Markets opened just on the green side of flat (up 0.06% in the SPY, down 0.15% in the DIA, and up 0.01% in the QQQ).  DIA then sold off for the first 30 minutes while the SPY and QQQ chopped sideways.  However, at 10 am, all three major indices started strong rallies that lasted until 12:30 pm before grinding sideways with a much lesser Bullish trend until 2:30 pm.  Then we saw another, shorter, strong rally before we saw strong profit taking the last 40 minutes of the day in all three.  This action gave us large white candles with wicks on both ends in the SPY and QQQ.  The DIA was more of a white-bodied Spinning Top candle that closed right at its T-line.  All three major index ETFs could be called Morning Star signals if you squint or are liberal with signal definitions.

On the day, nine of the 10 sectors were in the green with Basic Materials (+2.02%) and Energy (+1.96%) out in front pulling the rest of the market higher while Utilities (-0.36%) was the only sector in the red. At the same time, SPY gained 0.95%, QQQ gained 1.16%, and DIA gained 0.43%.  VXX plummeted 5.72% on the day to end at 32.49 and T2122 shot back up into the mid-range at 60.26. 10-year bond yields fell sharply to 3.601% while Oil (WTI) jumped 2.83% to end the day at $70.03 per barrel.  So, Thursday was the Bulls’ Day as optimism over the Debt Ceiling bill passage spread and economic data painted a picture that could be spun as bullish.  This all happened on average volume in the SPY and DIA while QQQ had less-than-average volume.  

In major economic news, the May ADP Nonfarm Employment Change saw a much higher than expected +278k jobs (compared to a forecast of +170k but still less than April’s +291k).  Shortly afterward, the Weekly Initial Jobless Claims came in just below the anticipated level at 232k (versus the forecast of 235k but slightly above the prior week’s 230k).  At the same time, Q1 Nonfarm Productivity (quarter-on-quarter) was not nearly as bad as feared at -2.1% (compared to the forecast of -2.7% but still much worse than the Q4 +1.7%).  Q1 (quarter-on-quarter) Unit Labor Costs were up but again far better than feared at +4.2% (versus a forecast of +6.3% while still a full percent higher than the Q4 number of +3.2%). All of the above tells us businesses are continuing to hire briskly and layoffs are slightly better than expected.  Meanwhile, the “wage inflation pressure” is falling sharply without as much loss in productivity as feared.  Later in the morning, May Manufacturing PMI was reported just shy of the anticipated level at 48.4 (compared to the 48.5 forecast but still lower than the April 50.2 reading).  Next the ISM May Mfg. PMI also came in just shy of expectations at 46.9 (versus the forecast of 47.0 and not far below the April value of 47.1).  At the same time, the May ISM Mfg. Price Index came in well below projections at 44.2 (compared to a forecast of 52.0 and far below the April 53.2 value).  Finally, EIA Weekly Crude Oil Inventories showed an unexpected build of 4.488 million barrels (versus a forecasted drawdown of 1.101-million-barrels and drastically different from the prior week’s 12.456-million-barrel drawdown).  All-in-all, we saw several pieces of news that can be read as decreasing inflationary pressures, while businesses continue to hire briskly and Manufacturing is not falling off a cliff.

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In Fed talk, Philly Fed President Harker spoke again Thursday.  He went even further than he had on Wednesday, telling the National Assn. for Business Economics, “It’s time to at least hit the stop button for one meeting and see how it goes,”.  Harker went on to say he sees promising signs that the Fed’s previous hikes are having a cooling effect, particularly on housing prices.  At the same time, he said uncertainty over inflation dynamics and the pace of credit tightening make him wary of continuing to raise rates until after the Fed’s prior hikes have been given more time to work.  Finally, he said he expects inflation to fall to 3.5% this year, expects GDP to grow about 1%, and sees unemployment growing to 4.4% by year end. 

In debt ceiling news, the Penn University Wharton school Budget Model Research Group said Thursday that the Republican claimed $1.3 trillion in spending cuts (over 10 years) may mostly evaporate.  Since no deal is binding on a future Congress, the Wharton group expects the same situation that happened after the 2011 debt ceiling deal when Congress simply increased spending again once the next election passed.  The study expects $1 trillion of the $1.3 trillion in cuts to simply evaporate after the 2024 election.  Elsewhere, Senate Majority Leader Schumer announced the Senate will stay in session this weekend until the debt ceiling increase is passed.  Both Schumer and Minority Leader McConnell vowed to do all they could to speed the bill to passage and onto the President’s desk.  However, several GOP Senators are pushing to have amendments allowed.  For example, the Republican caucus expected to offer several defense-related amendments alone.  GOP Senator Graham also threatened to tie up the bill “until Tuesday” (default) if he doesn’t get a guarantee a supplemental Defense Spending bill to follow. At the same time, GOP Senator Paul also threatened to stall the bill into default unless he can add an amendment calling for more spending cuts.  Democrats were not immune to the amendment desire either as Senator Kaine introduced one that removes approval for a Nat. Gas Pipeline across his state.  The odd Senate rules allow would also be problematic.  While it takes 60 votes to pass the bill, amendments can be added with only 50 votes.  Of course, any amendment at all would mean a passed bill would need to go back to the House for another vote before it can head to President Biden for signature.  At the end of the day, leaders Schumer and McConnell got tough with their caucuses because A) there was no time to screw around and go back to the House, and B) the Senate never works on Fridays or Weekends.  So, the bill passed unamended late last night on another bi-partisan vote of 63-36.

