It was all Bears, all the time on Thursday with the market gapping lower at the open (down 0.66% in the SPY, down 0.34% in the DIA, and down 1.03% in the QQQ).  At that point, all three major index ETFs ground sideways, with a modest bearish trend up until 1:30 p.m.  However, at that point, the news broke that the GOP members of the House had again rejected House Speaker McCarthy’s attempt to pass either a continuing resolution or a Defense Appropriations bill.  In response, McCarthy adjourned the House for the week, which makes a government shutdown on October 1 a high-probability event.  For the market, the route was on.  All three major index ETFs sold off hard and steadily the rest of the day, led lower by the QQQ.  All three closed near their low of the day. This action gave us gap-down, large, black candles with now lower wicks and only small upper wicks.  SPY broke down through any potential support from the August lows and now sits on the late-June lows.  DIA sits right at its August low and QQ still has about 0.9% before reaching that milestone.  All three could also be seen as Head & Shoulders patterns near, at, or just past the neckline.  This happened on well-above-average volume in the QQQ and just-above-average volume in the SPY and DIA.

On the day, all 10 sectors were in the red with Basic Materials (-2.19%) surprisingly out in front with Technology (-1.96%) next in line leading the other sectors lower.  At the same time, the SPY lost 1.65%, DIA lost 1.09%, and the tech-heavy QQQ lost 1.83%.  VXX gained 7.70% to close at 22.81 and T2122 dropped down to the low end of the oversold territory at 2.55.  10-year bond yields spiked up to 4.494% (a 16-year high) while Oil (WTI) sat basically flat on the day at $89.58 per barrel.  So, what happened?  It’s hard to tell if it was follow-through to the Fed’s hawkish tone or early morning rumblings of another GOP failure on the appropriations front (which first hit during premarket) that caused the gap lower.  Either way (or even if it was something else), the Bears started the day in charge and the best markets could do was tread water.  However, when Republicans definitely failed to support the Speaker’s move and he sent the House home in reaction, the bottom fell out, and the Bears got to stretch their legs the last couple hours of the day.

The major economic news reported Thursday included the Q2 Current Account (difference between imports and exports), which came in better than expected (but still a sizable deficit) at -$212.1 billion, compared to a forecast of -$221.0 billion and even slightly better than the Q1 reading of -$214.5 billion.  At the same time, Weekly Initial Jobless Claims also came in better than was expected at 201k (versus a forecast of 225k and the prior week’s value of 221k).  We also got the Sept. Philly Fed Mfg. Index, which came in worse than expected at -13.5 (compared to a forecast of -0.7 and much worse than the previous reading of +12.0).  The Sept. Philly Fed Employment Index improved a bit but remains negative at -5.7 (versus a -6.0 previous value).  Later, August Existing Home Sales were reported at 4.04 million (compared to a forecast of 4.10 million and the previous reading of 4.07 million).  This was a decline of 0.7% month-on-month, which is slightly better than the July decline of 2.2%.

In stock news, WMT is considering another significant expansion, looking to move into the healthcare sector.  Reports have emerged that talks are underway between WMT and private primary senior care provider ChenMed, which operates 100 health facilities across 15 southeastern states. Then at mid-morning, Rupert Murdoch announced he would step down as chair of FOXA and NWSA in November, naming his oldest son Lachlan as his successor. Elsewhere, GOOGL was in damage control mode Thursday, telling Reuters it does not foresee any change in its relationship with AVGO. This came after a media report said that GOOGL sources had said the company was considering dropping AVGO as a supplier of AI chips as early as 2027 (over a price dispute) and has already been working with MRVL to replace AVGO.  In acquisition news, CSCO announced it is acquiring SPLK for $157 per share ($28 billion) in an all-cash deal.  At the same time, MMP received shareholder (unit holder) approval for its acquisition of OKE for $19 billion.  Later, GFS was awarded a 10-year, $3.1 billion Dept. of Defense contract.  At the close, Reuters reported it has confirmed that CX is in talks with Mexican banks in a bid to refinance its $3 billion credit facility.  After hours, WBD announced it has expanded its UK studio production capacity by more than 50%.

