On Friday, it was all Bears, all the time in the stock market on a triple-witching day.  The SPY gapped down 0.73%, DIA gapped down 0.49%, and QQQ gapped down 0.37%.  However, that was just the start.  All three major index ETFs continued to sell off until 1:35 p.m.  After that, all three ground sideways, along the lows and in a tight range, the rest of the day.  This action gave us gap-down, large, black candles in all three major index ETFs.  The SPY, DIA, and QQQ all crossed down and closed back below their T-line (8ema) and 50sma.  This happened on above-average volume in the SPY and just below-average volume in the DIA and QQQ.

On the day, all 10 sectors were in the red with Technology (-1.60%) out in front leading the rest of the market lower, while Utilities (-0.36%) held up better than other sectors.  At the same time, the SPY lost 1.55%, DIA lost 1.09%, and QQQ lost 1.71%. VXX shot 3.87% higher to close at 20.68 and T2122 fell back to the mid-range at 42.36.  10-year bond yields rose again to close at 4.336% while Oil (WTI) rose another 1.15% to end the day at $91.20 per barrel.  So, the Bears ended the week showing some strength.  At the same time, we should realize just like Thursday closed just below a potential level of resistance, Friday closed just above a level of potential support.

The major economic news reported Friday included the August Export Price Index (covering items sold), which came in much higher than expected at +1.3% (compared to a forecast of +0.4% and a July reading of +0.5%).  Interestingly, the August Import Price Index (covering inputs or products bought) rose only +0.5% (versus a forecast of +0.3% and a July value of +0.1%).  At the same time, the NY Fed Empire State Mfg. Index coming in far above predicted (but still weak), at +1.90 (compared to a forecast of -10.00 and very far above the August reading of -19.00).  Later, August Industrial Production (month-on-month) was reported stronger than anticipated at +0.4% (versus a forecast of +0.1% but well below the July reading of +0.7%).  On an annual basis, the August Industrial Production (year-on-year) was +0.25%, compared to a July value of -0.04%.  At mid-morning, Michigan Consumer Sentiment was reported below expected at 67.7 (versus a forecast of 69.1 and a previous reading of 69.5).  At the same time, Michigan Consumer Expectations came in slightly above predicted at 66.3 (compared to a forecast of 66.0 and a prior value of 65.5).  In addition, the Michigan Consumer 1-year Inflation Expectation was DOWN significantly to 3.1% (versus a forecast and previous reading of 3.5%).  The same was true for the Michigan Consumer 5-year Inflation Expectations, which came in a 2.7% (compared to a forecast and prior reading of 3.0%).

In stock news, on Friday, PLNT shares plunged as the board ousted its CEO.  At the same time, Auto industry analysts reported Friday that for 2023 China’s new car sales are expected to be 25% electric, up from only 4% five years ago.  This has helped TSLA and Chinese EV-makers like BYDDY.  (It is worth noting that Chinese automakers traditionally have a 5% profit margin but that has been compressed to 3% in the last 3 years.  Regardless, the low margins typically make them by far the least expensive options for Chinese buyers.)  However, this large adoption of EVs poses a major issue for F and GM.  With no major existing EV offerings in China, those companies are seeing serious market share erosion.  Elsewhere, a day after it was reported NXST is in talks with DIS about purchasing the Mouse House’s ABC, FX, and Nat. Geographic units, media mogul Byron Allen made his own $10 billion bid to buy those units.  At the same time, the CEO of NSC made the media rounds Friday in continuing attempts to recover public reputation following the February derailment and contamination event in East Palestine OH.  The CEO pledged the railroad is going to enhance safety across its network, implementing recommendations from external consultants the company hired to evaluate its rail operations.  The PR blitz included providing that small Ohio town a $4.3 million new water treatment plant after tests have had residents using bottled water since February.  Later, VLO announced it had authorized a $2.5 billion share repurchase plan with no expiration date.

