The Bears had control of the ball pretty much all day Tuesday.  The SPY gapped down 0.30%, DIA gapped down 0.23%, and QQQ gapped down 0.29%.  From there, all three major index ETFs saw 30 minutes of follow-through to the downside followed by an hour of rally that showed the divergence in the three. The rally in DIA only made it back up to the open level while SPY recrossed the opening gap and QQQ rallied to more of a gain than the open gapped lower.  All three then sold off slowly until 2:30 p.m. and then rallied very slowly for the last 90 minutes.  This action gave us indecisive candles in all three, with SPY printing a Doji that retested and held above its T-line (8ema).  The QQQ printed a small-body, white-bodied Spinning Top that also retested and bounced up off its T-line.  Meanwhile, DIA was the weak sister again, giving us a black-bodied Spinning Top that retested its T-line from below and failed that test.

On the day, nine of the 10 sectors were in the red with Energy (-2.18%) out in front leading the way lower.  At the same time, Communications Services (+0.15%) was the only sector able to hang onto green territory.  At the same time, the SPY lost 0.37%, DIA lost 0.60%, and QQQ lost just 0.01%.  Meanwhile, VXX gained 3.50% to close at 15.36 and T2122 dropped sharply, down well into the oversold territory at 10.39. 10-year bond yields climbed to 4.054% and Oil (WTI) fell 1.06% to close at $71.91 per barrel. So, after the opening gap lower (mostly on the weekend tit-for-tat strikes in and off of Yemen), it was basically an indecisive day.  This happened on less-than-average volume in the SPY and QQQ as well as average volume in the DIA. 

The only economic news on Tuesday was the NY Fed Empire State Manufacturing Index, which came in far below expectations at -43.70 (compared to a forecast of -5.00 and even down significantly from December’s -14.50 reading).  This low value led to speculation that the Fed may indeed cut rates in March as expected.  (More than 97% of Fed Funds Futures bets expect no change at the end of January.  However, 65.9% of futures bets are expecting a quarter point rate cut in March with just 34.1% thinking there will be no change in March.)

In FOMC news, Fed Governor Waller said Tuesday that the US “is now within striking distance” of its 2% inflation target.  However, he also said the FOMC should not rush to cut its benchmark rate until it is clear lower inflation will be sustained.  (Markets did not like the idea of not rushing cuts.)  Waller said “The key thing is the economy is doing well. It is giving us the flexibility to move carefully and methodically. We can see how the data comes in, see if progress is being sustained.”  He continued, “The worst thing we’d have is it all reverses after we’ve already started to cut. We really want to see evidence that this progress in the real data and the inflation data continues. I believe it will.”  Waller also said, “Recent data is almost as good as it gets for the central bank with economic growth gradually slowing, the unemployment rate remaining low, and important measures of inflation now hitting the 2% target for the past six months.”

After the close, IBKR beat on revenue while missing on earnings.  Interestingly, it was a massive beat on revenue (+38.2%) but still missed on earnings by 1.3%.

In stock news, STLA announced Tuesday that it has signed a deal to sell 250k vehicles over three years to German-based rental firm SIXT.  (Deliveries will start this quarter and will cover both Europe and North America.)  In other auto news, TSLA CEO Musk tweeted that he would be uncomfortable growing the company into a leader in AI and robotics without having 25% of the voting stock.  (Musk only owns 13% of that stock now, after his sales to support his purchase of Twitter. So, Musk is demanding twice as much voting power as his ownership provides.)  At the same time, SNPS announced it had agreed to buy ANSS for $35 billion.  Later, QSR (Burger King) bought out its largest franchisee, TAST, for about $1 billion ($9.55 per share).  QSR will get 1,000 Burger King and 60 Popeye’s Chicken restaurants in the deal.  QSR also said it will invest $500 million to remodel 600 of the restaurants at twice the pace TAST was doing so.  At the same time, AAPL announced it is offering discounts of up to $70 on iPhones sold in China and cut the price on other products by as much as $110.  This is part of a push by AAPL to compete with Chinese phone giant Hauwei. Later, XOM said it would buy an additional 1.2 million tons of LNG per year from Mexico Pacific over a 20-year contract.  Elsewhere, TSN announced more closures and temporary scaled-back meatpacking operations due to winter weather.  At the same time, SHEL announced it is exiting Nigerian on-shore oil production after more than a century.  The company said it will sell its operations to a consortium of five mostly local companies for $2.4 billion.  Later, BA named an “independent quality advisor” to lead a review of its quality management practices.  At the same time, LEG issued a business update, saying it plans to consolidate 15-20 of its 50 production and distribution facilities.  The move will gradually cut between 900 and 1,100 jobs although this will not be accomplished until late 2025.

In stock government, legal, and regulatory news, France’s highest court rejected a request from HCMLF that it rule the company cannot be charged with complicity in “crimes against humanity” charges levied against the Syrian government.  (HCMLF kept its factory running throughout the Syrian civil war and lower courts ruled the company was complicit in the regime’s actions due to company support of the regime.)  Later, KR and ACI both announced they are pushing the closure of the $24.6 billion acquisition until “first half 2024” from “early 2024” after discussions with the FTC who (along with lawmakers) has questioned and pushed back on the deal.  At the same time, JPM agreed to pay an $18 million civil penalty to settle charges it violated laws on whistleblower protection.  Later, the US Supreme Court on Tuesday declined to hear the appeal by AAPL on the portion of the lower court’s decision that the company had lost in the lawsuit brought by Epic Games related to App Store billing requirements and rules.   Elsewhere, the FAA-ordered grounding of 171 BA 737 MAX 9 jets entered its 11th day while inspections over loose bolts and other structural defects continue.  At the same time, a US District Judge ruled in favor of the FTC and blocked the acquisition of SAVE by JBLU.  Meanwhile, QMCO said Tuesday that it had offered voluntary retirement to more than 1,500 employees at its Panama mine.  (This is continued fallout from the Panamanian government’s December decision to shut the company’s Cobre Panama mine in the public interest.)  Meanwhile, the US banking industry and its main lobbying groups all peppered the Fed with criticism Tuesday all aimed at forcing the Fed to completely redo its rules which increase in bank capitalization requirements. 

