On Wednesday, markets gapped down (SPY gapped down 0.22%, DIA gapped down 0.25%, and QQQ gapped down 0.37%).  From that point, both of the large-cap index ETFs meandered sideways with DIA actually fairing better than the SPY but neither of them ended up far from their open.  At the same time, QQQ sold off hard after its gap lower, finding the lows of the day at about 11:25 am.  Then it very slowly and modestly rallied until about 2:30 pm before selling off again into the close.  This left all three of the major index ETFs below their T-line (8ema) at the end of the day.  This action gave us a black-bodied, large-body Spinning Top in the SPY.  For their part, DIA printed a Doji and QQQ gave us a large black-bodied candle that completed a Doji Continuation Pattern (Sandwich).

On the day, five of the 10 sectors were in the red as Technology (-1.53%) by far led the way lower and Energy (+1.20%) by far held up much better than the other sectors.  At the same time, SPY lost 0.51%, DIA lost 0.30%, and QQQ lost 1.36%.  The VXX was down 2.05% to 26.79 and T2122 climbed but remains in mid-range at 70.83.  10-year bond yields ended up unchanged at 3.727% while Oil (WTI) rose 1.66% to close at $72.37 per barrel.  So, it was the second lower-low and third lower close across all three of the major index ETFs.  This all happened on average volume in the QQQ and well-below-average volume in the DIA and SPY. 

In major economic news on Wednesday, came after the close as API Weekly Crude Oil Stocks were reported as a larger inventory drawdown than was expected.  They came in at -1.246-million-barrels compared to a forecast of -0.433-million-barrels and the prior week’s +1.024-million-barrel increase in stocks.  The big economic news was the testimony of FOMC Chairman Powell.  Powell told the House that the fight to get inflation back down to two percent “has a long way to go.”  (Hinting at two additional hikes possible this year, just as he said two weeks ago. By saying a half point of rate increases by year-end was “a pretty good guess.”)  He also said, “We have been seeing the effects of our policy tightening on demand in the most interest-rate–sensitive sectors of the economy such as housing, (but) It will take time, however, for the full effects of monetary restraint to be realized.”  GOP members of the committee pressed Powell on bank capital requirements.  However, he refused to be pressed into telling them Fed plans, saying “Strong capital requirements mean we have a stronger banking system…yet we also know that at the margin, as the costs of capital for banks goes up, the costs of credit goes up,” … “You just have to make a judgment call on that, and that’s what we’ll be doing.” 

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In other Fed speak news, Chicago Fed President Goolsbee told an economic forum that (the June 7 decision to not hike rates) was a close call for him.  However, he said “I felt like a reconnaissance mission is a perfectly appropriate thing to do after you’ve had 10 raises in a row, among the fastest increases in interest rates in recent memory,” … “You know that it takes some time for that to work its way through the economy.”  Goolsbee went on to say (related to a July hike) he had not “decided what should be the rate decision more than a month from now.”  Meanwhile, Atlanta Fed President Bostic echoed Goolsbee’s sentiment about a pause.  In an article published Wednesday he said “If we simply press on with additional rate hikes, we could needlessly drain too much momentum from the economy.”  In addition, Bostic wrote “While the clearest risk of pausing rate hikes is that it allows inflation the opportunity to rekindle, it isn’t his baseline forecast.”  Bostic went even further later in a Yahoo Finance interview when he said, “My baseline is that we should stay at this level for the rest of the year.”

In stock news, AJRD announced they were selected to develop the propulsion system for missiles, which LMT was recently given a $4.4 billion US Army contract to build.  (No value to the AJRD selection was given.)  Elsewhere, MULN shares jumped after the company announced it will not be seeking additional investor financing for at least the balance of 2023, saying it has sufficient cash on hand for the next 12 months.  Later, UBER announced it is eliminating 200 jobs (< 1% of the workforce) from its recruitment division after it decided to keep its staff count flat for the remainder of 2023.  Meanwhile, Reuters reported that INTC is reorganizing its manufacturing business to work like an independent entity.  No clear timeline for the reorganization was given, but INTC did say that the unit will begin reporting margins and they expect their foundries to be the second largest in the world with more than $20 billion in revenue in 2024.  (However, this is not really a close second with TSM expecting to bring in $85 billion in 2024.)  After the close, Bloomberg reported that SES and INTEQ have ended negotiations for a potential merger after the major stakeholders reached an impasse.  At the same time, the Wall Street Journal reports that PARA has received an offer to buy its Simon & Schuster unit.  (No price was reported.)  In addition, LOGI announced a new $1 billion share buyback program after the close.

