Markets gapped higher on Wednesday with SPY opening up 0.70%, DIA opening up 0.59%, and QQQ opening 0.96% higher.  From that point, SPY and QQQ wandered back and forth on both sides of that opening level.  Meanwhile, DIA followed the same pattern until 1:30 p.m. when it sold off hard, reaching the previous close level before bouncing back into mid-gap during the last 30 minutes.  This action gave us black-bodied, indecisive Spinning Top candles in all three major index ETFs.  Both SPY and QQQ retested and bounced up off their T-line (8ema) while QQQ gapped down through its own 8ema and after a retest closed below.  This happened on average volume in QQQ and below-average volume in the SPY and DIA.

On the day, all 10 sectors were green as Basic Materials (+1.18%) and Technology (+1.17%) were out in front leading the way higher.  Meanwhile, Communications Services (+0.08%) and Consumer Cyclical (+0.09%) lagged behind the other sectors.  At the same time, SPY gained 0.51%, the DIA gained 0.25%, and the tech-heavy QQQ gained 0.63%.  VXX rose 0.35% to close at 14.18 and T2122 jumped back up to the very top of its mid-range at 79.90.  10-year bond yields plummeted to 4.108% and Oil (WTI) rose 1.22% to close at $79.10 per barrel.  So, Wednesday saw the Bulls fight back after the Bears had their day Tuesday.  The much-awaited testimony of Fed Chair Powell was largely a nothingburger.  At least the market did not react to the early release of his statement or the questions and answers.  

The major economic news on Wednesday included Feb. ADP Nonfarm Employment Change, which came in lower than expected at +140k (compared to a forecast of +149k but still much higher than the January +11k reading).  Later, January JOLTs Job Openings were a big more than predicted at 8.863 million (versus the 8.800 million forecasted but below the December 8.889 million).  So, job openings remained high in January but were falling.  Later, EIA Crude Oil Inventories showed less of a build than anticipated at +1.367 million barrels (compared to the +2.400 million barrels forecast and well below the prior week’s +4.199 million barrels reading).  Finally, the Fed Beige Book indicated a modest increase in US economic activity, saying “Economic activity increased slightly, on balance,” … “The outlook for future economic growth remained generally positive, with contacts noting expectations for stronger demand and less restrictive financial conditions over the next 6 to 12 months.”

In Fed news, Fed Chair Powell indicated that he sees rate cuts beginning this year but also said that the win in the fight with inflation “is not assured.” Reaffirming the obvious, Powell said, “Reducing policy restraint too soon or too much could result in a reversal of progress we have seen in inflation and ultimately require even tighter policy to get inflation back to 2 percent,” … “At the same time, reducing policy restraint too late or too little could unduly weaken economic activity and employment.” When asked if there will be an announcement when a “soft landing” is achieved, Powell said “We are just going to keep our heads down and do our jobs and try to deliver what the public is expecting from us. We wouldn’t be declaring victory like that.” He continued, “We’re on a good path so far to be able to get there, but “I don’t want to put the label on it. Other people can do that.”  Later, the NY Fed announced that its Global Supply Chain Pressures Index rose to 0.1 in February, up from a revised January value of -0.23.  (While supply chain pressures on inflation increased, they said these pressures remain well within normal and well under the high-stress levels caused by the Pandemic when the index peaked at 4.35 in December 2021.)  Chief among the causes of the increase was the severe drought limiting the Panama Canal passage and terrorist activity in the Red Sea, which limited the Suez Canal passage.  Finally, Minneapolis Fed President Kashkari said that stronger economic numbers early this year likely make it appropriate for the FOMC to have two rate cuts, at most, this year.  Kashkari said, “I was at two (rate cuts in 2024) in December,” … “It’s hard to see, with the data that’s come in, that I’d be saying more cuts than I had in December,” … “It seems like at a base case I’d be where I was in December, or potentially one fewer, but I haven’t decided.”

After the close, HG beat on both the revenue and earnings lines (109% earnings beat on an absolutely MASSIVE 32x beat on revenue).  Meanwhile, VSCO missed on revenue while beating on earnings.

