Markets made most of their movement at the open Wednesday.  SPY gapped down 0.44%, DIA gapped down 0.41%, and QQQ gapped down 0.65%.  After that, all three major index ETFs traded in a tight range around the open the rest of the day.  The biggest move was a selloff the last hour that took all three out near their lows.  This action gave us what I would call large-body, black-body, Spinning Top candles with small upper and lower wicks.  DIA also crossed below its T-line (8ema) following the SPY and QQQ in that pullback.  This happened on greater-than-average volume in the DIA and a bit less-than-average in the SPY and QQQ.

On the day, eight of the 10 sectors were in the red with Consumer Cyclical (-1.85%) and Industrials (-1.80%) out front leading the way lower while Energy (+1.35%) was by far the strongest sector.  At the same time, the SPY lost 0.82%, DIA lost 0.76%, and QQQ lost 1.06%.  The VXX rose 3.74% to close at 16.10 and T2122 dropped but still remained in its midrange at 38.24.  10-year bond yields rose again to 3.922% and Oil (WTI) spiked 3.38% to close at $72.79 per barrel.  So, on the day, most of the move was made at the open with the Bears gapping all the major indices lower.  However, from there it was a sideways wobble in a tight range with a selloff the last hour taking us out near the lows.  The Bullish trendlines have now been breached but SPY sits at a potential support level and QQQ has the furthest to fall before hitting potential support at about 1.35%.

The economic news on Wednesday included December ISM Mfg. Employment, which came in significantly better than expected at 48.1 (compared to a forecast of 46.5 and the November reading of 45.8).  At the same time, December ISM Mfg. PMI also came in better than anticipated at 47.4 (versus a 47.1 forecast and November’s 46.7 value).  Meanwhile, December ISM Manufacturing Prices came in much lower than predicted at 45.2 (compared to a forecast of 47.5 and far better than November’s 49.9 value).  On the job opening front, November JOLTS Job Openings were down at 8.790 million (versus a forecast of 8.850 million and the October reading of 8.852 million).  That was the lowest number of job openings since early 2021, not at a level of 1.4 openings per unemployed person.  (The high was a 2:1 ratio in 2022.)  Then, after the close, the API Weekly Crude Oil Stocks report showed a bigger-than-expected drawdown of 7.418 million barrels (compared to a forecasted drawdown of 2.967 million barrels and the prior week’s inventory build of 1.837 million barrels).

However, probably the most notable economic news was the release of the FOMC December Meeting Minutes.  Those minutes showed that Fed members cited lower inflation risks and foresaw coming rate cuts.  However, the start of and the path those cuts will take was very mixed and uncertain among members.  Among the notable sections were “Participants pointed to the decline in inflation seen during 2023, noting the recent shift down in six-month inflation readings in particular.”  For the first time since mid-2022, the minutes DID NOT describe inflation as “highly unacceptable” and, in fact, said the risk of renewed inflation was “diminished.”  The minutes said “a few” participants saw the potential need for the Fed to switch in its tradeoff between the goal of controlling inflation and maintaining high rates of employment.  Finally, the minutes noted “an unusually elevated degree of uncertainty” about the economic outlook saying that additional rate hikes are possible as are the beginning of rate cuts.  This included some meeting participants floating the idea of slowing Fed balance sheet reductions, as the minutes said “several participants remarked that the Committee’s balance sheet plans indicated that it would slow and then stop the decline in the size of the balance sheet.”

In stock news, XRX announced it will cut 15% of its workforce as part of its attempt to move to a new business model and organizational structure.  At the same time, TM announced its vehicle sales rose 6.6% during 2023 with strong demand for affordable sedans and SUVs.  Drilling down, TM said electric vehicle sales rose 31% from the prior year, now making up 29.2% of all sales.  Later, Bloomberg reported rumors that CI is close to selling its Medicare Advantage business for between $3 billion and $4 billion (that unit generated $7.9 billion in revenue in 2022).  Elsewhere, INTC said it would be spinning off its AI-related business into a separate company with the help of DBRG and other investors.  At the same time, Reuters reported that AIG is the lead insurer on a $130 million “all risks” policy for the A350 plane that crashed in Tokyo on Tuesday.  Later, GM announced it would offer $7,500 in incentives for its electric vehicles after the company lost $7,500 in government tax incentives because the company sources batteries and other parts from China.  Meanwhile, F said it would increase the price of its lowest-priced electric vehicles while cutting the price of its premium EV models by as much as $7,000.  At the same time, EQNR and BP announced they have terminated an agreement to sell electricity to NY state from their proposed offshore wind farm.  The companies cited higher borrowing costs and supply chain issues.  Later, Bloomberg reported that GOLD has been speaking to the major investors of FQVLF to determine if there is interest in a takeover.