In stock government, legal, and regulatory news, EU’s antitrust regulators announced they will decide whether to permit WHR to sell its European appliances business to Turkish firm Arcelik.  (Arcelik would own 75% with WHR retaining 25% ownership if the deal is approved.)  Later, the FAA followed the European lead and issued an alert to warn airlines that unapproved parts may be installed in the GE CF6 jet engines.  These fraudulent and unapproved parts may be present in thousands of jet engines globally.  At mid-afternoon, a US federal judge rejected moves by eight big banks to force cities to pursue claims individually.  The judge ruled that BAC, C, JPM, MS, WFC, GS, BCS, and RY must face a class-action suit brought by several cities over the bank’s alleged collusion to drive up interest rates on the cities’ municipal bonds.  After the close, the EPA announced that soil sampling near two PA towns indicates that there is “no immediate threat to the health of people nearby that would warrant a government response.”  This was in connection to testing done after a Wall Street Journal article outlining the paper’s investigation found lead-coated telecom cables buried near two towns in PA.  (VZ and T both initially said they would remove those cables but then declined and hired outside testing agencies once the removal cost was discovered.) 

In Autoworker contract talks and strike news, the UAW is expected to expand its strike against the Big 3 automakers at Noon today.  Sources told Reuters that while all the parties remain at the bargaining table as of last night, GM had offered nothing but a restatement of its earlier offer on Thursday.  F said it remains at the table with no other comment.  STLA offered no comment at all Thursday but had said Wednesday that its Tuesday offer dealt with subcommittee demands (nonfinancial issues).

Overnight, Asian markets leaned toward the green side.  Only Japan (-0.52%), India (-0.34%), and South Korea (-0.27%) were in the red.  Meanwhile, Hong Kong (+2.28%), Shenzhen (+1.97%), and Shanghai (+1.55%) surged to lead most of the region higher.  In Europe, we see the opposite picture taking shape at midday. Only four bourses, led by Greece (+1.47%), are in the green.  On the other side, the CAC (-0.55%) and the DAX (-0.19%) lead the 11 down exchanges lower in early afternoon trade.  In the US, as of 7:30 a.m., Futures are pointing toward a modestly green start to the day.  The DIA implies a +0.05% open, the SPY implies a +0.17% open, and the QQQ implies a +0.37% open at this hour.  At the same time, 10-year bond yields a down a bit to 4.478% and Oil (WTI) is back up by 1.08% to $90.57 per barrel in early trading.

The major economic news scheduled for Friday includes S&P US Mfg. PMI, S&P US Services PMI, and S&P Global Composite PMI (all at 9:45 a.m.).  There are no major earnings reports scheduled for Friday, either before the opening bell or after the close. 

In miscellaneous news, Bloomberg reports that Canada is ready to change oil markets in 2024.  The completion of their internal Trans-Mountain pipeline will allow Canada to expand its daily oil output by 600k barrels piped directly to the port of Vancouver and WA state.  Then, overnight, MCD announced it is raising the royalty fees charged to its new franchisees for the first time in 30 years.  Beginning January 1, all new MCD restaurants will pay 25% more, up from 4% to 5% of sales back to the corporation. (The increase does not affect existing restaurants.  For reference, 95% of the 13,400 MCD restaurants are franchises.)  Finally, the proximate reason for China’s stock surge today is that the country’s leadership leaked to the press that is it considering relaxing the country’s rules on foreign ownership in publicly traded companies.  (Now, total foreign ownership is limited to 30%, and single-entity foreign ownership is capped at 10%.)  You see, China has a problem.  With corruption widespread (and the fighting of corruption creating headlines that make the perception of corruption even worse than the amount that does exist), the propensity for government leaders (and whole groups of company executives) to “just vanish,” and limits on the amount of ownership/control that non-Chinese can have, China is finding it hard to draw in new investors from abroad…despite a potential market of more than a billion people.  So, the loosening of foreign ownership restrictions is a first step toward addressing the issue and drawing in new capital to help jumpstart the country’s floundering post-COVID recovery.

With that background, the premarket is giving us small, gap-up, and white-bodied candles so far. There is nothing in that early session action that would indicate a significant shift from the uber-Bearish move of the last two days. All three major index ETFs remain well below their T-line (8ema) and 50sma. So, for now, the short-term trend is clearly headed lower with a retest of the August and June lows as the apparent next target for the Bears. With that said, the SPY and QQQ are far below their T-line (8ema) and the T2122 indicator is now at the low end of its oversold range. This tells us we are very stretched, with the possible exception of the stodgy, mega-cap DIA. So, we should see a pause or relief bounce soon. Add to that the fact that this is Friday and you could very well see some Bullish action as the Shorts take profits heading into the weekend. Either way, you should prepare your own account for the weekend, taking profits where you have them, perhaps lightening up, and hedging individual positions or the whole portfolio’s Deltas.

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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