In stock news, on Wednesday, Reuters reported that FNF (Fidelity) will cut roughly 9% of their workforce by dismissing about 1,000 workers.  At the same time, the UAW announced that 30% of TM workers at TM’s MO plant have signed union cards seeking to join the union.  (UAW has previously said it will look for support from 70% of a given factory before filing for a union vote.)   Later, STLA announced it will extend the “slowdown” in production at its Turin Italy plant due to weak demand for its Fiat fully-electric and Maserati model cars. (The slowdown started Feb 12 and is now extended through March 30 and covers 2,200 furloughed employees.)  At the same time, CG announced it had begun the process of selling its Japanese Cosmetics supplier Tokiwa in a deal valued at $800 million.  Later, NYCB was halted Wednesday after news broke that the bank was seeking an infusion of funding.  Later in the day, it was announced that NYCB had received more than $1 billion from a group of investors including HUD.  At the same time, ENB announced it will invest $500 million to expand its pipeline and storage network through 2025.  Later, TSLA said the closure of its Berlin factory will continue through the end of next week following an arson attack that left the plant without power.  Elsewhere, XOM is fighting the $53 billion CVX acquisition of HES, by claiming it has rights to HES’s Guyana oil project.  (That project is widely seen as the crown jewel of HES holdings.)  XOM said it may offer a bid for HES if CVX cancels its deal (since XOM thinks it will get the Guyana project).  At the same time, Bloomberg reported that APO is in early talks with TRIP about a potential takeover of the travel information company.  Later, MMAT announced it is seeking shareholder approval to increase the number of common shares it can issue in a bid to rapidly raise working capital.  At the same time, CBZ announced the acquisition of private CompuData for an undisclosed amount. Later, APO announced its intention to sell 55 million shares it holds of ADT.  For its part, ADT said it intends to repurchase 15 million shares as part of the deal.  At the same time, BAC announced it expects investment banking revenue to increase by 10%-15% in Q1 compared to Q1 2023.  Meanwhile, AAPL escalated its feud with Epic Games (maker of Fortnite) by blocking the Epic app from its EU users and also canceling the developer accounts of Epic programmers.  Later, Reuters reported that PNRA has loosened its ingredient standards in order to boost financial estimates ahead of its IPO.  The process will shave $21 million off PNRA annual costs.  (The IPO has not yet launched.)

In stock legal, governmental, and regulatory news, on Wednesday, AAPL tweaked some of its proposals to comply with EU tech rules a day after coming under intense criticism.  Among other minor things, AAPL dropped the requirement that anyone wanting to create an alternative app store must maintain a letter of credit with AAPL as a stand-by measure.  However, AAPL kept the requirement that a new marketplace must have had an Apple Developer Account for two years and have had more than 1 million annual app installs.  At the same time, a US Appeals Court upheld the dismissal of a frivolous lawsuit brought by a conservative group seeking to stop PFE from its diversity initiatives. (The suit did not name a single employee harmed or any amount of harm caused and it did not even own PFE stock.)  Later, Reuters reported that the bank regulators (Fed, FDIC, and Treasury Comptroller of the Currency) will back down from pressure from Banks and will significantly reduce additional capital requirements under what was known as the “Basel III” agreement.  (The proposal was that any bank with more than $100 billion in assets additional capital. This was about a 16% increase in capital reserves and would have impacted three dozen banks.)  The reduction will mean that more of the default risk will continue to be borne by the government rather than the banks.  At the same time, the SEC voted 3-2 in favor of adopting rules requiring public companies to disclose certain climate-related risks.  Even so, various green groups said the rules were already gutted by Ag and Oil interests.  At the same time, 40 US states and the District of Columbia called on META to combat FaceBook and Instagram account hacking…or face legal action.  Later, Reuters reported that high levels of cancer-causing chemical benzene in acne treatment products from EL, TGT, RBGLY, (Reckitt Benckiser), and others by independent lab Valisure.  Valisure filed an FDA petition calling on the agency to force a recall of the products.  Elsewhere, a TX Federal judge barred the Dept. of Commerce from considering race when it decides who qualifies for assistance under Minority Business Development Agency programs.  (If that isn’t ridiculous, I’m not sure what is…but that is why the case was brought in the TX jurisdiction.) Later, BA announced it has (after strong FAA and NTSB pressure) now disclosed the names of its employees who worked on 737 MAX door plugs, a day after being accused of not cooperating by the NTSB. (It’s a little disturbing that the company could avoid disclosing the names of employees…meaning they could not be interviewed individually…involved in such a huge safety issue.)