In stock government, legal, and regulatory news, the Dept. of Transportation reported that US airline flight cancellations fell to the lowest rate in more than a decade.  Less than 1.3% of 16.3 million flights were canceled in 2023.  At the same time, AAL, DAL, LUV, and UAL achieved a December on-time arrival rate between 83.7% and 99.6%.  Later, Reuters reported that GOOGL and META appear to have settled their fines with the Russian government.  Previous fines are no longer listed by the Russian government but the companies did not confirm or deny settlement.  At the same time, the NHTSA announced that F had agreed to recall just under 113k F-150 trucks over safety concerns related to a rear axle hub bolt.  Elsewhere, AAPL agreed to settle a lawsuit alleging the company knowingly let scammers use its gift cards while keeping 30% of the proceeds of the fraud.  The settlement terms were not released and must still be approved by a federal judge.

After the close, the only major earnings report was from CALM, which missed on both the revenue and earnings lines.

Overnight, Asian markets leaned to the downside with seven of the 12 exchanges in the red.  Shenzhen (-1.24%), Singapore (-0.79%), and South Korea (-0.78%) led the losses while Malaysia (+1.02%) and India (+0.66%) paced the gainers.  In Europe, the bourses are leaning to the green side at midday.  Eleven of the 15 exchanges in that region are in the green with the CAC (+0.04%), DAX (-0.04%), and FTSE (+0.06%) leading on volume.  However, many of the smaller European exchanges are up more than a percent in early afternoon trade.  In the US, as of 7:30 a.m., Futures are mixed and basically flat.  The DIA implies a +0.11% open, the SPY is implying a -0.04% open, and the QQQ implies a -0.16% open at this hour.  At the same time, 10-year bond yields are up to 3.963% again and Oil (WTI) is up 1.00% to $73.43 per barrel in early trading.

The major economic news scheduled for Thursday includes the Dec. ADP Nonfarm Employment Change (8:15 a.m.), Weekly Initial Jobless Claims and Weekly Continuing Jobless Claims (both at 8:30 a.m.), Dec. S&P Global Services PMI and Dec. S&P Global Composite PMI (both at 9:45 a.m.), EIA Weekly Crude Oil Inventories (11 a.m.), and the Fed Balance Sheet (4:30 p.m.)  The major earnings reports scheduled for the day are limited to CAG, LW, RDUS, RPM, and WBA before the open.  There are no major reports scheduled for after the close. 

In economic news later this week, on Friday we get Dec. Avg. Hourly Earnings, Dec. Nonfarm Payrolls, Dec. Private Nonfarm Payrolls, Dec. Participation Rate, Dec. Unemployment Rate, Nov. Factory Orders, Dec. ISM Non-Mfg. Employment, and Dec. ISM Non-Mfg. PMI.

In terms of earnings reports later this week, on Friday, GBX and STZ report.

In shipping news, Reuters reported that ocean freight rates are surging after weekend attacks and US Navy retaliation in the Red Sea.  The Asia-to-North America rate has more than doubled to $4,000 per 40-foot container and Asia-to-Mediterranean prices have risen to $5,175 per container.  (Some carriers announced $6,000 per container Asia-to-Mediterranean rates as of mid-month.)  However, it should be noted that these rates are still well below the pandemic-era rates. In addition, shipment time has risen from 7 to 20 days as ships have to reroute around Africa rather than using the shorter “Suez Canal and Red Sea” route.  WMT and AMZN have already reported product delays and inventory issues at the distribution center level.  (30% of East Coast import freight normally travels the Suez Canal route.) 

In miscellaneous news, oil prices rose Wednesday after supply concerns surfaced following the closure of Libya’s largest oilfield.  (This oil does not serve North America, but its removal impacted global oil prices, which rippled through to US oil prices.)  Elsewhere, Reuters reported that US bankruptcy filings rose 18% in 2023 on the back of higher interest rates.  However, it should be noted that bankruptcies are still far, far below the level seen PRIOR to the pandemic.  (For example, in 2019 there were 757,816 bankruptcies.  The 2023 number was 445,186 bankruptcies.)  So, despite the political rhetoric and protestations of the banking industry, the number of insolvencies is DOWN more than 41% from 2019.

So far this morning, CAG and WBA have reported beats on both the revenue and earnings lines.  At the same time, RPM reported misses on both the top and bottom lines.

With that background, it looks like markets are undecided so far this morning. The premarkets opened with a modest gap higher in all three major index ETFs. However, since then the trading has been indecisive with both large-cap index ETFs maintaining white-bodied candles while the QQQ and leans indecisively toward a black-bodied candle. The DIA is attempting a retest of its T-line (8ema) from below in the early session. So, while the Bulls hold on to the longer-term daily trend, we see the Bears in control of the shorter-term trend and so far today markets are undecided or waiting on news. In terms of extension, none of the three major index ETFs are truly extended but QQQ is the most extended of the group, all below their T-lines. At the same time, the T2122 indicator remains in its mid-range. So, both the Bulls and Bears continue to have room to run if they gather the momentum to do it, but the Bears should continue to be hungry given that the Bulls were firmly in control the entire two months of 2023. Lastly, continue to keep an eye on the Tech Big Dogs. If we are seeing a rotation out of those names (which have dragged markets along for a year or more), it will be hard for markets to do anything except retreat.

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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