Overnight, Asian markets were red across the board.  China led a huge push down in the region with Hong Kong (-3.71%), Shenzhen (-2.58%), and South Korea (-2.47%) leading the charge lower. In Europe, we see a similar (if not yet as bad) picture taking shape at midday.  The CAC (-1.15%), DAX (-1.01%), and FTSE (-1.81%) are leading the move lower with only Greece (+0.20%) and Russia (+0.14%) in the green in early afternoon trade.  Meanwhile, in the US, as of 7:30 a.m., Futures are pointing toward another gap lower to start the day.  The DIA implies a -0.33% open, the SPY is implying a -0.34% open, and the QQQ implies a -0.44% open at this hour.  At the same time, 10-year bond yields are up slightly to 4.068% and Oil (WTI) is down 1.71% to $71.16 per barrel in early trading.

The major economic news scheduled for Wednesday includes Dec. Core Retail Sales, Dec. Retail Sales, Dec. Imports, and Dec. Exports (all at 8:30 a.m.), Dec. Industrial Production (9:15 a.m.), Nov. Business Inventories and Nov. Retail Inventories (both at 10 a.m.), Fed Beige Book (2 p.m.), and API Weekly Crude Oil Stocks (4:30 p.m.).  We also have two fed speakers, Bowman at 9 a.m. and Williams (3 p.m.).  The major earnings reports scheduled for before the open include SCHW, CFG, PLD, and USB.  Then, after the close, AA, DFS, FUL, KMI, SNV, and WTFC report. 

In economic news later this week, on Thursday, Dec. Building Permits, Weekly Initial Jobless Claims, Weekly Continuing Jobless Claims, Dec. Housing Starts, Philly Fed Mfg. Index, EIA Weekly Crude Oil Inventories, and Fed Balance Sheet are reported as well as Fed member Bostic speaks.  Finally, on Friday, we get Dec. Existing Home Sales, Michigan Consumer Sentiment, Michigan Consumer Expectations, Michigan 1-Year Inflation Expectations, and Michigan 5-Year Inflation Expectations as well as Fed member Daly speaking.

In terms of earnings reports later this week, on Thursday, we hear from FAST, FHN, KEY, MTB, NTRS, TSM, TFC, JBHT, and PPG.  Finally, on Friday, ALLY, CMA, FITB, HBAN, RF, SLB, STT, and TRV report.

In miscellaneous news, on Tuesday night (US time) the US Navy carried out more strikes on Yemeni Houthi anti-ship missiles.  This came after a Houthi missile hit a Greek-owned vessel in the Red Sea. Elsewhere, a meteorological study out of Canada said that Western Canada’s abnormally dry winter (so far) likely points to the worsening of a severe drought in the region.  (In turn, these will impact US grain, oil, gas, and timber prices.)  That region produces most of the country’s grain, oil, gas, and forest products.  It was also the site of many wide-ranging fires in 2023 that were bad enough to severely impact US city air quality last summer.  Meanwhile, the EIA said that Wind and Solar are going to lead the growth in US power generation over the next two years.  The agency said it expects Solar generation to increase 75% over that period from its 2023 level of 163 billion kWh.  Over the same time, the EIA expects wind farm production to grow a much more modest 11% from its current 429 billion kWh.  (EIA expects coal generation to fall 18% and natural gas production to remain level over the same two years.)

In mortgage news, loan demand surged last week by 10.4% compared to the prior week.  This came as the national average loan rate fell again from 6.81% to 6.75% for a 30-year, fixed-rate, conforming loan.  However, loan closing points did increase from 0.61 to 0.62 on the week.  New home purchase loan applications were up 9% on the week while refinance loan applications jumped 11%. 

So far this morning, USB reported a significant beat on the revenue line (29.5% growth) but only came in in line on earnings.  At the same time, CFG also beat handily on revenue (+15.2% over forecast) but missed significantly (-43.3% versus estimates).  PLD and SCHW both report at 8 a.m.

With that background, all three major index ETFs gapped lower to start the premarket session. SPY gapped down through its T-line, but QQQ again is holding on to that level after an early test. Both SPY and QQQ are giving us white-bodied candles in the early session while DIA is indecisive after the gap down. So, the short-term trend is being challenged and is indeterminate except for DIA which has turned down in the short-term. (If you take a broader look at DIA, it has just chopped sideways for a month.) However, the Bulls remain slightly in control of the short-term trend in at least the QQQ and SPY (market leaders). In the longer term, we are near all-time highs (potential resistance) in the SPY, QQQ, and DIA. In terms of extension, none of the three major index ETFs are far from their T-line (8ema). However, the T2122 indicator is now sitting well inside of its oversold range. So, both sides have room to run if they can gather the momentum to do it. However, the Bulls have more slack to work with. As I’ve been saying, keep watching those Tech Big Dogs. If they make a move as a group, it is almost impossible for the rest of the market to do anything but follow given their trading volumes.

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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