes of the day, fading the opening gap before the Bears stepped back in at 10 am.  The tech-heavy NASDAQ reached the lows of the day at about 11:30 am and then also ground sideways until 1 pm before rallying back to the opening level at about 1:35 pm. From there, we saw a much wavier sideways action all the way into the close.  This action gave us gap-down Doji candles in all three major indices.  The QQQ is still well above its T-line (8ema), while the SPY retested its T-line (from above) and held on the day.  The DIA retested its own T-line from below and remained below that level.. 

On the day, seven of the 10 sectors were in the red with Energy (-1.78%) way out in front pulling the rest of the market lower while Utilities (+0.72%) and Healthcare (+0.67%) held up better than the other sectors. At the same time, SPY lost 0.68%, QQQ lost 0.57%, and DIA lost 0.30%.  VXX fell 0.78% on the day to end at 34.46 and T2122 fell just into the oversold territory at 17.77. 10-year bond yields fell again to 3.645% while Oil (WTI) plummeted another 2% to end the day at $68.02 per barrel.  So, Wednesday was a bearish day as markets seemed to fear that the House won’t get the Debt Ceiling bill passed and that might give MAGA Senators the ability to stall the deal in the Senate past the deadline causing a debt default.  However, as the day progressed, House Democrats helped Speaker McCarthy get the bill to a floor vote last night.  So, traders were left unsure and that gave us an indecisive day on the Bearish side of neutral.  This all happened on average volume across the three major indices.  

In major economic news Wednesday, the May Chicago PMI came in well below what was expected at 40.4 (compared to a forecast of 47.0 and the April reading of 48.6).  This was the worst reading in six months and indicates there is a contraction in the Manufacturing sector in the Chicago region.  Later, the April JOLTs Job Openings number was higher than anticipated at 10.103 million (versus a forecast of 9.775 million and a March value of 9.745 million).  The new openings came mostly in Retail, Healthcare, Transportation, and Warehousing.  After the close, the API Weekly Crude Oil Stock Report showed a significant unexpected inventory build of 5.202-million-barrels (compared to a forecast of a drawdown of 1.220-million-barrels and a vast swing from the previous week’s 6.799-million-barrel drawdown).

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In Fed speak, early Wednesday Cleveland Fed President Mester (hawk, not a voter) told the Financial Times that (in her estimation) the FOMC does not have a “compelling reason” to pause on its interest rate hikes at the upcoming June Meeting.  A bit later, Fed Governor Bowman (hawk and voter) told a Boston audience that she thinks the rebounding residential housing market could impact how the Fed acts next in the inflation fight.  She said the Fed has been waiting on falling rents to have an impact on headline inflation numbers, but real estate prices have been rising.  However, she said that now home prices have been “leveling out recently, which has implications for our fight to lower inflation.” (She did not explain how or when it might impact decisions.)  On the other side, Philly Fed President Harker (borderline dove and voter) said he is in the pause camp.  He told an event Wednesday afternoon, “I think we can take a bit of a skip for a meeting,” … “I am definitely in the camp of thinking about skipping any increase at this (coming) meeting.”  Finally, Fed Governor Jefferson (hawk and voter) said, “A decision to hold our policy rate constant at a coming meeting should not be interpreted to mean that we have reached the peak rate for this cycle,” which has been taken as hawk approval of a pause. 

In stock news, INTC’s CFO relieved some market fear over sales as he told an investor conference that he sees Q2 Revenue tracking at the upper end of previous guidance. (The fear came from the fact INTC has no AI products and is not participating in the recent AI-chip craze.)  Later, WMT announced shareholders had sided with the CEO and defeated all nine investor-proposed proposals (including revealing China risk exposure, conducting an independent safety review, and disclosing company political contributions).   Elsewhere, TSLA has begun shipping its cars to customers with only a 50% charge (and also giving the customer TSLA Supercharging credits) as a safety measure.   At the same time, the CEO of F said that his company’s cost to produce electric vehicles may not drop to match its cost to produce gasoline vehicles until 2030.  (Analysts had been projecting cost parity by 2025.)  At the close, DOW announced it is cutting its Q2 revenue forecast while citing slower macroeconomic growth (specifically noting weaker Chinese demand) and weaker market prices.  After the close, Reuters reported more than 100 AMZN corporate employees walked off the job in protest of the company’s “return to office” and climate policy changes on Wednesday afternoon.  (This work stoppage only happened in Seattle, but more than 1,900 AMZN employees globally have pledged to protest over those issues.)  Also in after-hours news, LCID announced it has raised $3 billion through a new equity offering (the majority bought by the Saudi Sovereign Wealth Fund).  Finally, the Biden Administration has agreed to let GE build jet engines for Indian military aircraft.  (The agreement will be announced during President Biden’s June 22 visit to India.)

In stock legal and regulatory news, CHWY won a US Appeals Court case, invalidating the company’s 2019 $13,000 fine related to workplace safety after the death of an employee.  The ruling said, “The retail industry as a whole lacked notice of the engineering reconfiguration requirements that OSHA now alleges are mandatory”.  Later, AMZN agreed to pay the FTC $25 million to settle allegations it has violated children’s privacy rights by having the Alexa voice assistant constantly monitoring conversations.  In a separate case, the AMZN agreed to pay the FTC $5.8 million for violating privacy by having its Ring Doorbell system include cameras that were placed in the bedrooms and bathrooms of female customers in 2017 (again, constantly recording and sending data to the company).  Meanwhile, META threatened to remove all “news” content from the view of users in the state of CA. This came in reaction to a CA state bill that would require online platforms to pay news publishers a usage fee for republishing their news stories (the same issue that has been faced in Australia, Canada, and Europe).  Elsewhere, BA said it is taking a “considerable amount of time” to get FAA approval of the company’s 737 MAX 7 and 10 planes.  The company spokesman went on to say they “hope” the 737 MAX 7 will still be certified by the end of this year and 737 MAX 10 certification is projected still to be sometime in 2024.  (LUV has already pushed back plans to have the 737 MAX 7 in service into 2024 after initially having it scheduled to be in service this summer.)  After the close, the NHTSA announced that F has recalled 142,000 2015-2019 Lincoln SUVs over fire risk.  At the same time, a new trial over JNJ talc asbestos claims began in CA.  This overrides the company’s attempt to settle claims and avoid liability via the “Texas Two-Step Bankruptcy” of a subsidiary.

