Wednesday gave us a gap higher and then a fade.  SPY opened 0.60% higher, DIA gapped up 0.31%, and QQQ gapped up 0.96%.  After that open, all three major index ETFs meandered back and forth around that open level until 1 p.m.  At that point, we saw profit taking sell off the market the rest of the day.  This action gave us gap-up, black-bodied candles in all three.  All three had higher upper wicks than lower (DIA’s version was mostly body).  While all three also remain above their T-line, DIA is not far above even as QQQ is even more stretched after that morning gap.  This all happened on average volume.

On the day, seven of the 10 sectors were in the red with Energy (+1.04%) way out in front leading the gainers.  At the same time, Utilities (-1.35%) and Communications Services (-1.35%) were by far the worst-performing sectors.  Meanwhile, the SPY gained 0.11%, DIA lost 0.25%, and QQQ gained 0.55%.  Meanwhile, VXX gained 2.63% to close at 14.45 and T2122 dropped but remained in its midrange at 35.98.  10-year bond yields spiked up to 4.18% and Oil (WTI) gained 1.36% to close at $75.38 per barrel.  So, markets gapped higher on Chinese stimulus and a great earnings report (which included their report that orders have TRIPLED in the last quarter by ASML). However, at that point, traders started having second thoughts based on being extended and also on the breadth of the rally (being mostly led by the 10 big dog tech stocks).

The major economic news on Wednesday was limited to S&P Global Manufacturing PMI, which came in well above expectations at 50.3 (compared to a forecast and Dec. value of 47.9).  At the same time, the S&P Global Services PMI also came in higher than was predicted at 52.9 (versus a forecast of 51.0 and the December reading of 51.4).  This gave us an S&P Global Composite PMI of 52.3 (compared to the Dec. reading of 51.4).  Later the EIA Crude Oil Inventories showed a much bigger drawdown than anticipated at -9.233 million barrels (compared to a forecast of -2.150 million barrels and the prior week’s -2.492 million barrels).

After the close, AMP, CNXC, CCI, CSX, IBM, LRCX, PKG, RJF, RMD, STX, NOW, URI, and WRB all reported beats on both the revenue and earnings lines.  At the same time, COLB, LVS, SLM, and TSLA all beat on revenue while missing on earnings.  On the other side, PLXS beat on revenue while missing on earnings.  Unfortunately, CACI, HXL, KNX, LVRO, and LBRT missed on both the top and bottom line.  It is worth noting that CNCX, HXL, KNX, PLXS, and SLM all lowered their forward guidance.  It is also worth noting that TSLA (one of the biggest dogs in terms of dollar value of stock traded) warned of a slowdown in the year ahead.

In stock news, the Seattle Times reported Wednesday that BA (not SPR) was the one that reinstalled the panel the explosively left the ALK 737 MAX 9 jet during flight.  The paper said the claims were confirmed by an anonymous whistleblower.  Later, C said that the 5,000 employees it has laid off since the start of the year will be paid through April.  At the same time, STLA announced it had acquired British AI technology firm CloudMade for an undisclosed amount.  Later, a DAL flight using a BA 757 jet lost its nose wheel as the plane was lining up to take off in Atlanta Monday, but the FAA notice on the event was not posted until Wednesday. At the same time, CG announced it is buying a $415 million student loan portfolio from TFC.  Later, Reuters reported that GM will invest $1.4 billion in Brazil over the next four years.  At the same time, Reuters reported the TSN has dropped CVS as its pharmacy benefits manager in favor of a startup.  (CVS, CI, and UNH currently control 80% of that pharmacy benefits market.)  Elsewhere, NVDA (chipmaker) and EQIX (data center provider) announced they are partnering to offer supercomputing systems to the corporate world.  (This service is meant to compete with AMZN and MSFT cloud computing offerings.)  At the same time, SPOT announced they will launch in-app purchases on iPhones as soon as EU laws take effect forcing AAPL to allow this on March 7.  Later, BA announced they had delivered the first 737 MAX 8 jet to China since the early 2019 grounding of those planes.  After the close, F said it expects to see a $1.7 billion pre-tax loss related to employee pension and other post-retirement benefits restatements.  Also after the close, TSLA said it will start making a new model of EV in the second half of 2025.  The new car will be a smaller crossover aimed at the mass market.  (TSLA is notorious for missing its production date promises by years.)

In stock legal, governmental, and regulatory news, LEVI filed suit against Italian luxury brand Brunello Cucinelli claiming trademark infringement.  At the same time, India company Zee Entertainment urged SONY to honor their $10 billion merger agreement after SONY had announced the termination.  Zee also filed suit in India, asking the court to force SONY to honor the deal and saying negotiations had taken two years.  Later, the NHTSA announced that F has agreed to recall 2.24 million older Explorer SUVs (2011 – 1019 models) related to panel trim clips that were not installed properly.  At the same time, court filings show that GOOGL reached a $1.67 billion AI chip patent infringement settlement with Singular Computing, just as the trial’s closing arguments were scheduled to begin.  Elsewhere, EU governments and lawmakers have agreed in principle to terms that would allow them to force European companies to prioritize the production of certain key products to prevent a supply chain crisis. The laws are meant to reduce the impacts of events like the COVID pandemic or the Russian invasion of Ukraine.  The European Commission would be the group vested with the power to make such decrees.  Later, in details of the ADM accounting investigation, it was reported that ADM senior executives’ bonuses were tied to the performance of that company’s minor nutrition unit.  (The nutrition unit contributed less than 10% of the company’s revenue.)  Meanwhile, the Biden Administration urged Congress to approve the sale of LMT F-16 fighter jets to Turkey following a 20-month delay after that country’s parliament approved the entry of Sweden into NATO.  At the same time, President Biden vetoed legislation that would have blocked a waiver granted for government-funded EV charging stations.  (The waiver allows the stations to not be “entirely” manufactured in the US.  It approves stations with more than 55% US materials and manufactured products.)  After the close, the FAA lifted its restrictions on BA 737 MAX 98 planes flying, if the plane has passed inspection.  This will be the first flight of the plane since the January 6 suspension.  However, at the same time, the FAA halted BA production expansion for 737 MAX planes of all types until compliance and quality control procedures are resolved.