Overnight, Asian markets were mixed.  Taiwan (+1.00%) was by far the leader to the upside.  Meanwhile, Shenzhen (-1.37%), Hong Kong (-1.27%), and Japan (-1.23%) were the main losers on the day.  In Europe, markets are mostly green on very modest moves with just three of the 15 exchanges in the red at midday.  The CAC (+0.16%), DAX (+0.07%), and FTSE (unchanged) lead the region higher on volume in early afternoon trade.  In the US, as of 7:30 a.m., Futures are pointing toward a green start to the day (before data).  The DIA implies a +0.15% open, the SPY is implying a +0.30% open, and the QQQ implies a +0.47% open at this hour.  At the same time, 10-year bond yields remain unchanged at 4.108% and Oil (WTI) is down two-thirds of a percent to $78.61 per barrel in early trading.

The major economic news scheduled for Thursday includes Weekly Initial Jobless Claims, Weekly Continuing Jobless Claims, Jan. Imports, Jan. Exports, Jan. Trade Balance, Final Q4 Nonfarm Productivity, and Final Q4 Unit Labor Costs (all at 8:30 a.m.), Jan. Consumer Credit (3 p.m.), and the Fed Balance Sheet (4:30 p.m.).  Fed Chair Powell also testifies before the Senate (10 a.m.) and Fed member Mester speaks (11:30 a.m.).  The major earnings reports scheduled for before the open include ABM, AEO, BIG, BILI, BJ, BURL, CIEN, YMM, KR, and TTC.  Then, after the close, AVGO, COST, DOCU, GPS, LVRO, MRVL, PBR, and RBT report. 

In economic news later this week, on Friday, Feb. Avg. Hourly Earnings, Feb. Nonfarm Payrolls, Feb. Private Nonfarm Payrolls, Feb. Unemployment, Feb. Participation Rate, and the WASDE Ag report are delivered.  Fed member Williams also speaks.

In terms of earnings reports later this week, on Friday, AQN and GCO report.

So far this morning, ABM, BURL, and CIEN have all reported beats on the revenue and earnings lines.  Meanwhile, BIG beat on revenue while missing on earnings.  On the other side, BILI and BJ missed on revenue while beating on earnings.  (KR reports at 8 a.m.)  It is worth noting that BURL raised its forward guidance.

In miscellaneous news, Houthi terrorists used missiles to attack two commercial ships Wednesday, one of which resulted in three deaths and the other setting fire to a container ship.  Elsewhere, the US Justice Dept. charged a GOOGL employee with stealing artificial intelligence trade secrets while secretly working with two Chinese-based companies.  Meanwhile, a day after Elon Musk sued OpenAI for “abandoning its original nonprofit mission”, OpenAI announced that Musk had proposed TSLA acquire the company, but was rebuffed, in 2018.  In an email released Wednesday, Musk said that OpenAI would not be relevant “without a dramatic change in execution and resources.” And that “the only path forward for OpenAI was for Tesla, his electric car company, to buy it.”  Musk was rejected, OpenAI turned to a new profit-driven model and increased resources, and now Musk seems upset he did not get his way back in 2018.  Finally, a MSFT engineer told CNBC that the company’s copilot AI tool sometimes creates violent and sexual images and simply ignores copyrights.  (One assumes he may soon be in the job market.)

In late-breaking news, President Biden proposed expanding the number of drugs subject to Medicare price negotiations from 20 to 50 this morning.  This comes after the administration won a legal challenge to the idea that the largest buyer of the drugs should not pay the highest price and whatever the drug companies want to charge.  It also comes after pharmaceutical companies have now participated in negotiations of the 10 highest-priced drugs.  (Other legal challenges by big pharmaceutical companies remain on court dockets.)  The President is expected to outline the idea at tonight’s State of the Union address.  (BMY, JNJ, MRK, AZN, NVS, AMGN, and ABBV are the main companies that would be impacted.)

With that background, all three major index ETFs gapped lower to start the premarket. However, all three have given us strong white-body candles since that open with SPY and QQQ both bouncing up off of their T-lines. (DIA remains below it’s 8ema.) At the same time, all three are in positive territory for the early session at this point. So, the SPY and QQQ short-term trends remain bullish with prices above a rising T-line while DIA is more bearish with the price below a falling 8ema. Similarly, the strong bullish longer-term trend persists in the SPY and QQQ while DIA is in a new downtrend. In terms of extension, none of the three major index ETFs is too far from its T-line. However, T2122, while still technically in its midrange, is sitting just on the cusp of overbought territory. So, both sides still have room to run if they can gather the energy. Looking at those 10 Big Dog tech names, nine are in the green in the early session, once again led by the AI names. Only TSLA is dragging on that group as it is down sharply again this morning.

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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