A Lot of Data Today as DE Easily Beats

Markets gapped up just over 0.50% across all three major indices on Tuesday.  At that point, we saw a modest pullback and recovery over the first 45 minutes in the SPY and DIA (fading the gap and then returning to the open level). The QQQ had a much bigger pullback, but then started a rally that led the rest of the market higher the rest of the day. This QQQ rally really slowed down at 11 am but continued slowly. Meanwhile, the large-cap indices experienced a couple of multi-hour sideways grinds in a tight range before stepping up again to a new level just to grind sideways again until 3 pm.  At 3 pm, all 3 of the major indices took another step higher before again the QQQ led the rest higher into the close. With that said, the SPY and DIA also broke out above their Bull Pennant downtrend lines.  This action gave us Doji gap-up white candles (some may call it a Best Friend signal) across the SPY, SIA, and QQQ.

On the day, all ten sectors are in the green, with the Energy sector (+2.98%) leading the way higher and the Consumer Defensive sector (+0.49%) lagging behind.  At the same time, the SPY has gained 1.32%, the DIA has gained 1.16%, and the QQQ has gained 1.44%.  The VXX was down 3.44% to 15.42 and T2122 has climbed back up into the overbought territory to 90.91.  10-year bond yields have fallen back down to 3.76% and Oil (WTI) is up 1.37% to $81.13 per barrel.  So, Tuesday was a mildly bullish day where the large caps were dragged higher by high-tech names, like NVDA, AMD, and ADBE.

In economic news, the API Weekly Crude Oil Stock Report showed more than twice the expected oil drawdown.  The report claimed a 4.8-million-barrel drawdown (versus the forecasted 2.2-million-barrel drawdown, but better than last week’s 5.835-million-barrel drawdown.  Meanwhile, in Fed speak, Cleveland Fed President Mester said that “We’re (FOMC) committed to using our tools to put inflation on a sustainable downward trajectory to 2%.”  She went on to say that wage increases are rising, but they are below inflation, suggesting they are not a key inflation driver. She also said inflation expectations remain stable but did not comment on the outlook for Fed policy.  Later, Kansas City Fed President George said that the ample US savings will be a buffer and could mean higher interest rates are needed to cool inflation. (In other words, as a country, we have too much savings, so we will feel the pain later and may keep spending longer, causing the Fed to need to keep hiking rates longer and higher to overcome that savings buffer in order to reduce spending.)

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In stock news, TEVA and ABBV announced they have finalized the terms of their settlement (worth more than $6.6 billion) to resolve thousands of lawsuits by state and local governments over marketing opioid painkillers.  The breakdown is approximately $4.25 billion paid by TEVA and 2.37 billion paid by ABBV.  However, final payout numbers will depend on how many state and local governments opt-in versus those who go on to court proceedings.  Later in the day, a META spokesman had to deny the persistent rumors that CEO Zuckerberg will be stepping down in 2023.  (Shares of META had been up close to 2% on the rumor and retreated after the rebuttal.)  At the same time, ZEN announced it has been taken private in a $10.2 billion deal which will pay shareholders $77.50/share.  Elsewhere, the SEC charged the GS Asset Mgmt. unit for failing to follow policies and procedures related to mutual funds that it had marketed as “ESG” investments. GS agreed to pay a $4 million penalty without admitting (or denying) the charges.  Meanwhile, HPQ announced after the close that it will be cutting 4,000-6,000 jobs between now and the end of 2025 and that it will incur a $1.0 billion charge related to restructuring costs with $0.6 billion of that coming in 2023.  (Implying 60% of those job cuts will happen next year.) Finally, COP announced it has taken a stake in the SRE Port Arthur LNG terminal.

In miscellaneous news, the White House said Tuesday that President Biden is directly involved in negotiations between railroads and unions after he had publicly said a rail shutdown was “unacceptable.”  This may be related to the CEO of UNP railroad being called to Washington and also called to testify before the Surface and Transport Board on December 13-14 to address the railroad’s substantial increase in the use of embargoes.  (An embargo is when a railroad fears rail network congestion and it temporarily embargoes or halts train movement until the company deems the congestion has cleared.  This causes delays in shipments without impacting the reported (or paid for) service levels, similar to a “force majeure” declaration in a contract.) During 2017, UNP had 5 embargoes but has declared over 1,000 so far in 2022.  Elsewhere, in Europe, EU countries are now close to announcing the cap price on Russian oil (maybe as soon as today).  In what I’m sure is unrelated news, the Russian company Gazprom again threatened to cut the gas supply to the single remaining pipeline (through Ukraine) that feeds Western Europe.  However, European (and especially German) natural gas stockpiles remain full and as of Tuesday, a German independent agency said the energy outlook for Germany had improved from just a couple of months ago. (This means the Russian threat may carry less weight.)