Overnight, Asian markets were mixed but leaned toward the green side led by a strong move in China.  Shanghai (+3.03%), Shenzhen (+2.01%), and Hong Kong (+1.96%) led the region higher.  In Europe, we see the opposite picture taking shape as all but 3 of the exchanges are in the red at midday.  The CAC (-0.50%), DAX (-0.44%), and FTSE (-0.17%) are leading the region lower in early afternoon trade.  In the US, as of 7:30 a.m., Futures are pointing toward a flat start to the day (ahead of data).  The DIA implies a +0.02% open, the SPY is implying a +0.06% open, and the QQQ implies a +0.13% open at this hour.  At the same time, 10-year bond yields are down slightly to 4.17% and Oil (WTI) has popped up 1.13% to $75.95 per barrel in early trading.

The major economic news scheduled for Thursday includes Building Permits, Weekly Initial Jobless Claims, Weekly Continuing Jobless Claims, Dec. Durable Goods Orders, Q4 GDP, Q4 GDP Price Index, Dec. Goods Trade Balance, and Dec. Retail Inventories (all at 8:30 a.m.), Dec. New Home Sales (10 a.m.), and Fed Balance Sheet (4:30 p.m.).  The major earnings reports scheduled for before the open include ALK, AAL, AIT, BX, BFH, CRS, CMCSA, CFR, DOW, EXP, HUM, HZO, MMC, MKC, MBLY, MUR, NEE, NOK, NOC, ORI, BPOP, SDVKY, SHW, LUV, STM, UNP, VLO, VLY, XEL, and XRX.  Then, after the close AJG, COF, INTC, KLAC, LHX, LEVI, OLN, TMUS, V, WAL, WDC, AND WY report. 

In economic news later this week, on Friday, we get the Dec. Core PCE Price Index, Dec. PCE Price Index, Dec. Personal Spending, and Dec. Pending Home Sales.

In terms of earnings reports later this week, on Friday, AXP, ALV, BAH, CL, FCNCA, GNTX, and NSC report.

In miscellaneous news, the US Navy intercepted multiple missiles fired by Yemeni Houthi rebels on Wednesday as they escorted AMKAF (Maersk) ships in the Red Sea. (The ships were carrying US military supplies according to Maersk.)   Elsewhere, CSX reported a 13% drop in Q4 profits, which the company blamed on the loss of margin from its fuel surcharges (which the railroad can no longer charge now that fuel costs have fallen).  Meanwhile, former St. Louis Fed President Bullard (a mega hawk) hinted in an interview Wednesday that the FOMC may cut rates in March, even if inflation has not yet hit the 2% target.  (While no longer a Fed member, Bullard is widely seen as in the know and has always been hawkish.  If he hints at a March cut, that may mean the Doves are being more forceful in behind-the-scenes talks.)

In Fedwatch news, Fed Funds Futures (of the probability of a first rate cut) show only a 1.6% probability of a cut next week.  That probability rises to 41.9% in March, 100% by May, (oddly) back to 98.8% by June, and 99.9% by July.  The other three meetings in 2024 all show a 100% probability of Fed having made its first rate cut.  Of course, these are trader bets and do not necessarily match what the Fed will do. 

So far this morning, ALK, AAL, AIT, BFH, CNX, DOW, EXP, MMC, NOC, BPOP, SHW, and LUV all reported beats on both the revenue and earnings lines. Meanwhile, BANC, HUM, HZO, ORI, VLY, and VIRT all beat on revenue while missing on earnings.  On the other side, BX, MKC, MBLY, STM, and VLO all missed on revenue while beating on earnings.  Unfortunately, MUR, NOK, SDVKY, XEL, and XRX missed on both the top and bottom lines.  It is worth noting that, XRX, MBLY, HZO, and HUM lowered their forward guidance while AAL raised its guidance.

With that background, all three major index ETFs seem to be waiting on the data dump at 8:30 a.m. The SPY is giving us an “inside candle” Doji so far in the premarket while QQQ is giving us a Bullish Harami Spinning Top. DIA is the lone black body candle in the early session, but even so, it is an inside candle. All three remain above their T-line (8ema) and very near all-time highs. So, obviously, the Bulls are still in control of the trend in the short term and the longer term. In terms of extension, the QQQ is still stretched above its T-line withe the SPY getting a bit stretched and DIA just above its own 8ema. The T2122 indicator is also still in its midrange. So, both sides have room to run if they can gather the momentum to do it. With that said, the risk is of a move lower on data the disappoints. As I’ve been saying for some time, keep watching those 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 of 7:45 a.m., TSLA is getting hammered after yesterday’s earnings miss. However, the rest of the Big Dogs are mixed and lean toward the green side.

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 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 gains are 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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