In stock government, legal, and regulatory news, AAPL moved to soothe the concerns of the French and Belgian governments (who took action against the iPhone Model 12 over excessive radiation levels).  AAPL said it will release a software update that will reduce the radiation to acceptable levels.  Later, EU antitrust regulators announced they had set an October 19 deadline for a decision on allowing or blocking the PFE $43 billion acquisition of SGEN.  Elsewhere, the FBI leaked (and later the hackers confirmed) that “Scattered Spider” (a sub-group of the ALPHV ransomware gang) is responsible for the cyber-attack that has crippled MGM for almost a week.  (ATMs, slot machines, room keys, and many other electronic systems have been paralyzed at MGM hotels and casinos.)  This is the same group suspected to have attacked (and been paid a $15 million ransom) by CZR recently.  However, Scattered Spider has made no claim of responsibility for that attack.  Later, the FAA reduced minimum flight requirements at NYC airports through October 2024 to give airlines another year (after already having been given a six-month grace period).  This grace period will help DAL and JBLU the most as they had been the ones unable to meet the requirements and at risk of losing gates and landing slots.  However, the added leeway may give other airlines additional scheduling flexibility as well.  Later, the state of CA filed suit against XOM, CVX, SHEL, BP, COP, and the industry trade group American Petroleum Institute. The suit accuses the firms of causing tens of billions of dollars in damage to the state (environment and climate-related disasters which cost the state untold sums).  The suit also accuses the defendants of deceiving the public about the dangers of fossil fuels for decades. Reuters reported that the only response from defendants, so far, is that the courtroom, and in particular a state jurisdiction courtroom, is not the right venue to address climate change.

In Autoworker contract talks and strike news, unless you’ve been hiding under a rock, you know the UAW began a “targeted strike” after the previous labor contract expired at midnight Thursday night. As of that time 12,000 of the union’s 146,000 workers (8%) went on strike at one plant each of the Big 3 automakers.  Late Friday, GM increased its offer to a 20% pay increase over 4 years and STLA boosted its offer to a 19.5% over the length of the next contract.  So far, the impacts on F, GM, and STLA have not been heavy.  Still, F laid off 600 of its non-striking workers at one plant because of a parts shortage caused by the strike.  GM told 2,000 workers at a KS plant it will likely shut this week due to a lack of parts from its striking plant.  The good news for the three stocks (and companies) is that they have been preparing for the strike for a year.  All three have huge lots filled with complete or nearly completed vehicles as well as substantial component stockpiles.  (That was a heavy lift for an industry that long ago went to just-in-time and demand-pull inventory models.)  So, the top industry analysts expect GM, F, and STLA to not have large-scale finished product or component shortages as long as the strike does not last months.  Meanwhile, the UAW has about $827 million in its “strike fund.”  Depending on how many of its 146k workers are on strike or laid off, that could be a big enough war chest to last quite a while.  If all 146k were striking, that would be 11 weeks of pay coverage.

Despite the strike, negotiations, never really stopped.  Over the weekend, on Saturday, STLA increased its offer to a 21% wage hike (10% immediate, the rest over four years), some inflation protection, and a partial end to wage tiers.  The UAW immediately rejected that offer saying that the Big 3’s executive pay has increased more than 40% in the last 4 years.  As an aside, the CEO pay of the Big 3 has all increased about 40% over the life of the last UAW contract.  (Other executive pay was not easily found.) All three CEOs now make 360-370 times as much as the most experienced UAW members.  For reference, a starting autoworker (lowest tier) for the Big 3 makes an average of just under $18/hour.  However, “temp workers,” which all three companies use but STLA in particular uses extensively, make just $15/hour.  That “temp worker” rate has not changed in 14 years.  At the experienced end of the spectrum, UAW members make $32.30/hour.  Back to the main topic. On Sunday, the UAW said the obvious that the number of plants under strike may expand.  At about the same time, the White House said it will be sending a team of negotiators to Detroit to help the sides reach a deal to end the strike.