In debt ceiling news, the Congressional Budget Office (nonpartisan) announced late Tuesday that the new work requirements the GOP had said would save money, would actually cost money because the agreement exempted veterans and the homeless.  This complicated things on the GOP side, reducing what they can claim when talking to their supporters. Later, 52 House Democrats crossed the aisle to vote with the majority of GOP members in a procedural vote which allowed a final floor vote.  Then last night, after hours of tedious posturing speeches, the House did pass the bill 314-117 with the support of 165 Democrats and 149 Republicans (bipartisan support).  After this vote was finalized, late last night Senate Majority Schumer stood in a virtually empty Senate chamber to place the bill on the calendar for today.  Senate leaders of both parties hope to see the bill passed within 48 hours.  However, the Senate rules make it easy for a single Senator to grind the process to a halt.  And, at least two Senators (Lee and Rand) have publicly said they want to see the bill stopped.  So, the solution seems to be progressing.  However, it’s not quite a done deal yet.

After the close, CRM, JWN, CHWY, PVH, NTAP, PSTG, VEEV, CRWD, and OKTA all reported beats on both the revenue and earnings lines.  Meanwhile, NGL and VSCO both missed on both the top and bottom lines.  CRM, VEEV, and OKTA all raised their forward guidance while VSCO lowered its guidance.

Overnight, Asian markets were mixed.  New Zealand (+0.87%) and Japan (+0.84%) were by far the largest gainers.  Meanwhile, Thailand (-0.79%) was by far the biggest loser on the day.  In Europe, the bourses are green across the board at midday.  The DAX (+1.11%), CAC (+0.67%), and FTSE (+0.39%) are leading the region higher in early afternoon trade.  In the US, as of 7:30 am, Futures are pointing toward a start to the day just on the green side of flat.  The DIA implies a +0.03% open, the SPY is implying a +0.24% open, and the QQQ implies a +0.20% open at this hour.  At the same time, 10-year bond yields have risen to 3.664% and Oil (WTI) is down another seven-tenths of a percent to $67.63 per barrel in early trading.t.  

The major economic news events scheduled for Thursday include ADP May Nonfarm Employment Change (8:15 am), Weekly Initial Jobless Claims, Q1 Nonfarm Productivity, and Q1 Unit Labor Costs (all three at 8:30 am), May Manufacturing PMI (9:45 am), ISM May Mfg. PMI (10 am), EIA Crude Oil Inventories (11 am), Fed Balance Sheet, and Bank Balances with the Fed (both at 4:30 pm).  We also get a Fed speaker (Harker at 1 pm).  The major earnings reports scheduled for the day are limited to BILI, DOOO, CAL, DG, HRL, M, and SPTN before the open. Then after the close, AVGO, COO, DELL, FIVE, and LULU report. 

In economic news later this week, on Friday, we get May Avg. Hourly Earnings, May Nonfarm Payrolls, May Private Nonfarm Payrolls, May Participation Rate, and May Unemployment Rate.  In terms of earnings reports later this week, there are no major reports scheduled for Friday.

In miscellaneous news, DB released a study Wednesday saying a wave of bank loan defaults is imminent in the US and Europe.  The study expects the peak of defaults to be in Q4 of 2024 and cites the “fastest monetary tightening cycle in 15 years” as the primary cause.  With that said, the study said default risks are higher in the US than in Europe and it estimates an 11.3% peak default rate for loans in the US.  In a related story, the FDIC said Wednesday that it has added four lenders to its confidential list of “problem banks,” increasing the number on the list to 43.  Elsewhere, after all the Fed speak on Wednesday, traders dramatically shifted the probabilities (based on Fed Fund Futures) of a rate hike at the upcoming June 14 Meeting.  The Fedwatch Tool tells us this morning 72% of traders expect no rate change with 28% still expecting another quarter-point hike.

So far this morning, M, DOOO, and BILI all reported beats on both the revenue and earnings lines.  Meanwhile, HRL, SPTN, and CAL all reported misses on revenue but beat on the earnings lines.  Unfortunately, DG missed on both the top and bottom lines.  So far, there have been no changes made to guidance.  In terms of surprises, M gave us the only significant shock with a 22% upside surprise on earnings (even though that number also represented a 48% earnings decline).

With that background, it looks like the market is still undecided this morning, giving us a premarket candle inside Wednesday’s candle at this point. The DIA seems to want to retest its T-line from below while the QQQ may be thinking about working on a J-hook pattern. For its part, the SPY is just treading water this morning. Perhaps traders are waiting on all the data to come later this morning. The QQQ is a little closer to its T-line than it has been but remains the most extended of the three major index ETFs. Meanwhile, the T2122 indicator is now just inside the oversold territory. Just remember, the economic data is likely to revive talk about whether the Fed will hike rates again in two weeks and news out of the Senate (related to stalling the Debt Ceiling bill) may throw a wet blanket on the Bulls. So, be cautious and ready for volatility.

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

🎯 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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