In stock news, on Thursday, GS warned that its trading revenue could fall 25% this quarter.  This echoes JPM’s May announcement it expects trading revenue to be down 15% for the quarter and the Wednesday MS warning that trading results will be “notably down.”  In a related story, the CEO of BAC announced that he expects trading revenue and investment banking fees to be roughly flat in Q2.  Elsewhere, META announced a new “mixed reality” headset for $499 ahead of AAPL’s expected unveiling of a headset next week.  At the same time, CNBC reported that MSFT has signed a deal to spend billions of dollars over multiple years with startup CoreWeave in order to provide infrastructure for the inclusion of ChatGPT in MSFT products.  Meanwhile, the CEO of LUV said late Thursday that he expects the industry-wide pilot shortage to last for three years. (LUV currently has 40 planes sitting idle because of the shortage while AAL has said they have 50 mainline jets and 150 regional planes idled by a lack of pilots.)  After the close, BA announced it is “standing down” (canceling) plans for a manned test flight into space of the company’s Starliner rocket.  The flight had been scheduled for July.  Also after the close, Reuters reported that NKLA is planning a reverse stock split in order to come into compliance with the Nasdaq requirement that shares be valued over $1.

In stock legal and regulatory news, the US Supreme Court ruled 9-0 in favor of WORK (a “direct listing” of CRM) throwing out a lower court decision and ordering the 9^th US Circuit Court of Appeals to reconsider the investor class action case over alleged fraudulent prospectus that had been filed against the company.  Elsewhere, GPS has settled (under undisclosed terms) a lawsuit filed by Patagonia Inc. claiming GPS had illegally copied a pocket design.  At the same time, EU Antitrust regulators announced they will decide by July 6 whether to clear the $1.7 billion AMZN acquisition of IRBT.  Back on this side of the pond, the US Medicare health plan announced it will limit reimbursement for Alzheimer’s drugs from ESAIY and BIIB to only cases where it was prescribed by doctors in the agency’s database.  (This will hinder drug sales to Medicare users.)  Meanwhile, the US Supreme Court dealt a blow to unions when it ruled 8-1 to make it easier for employers to sue over strikes that cause property damage.  (A concrete company’s union drivers went on strike while trucks were filled with concrete.  The concrete hardened and caused the company major expenses to remove the cement from the trucks and, of course, the loss of the concrete itself.)  In other news, F filed suit against Blue Cross Blue Shield, accusing the insurer of a price-fixing conspiracy that artificially inflated the automaker’s health insurance costs to cover its employees.

After the close, DELL, AVGO, LULU, and COO all reported beats on both the revenue and earnings lines.  Meanwhile, FIVE missed on revenue while beating on earnings.  Unfortunately, VMW missed on both the top and bottom lines.  It is worth noting that both AVGO and LULU raised their forward guidance.  The only major surprise was a 52% upside earnings shock from DELL (although it was still a 32% earnings decline).

Overnight, Asian markets were mostly (and in some cases strongly) green.  Hong Kong (+4.02%) was way out front, but Shenzhen (+1.50%), South Korea (+1.25%), Japan (+1.21%), and Taiwan (+1.18%) also dragged the rest of the region higher.  In Europe, we see a similar picture taking shape with only Russia (-0.48%) in the red at midday.  The CAC (+1.30%), DAX (+1.20%), and FTSE (+0.91%) lead on volumes as always but some of the smaller bourses have moved even more in early afternoon trade.  In the US, as of 7:30 am, Futures are pointing toward a gap higher to start the day.  The DIA implies a +0.56% open, the SPY is implying a +0.53% open, and the QQQ implies a +0.53% open on elation that the US will not default (which would have crashed the global economy).  At the same time, 10-year bond yields are slightly higher at 3.608% and Oil (WTI) is up 1.70% to $71.27 per barrel in early trading.

The major economic news events scheduled for Friday include May Avg. Hourly Earnings, May Nonfarm Payrolls, May Private Nonfarm Payrolls, May Participation Rate, and May Unemployment Rate (all at 8:30 am).  There are no major earnings reports scheduled for the day, either before the open or after the close.   

In miscellaneous news, the Fed reported after the close Thursday that Bank borrowing from its emergency lending programs fell again this week to $285.7 billion (from $288.7 billion the week prior.  This was also far below the peak of $343.7 billion borrowed the week of the SIVB collapse in March.  This decrease also helped the Fed’s Balance Sheet to decline $51 billion to $8.349 trillion last week.  Elsewhere, CNBC reports that early this morning WMT announced it is switching its e-commerce and customer pickup packaging to replace plastics with recyclable paper mailers and boxes.  At the same time, Bloomberg reports that major financial sector names are in a “talent arms race” where JPM is leading big banks in hiring AI-related talent (but most of the other usual suspects in that group are wearing out horses to catch up) and major hedge funds are spending millions of dollars in signing bonuses and offering larger cuts of trading profits to hire and retain top trading talent.

With that background, it looks like the Bulls are breaking all three major index ETFs up out of their recent trading ranges. The DIA is trading back above its T-line and arguing with a potential resistance level as is the QQQ at this hour, while SPY has a little more room to run before it contends with a potential level at highs not seen since mid-August of last year. However, there is some volatility in premarket action. Remember that traders are thrilled that default is off the table but there is still a lot of data coming at 8:30 am that may change the market outlook. So, traders remain apprehensive. Not that it matters this morning but SPY and DIA have no T-line extension problem as of now while the premarket move has QQQ getting a bit extended again. On the T2122 front, that indicator tells us we are in mid-range and have plenty of room to run (in either direction). Be prepared for volatility and remember that it’s Friday. So, pay yourself (take profits), move stops, and hedge yourself for the weekend. With all that said, the Bulls have the whip hand so far this morning.

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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