After the close, HPQ, BBAR, and JWN both reported beats on both the revenue and earnings lines.  In addition, ADSK met both revenue and earnings estimates.  At the same time, GES beat on revenue while missing on earnings.  However, VMW missed on both the revenue and earnings lines. It’s worth noting, ADSK and GES both lowered their forward guidance. So far this morning, DE beat (handily) on both lines.

Overnight, Asian markets were mostly green on modest moves.  Australia (+0.70%), Japan (+0.61%), and Hong Kong (+0.57%) led the region higher while only Shenzhen (-0.27%) and Singapore (-0.11%) were in the red.  Meanwhile, in Europe, exchanges are also mostly green on smaller moves at midday.  The FTSE (+0.31%), DAX (-0.17%), and CAC (-0.02%) are typical with most of the smaller exchanges modestly in the green in early afternoon trade.  As of 7:30 am, US Futures are pointing toward a start to the day just on the green side of flat.  The DIA implies a +0.06% open, the SPY is implying a +0.16% open, and the QQQ implies a +0.24% open at this hour.  At the same time, 10-year bond yields are up slightly to 3.769% and Oil (WTI) is down almost 2% to $79.31/barrel in early trading.

The major economic news events scheduled for Wednesday, October Building Permits (8 am), October Durable Goods and Weekly Initial Jobless Claims (both at 8:30 am), Mfg. PMI and Services PMI (both at 9:45 am), Michigan Consumer Sentiment and Oct. New Home Sales (both at 10 am), EIA Weekly Crude Oil Inventories (10:30 am), and FOMC Meeting Minutes (2 pm) are reported.   Meanwhile, the major earnings reports scheduled for the day are limited to DE before the open.  Then, after the close, LU reports.

As you would expect on a holiday week, there will be no economic news on Thursday or Friday due to the Thanksgiving break. There are also no major earnings reports scheduled for Thursday or Friday.

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There is a lot of economic data crammed into the schedule today due to the holiday-shortened week. Among other things, mortgage demand grew 2.2% last week as rates plummeted from 6.91% the prior week to 6.67% (6.61% at one point) for a 30-year fixed-rate loan last week. The Dollar is also showing a little weakness for the second day in a row. (News that should support commodity prices at the margins.) And while we are not supposed to get Fed speakers today, analysts are expecting to see the FOMC Minutes show strong support in the committee for higher terminal rates to really choke out inflation (which could be a bit of a disappointment to markets but has been signaled all week by Fed speakers). At the very least, the minutes are expected to tamp down bull hopes of a pause in hikes.

In the short term, the large-cap indices are working to break out of the recent consolidation (5-day) with the DIA already broken out and the SPY appearing to do so in the premarket. Even the lagging Q is breaking out of the top of its Pennant downtrend in premarket trading today. Extension from the T-line is not a problem yet but the T2122 indicator had climbed back into the overbought area. So, be careful. Also, do not be surprised if volume and moves die as the day goes on and markets seems to slowly drift one way or the other…especially in the late afternoon. Remember that this is the virtual Friday before a 4-day weekend for the majority of traders, with only a minority planning to return to their trading desk for a half-day on Friday. In short, this may be time better spent “sharpening your axe” than trying to chop up too many trees.

As always, be deliberate and disciplined…but don’t be stubborn. Remember it’s 100 times more important to avoid big mistakes than it is to pick big winners. 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.


Swing Trade Ideas for your consideration and watchlist: APPS, VALE, EBAY, WFC, and MPC. You can find Rick’s review of tickers on his YouTube Channel here. Trade your plan, take profits along the way, and smart. Also, remember to check for impending earnings reports. Finally, remember that any tickers we mention and talk about in the trading room are not recommendations to buy or sell.

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