After the close, mixed but leaned toward the red side.  Hong Kong (-1.39%), Taiwan (-1.32%), and South Korea (-1.02%) paced the losses while Japan (+1.10%) was by far the biggest gainer.  However, in Europe, we see red across the board at midday.  The CAC (-1.03%), DAX (-0.61%), and FTSE (-0.35%) are typical of the range and lead the region lower on volume in early afternoon trade.  In the US, as of 7:30 a.m., Futures are pointing toward a start to the day just on the green side of flat.  The DIA implies a +0.09% open, the SPY is implying a +0.06% open, and the QQQ implies a -0.01% open at this hour.  At the same time, 10-year bond yields are up to 4.343% and Oil (WTI) is up three-quarters of a percent in early trading.

The major economic news scheduled for Monday is limited to July TIC Net Long-Term Transaction (4 p.m.).  There are no major earnings reports scheduled for either before the open or after the close.

In economic news later this week, on Tuesday Preliminary August Building Permits, August Housing Starts, and API Weekly Crude Oil Stocks are reported.  Wednesday, we get EIA Weekly Crude Oil Inventories, FOMC Rate Decision, FOMC Statement, FOMC Q3 Interest Rate Projection, Q3 1st Year Interest Rate Projection, Q3 2nd Year Interest Rate Projection, Q3 3rd Year Interest Rate Projection, Q3 Long-Term Interest Rate Projection, and the Fed Chair Press Conference.  On Thursday, Q2 Current Account, Weekly Jobless Claims, Philly Fed Mfg. Index, Philly Fed Mfg. Employment, August Existing Home Sales, and Fed Balance Sheet.  Finally, on Friday, S&P US Mfg. PMI, S&P U Services PMI, and S&P Global Composite PMI are reported.

In terms of earnings reports later this week, on Tuesday we hear from AZO and SCS.  Then Wednesday, GIS, FDX, and KBH report.  On Thursday, we hear from DRI and FDS.  Finally, on Friday, there are no major earnings reports scheduled.

In miscellaneous news, US oil prices hit the high of the year on Friday on what oil analysts say was China recovery optimism and tight supply (mostly from Russian and Saudi extended production cuts).  Elsewhere, Employment industry firm Challenger, Gray & Christmas told Reuters on Friday that their surveys of retailers have led them to predict the industry will high the fewest seasonal workers since 2008.  CG&C estimate the industry will hire 410k seasonal workers, compared to more than 519k in 2022 (and that itself was a 26% decline from 2021).  Finally, late Sunday night, House Republicans announced they have reached a deal on a continuing resolution that would fund the government for another month (through Oct. 31). The deal hammered out by the GOP alone (basically a deal between the small radical-right MAGA group and the rest of the GOP caucus) cuts domestic spending, enforces the MAGA immigration demands, and keeps defense spending as-is. The GOP has the votes to pass this in the House but it is very likely dead on arrival in the Senate. Even if passed and signed, it is still unclear what the implications to existing programs would be of the reduced domestic spending. So, I guess you could see this as progress. However, it is far from a “done deal” and there are 10 days left to avert a government shutdown.

With that background, markets are little moved but trading decidedly bearish this morning. All three major index ETFs gapped up to start the early session, but have traded lower across the whole premarket to give us black-bodied candles with almost no wick at least as of now. All three remain below their T-line (8ema) and seem to be picking up steam in the early session (perhaps in sympathy with Asian and European trading). So, for now, the trend of the last two weeks has been choppy. If you are looking at a very short timeframe, the momentum has switched from bearish to bullish and back several times during that period. A longer outlook shows a bearish mid-term and a bullish long-term trend. The premarket session is also testing the obvious potential support levels that were just below the SPY, QQQ, and DIA on the close Friday. In terms of extension, none of the major index ETFs are far from their T-line and the T2122 indicator is now at the top of its mid-range. So, there is plenty of slack for either the Bulls or the Bears to make a move.

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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