In stock legal and regulatory news, the FTS sued AMZN in a Washington state Federal court for violating consumer protection laws.  The suit claims AMZN knowingly duped millions of consumers into enrolling in Amazon Prime and then made it very difficult to cancel the subscription service.  Elsewhere, a Delaware federal court hit GOOGL with a $15.1 million verdict for infringing two audio software patents, which was less than half of the $33.1 million in damages requested.  At about the same time, LLY announced that its diabetes treatment Jardiance had received FDA approval for patients aged 10 and up.  Later, it was “another day, another Pharma entity suing to stop Medicare negotiation of drug prices.”  This time, industry lobbying group PhRMA filed suit in a TX federal court seeking to block the government from negotiating on price.  (It is worth noting, the US pays 2.4 times higher prices than the average of other Western countries.)

After the close, KBH, and SCS reported beats on both the revenue and earnings lines.  Meanwhile, ASTL reported misses on both lines.  It should be noted that KBH also raised its forward guidance.  The major surprises included a HUGE 1500% downside surprise in ASTL earnings, a 400% upside surprise on earnings by SCS, and a 52% KBH upside earnings surprise on a 27% revenue upside surprise.

Overnight, Chinese markets were closed for a holiday.  However, Australia (-1.63%) and Japan (-0.92%) led the parts of the region (that did open) lower.  Only South Korea (+0.43%) managed moderate gains on the day.  Meanwhile, in Europe, we see red across the board at midday after the Bank of England surprised with an unexpected half of a percent rate hike.  The CAC (-1.41%), DAX (-0.81%), and FTSE (-1.13%) are leading Europe lower in early afternoon trade.  In the US, as of 7:30 am, Futures are pointing toward a down start to the day.  The DIA implies a -0.33% open, the SPY is implying a -0.31% open, and the QQQ implies a -0.40% open at this hour.  At the same time, 10-year bond yields are up to 3.744% and Oil (WTI) is down sharply to $70.90 per barrel in early trading

The major economic news events scheduled for Thursday are limited to Weekly Initial Jobless Claims and Q1 Current Account (8:30 am), May Existing Home Sales (10 am), and four Fed Speakers (Waller at 4 am, Bowman at 9:55 am, Mester at 10 am and Chair Powell testifies again at 10 am).  The only major earnings reports scheduled for Wednesday include ACN, CMC, DRI, FDS, and GMS before the open.  There are no major reports scheduled for after the close.     

In economic news later this week, on Friday, Manufacturing PMI, Services PMI, and S&P Global Composite PMI are reported while we hear from three Fed speakers (Bullard, Bostic, and Mester).

In terms of earnings reports, on Friday, we hear from KMX.

In miscellaneous news, after the close, Bloomberg reported that total US short interest has reached more than $1 trillion.  This makes the current short bets the largest since April 2022, even as the paper losses of the shorts now exceed $101 billion.  Stocks at the top of that list include the highest fliers (TSLA, AAPL, MSFT, NVDA, etc.).  Other things on the docket today include a meeting between Indian PM Modi and President Biden (at which several trade deals are expected to be announced) with AAPL CEO Cook, TSLA CEO Musk, and others like GE, HII, AMAT, and others on hand for the day’s events.

So far this morning, ACN, CMC, GMS, and FDS have all reported beats on both the revenue and earnings lines.  Meanwhile, DRI missed on revenue while beating on earnings.  Only ACN has changed guidance, lowering its outlook for the future.  The only surprises of note were a 10% upside earnings surprise for CMC and an 11% upside earnings surprise from GMS.

With that background, it looks like the Bears are trying to follow through on the three consecutive lower closes with a modest gap lower this morning. However, the candles the three major index ETFs have printed so far in this premarket are small, indecisive Dojis. So, it looks like the move is uncertain. With that said, the very short-term trend is down with all three of the major indices below their T-line on a daily chart. Meanwhile, the longer-term trend remains Bullish (Weekly chart). In terms of over-extension, none of the major index ETFs are far from their T-line and the T2122 indicator remains in its mid-range. So, both the Bulls and the Bears have room to run if they can gain the upper hand. While it is less likely any real bombshells will come from the second day of Chair Powell’s testimony, it is possible sentiment could be swung. At this point (before his testimony), markets have priced in a 76.9% probability of another quarter-point hike in July.

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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