Markets diverged at the open Thursday (the SPY gapping up 1%, the QQQ gapping up 2.21%, and DIA gapping up just 0.17%). At that point, the DIA sold off hard for 15 min. while the SPY and QQQ just chopped for the first 45 minutes. Then SPY and QQQ both rallied hard for 40 minutes before joining DIA in a sideways grind with a slightly bullish trend that lasted until 2 pm. However, at that point, markets sold off hard for a little over an hour. Finally, the last 60 minutes saw a bounce. This action gave us an indecisive gap-up, Spinning Top candle in the SPY, a black-bodied hammer in the DIA, and a gap-up white-bodied candle with upper and lower wicks in the QQQ. SPY also completed a Golden Cross (50sma crossed above 200sma).
On the day, six of the 10 sectors were in the green as Technology (+3.58%) leads the way higher, and Energy (-1.99%) lagged behind the other sectors. Meanwhile, the SPY was up 1.44%, the DIA was down 0.16%, and QQQ was up 3.59%. At the same time, the VXX was up 2.19% to 11.22 and T2122 fell but remains deep in the overbought territory to 96.39. 10-year bond yields plunged down to 3.395% and Oil (WTI) was down 0.85% to $75.76 per barrel. So, on the day, we saw very divergent markets as the massive technology big dogs pulled the QQQ and SPY higher while the DIA languished. However, at the end of the day, we saw indecision across the board. This all happened on heavier-than-average volume.
In economic news, Weekly Jobless Claims came in better than expected at 183k (compared to the forecast of 200k and the prior week’s reported 186k). Q4 Nonfarm Productivity also came in much better than expected at +3.0% (versus the forecast of +2.4% and the Q3 reading of +1.4%). In addition, Q4 Unit Labor Costs were also far better than expected at +1.1% (compared to a forecast of +1.5% and the Q3 reading of +2.0%). However, December Factory Orders came in lower than expected at +1.8% (versus the forecast of +2.3%, but far better than the November number of -1.9%). On the whole, I think the Fed liked those numbers as productivity was stronger than expected while labor costs rose less than expected and while factory activity remained positive (growing) it was not as hot as the average economist had predicted.
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In stock news, Medicare Advantage released its proposal to DECREASE rates by 2.27% in 2024. This was both unexpected and far below the 5% increase in 2023 (when it had proposed increasing 4.48%). As a result, UNH, HUM, CNC, ELV, CVS, and CI all took a hammering Thursday. Elsewhere, KKR made a bid to buy the controlling interest in Italy’s largest phone company for somewhere north of $22 billion. (VIVHY owns the largest block of shares now at 24%.) Meanwhile, the FTC has rejected a petition from META to have FTC Chair Lina Khan recused from participating in any review or decision on META’s proposed acquisition of (virtual reality app maker) Within Unlimited. Finally, EU lawmakers agreed to tougher rules related to political ads that are targeted at limiting the power of GOOGL and META in the name of countering misinformation.
In energy news, the front month March Natural Gas contract closed lower to $2.456 per mmBtu. This closing price came after trading at a 22-month low earlier in the session. The continued fall in natty prices happened despite a larger-than-expected drawdown for US storage in the weekly inventory report. (The EIA reported a draw of 151 billion cubic feet, compared to the expected drawdown of 142 billion cubic feet.) Meanwhile, Oil dipped mainly on the back of a rebound by the dollar from its lows on Wednesday. A Reuters report also said that Chinese oil imports were lower in January than in either December or November at 10.98 million barrel per day versus 11.37mbpd and 11.42mbpd respectively. Elsewhere, US Gasoline inventories have gone up almost 13 million barrels since January 1 and even distillates (Diesel and Heating Oil) stocks rose last week, for the first time in five weeks.
In miscellaneous news, corporate stock buyback programs tripled in January (versus a year ago) to $132 billion. It is worth noting that this is significant because 2022 saw a record $1.26 trillion in stock buybacks and analysts (such as GS and MS senior market analysts) had been expecting buybacks to fall 40% due to recession fear. This tends to indicate that so far, corporations are not nearly as concerned about recession impacts as analysts expected (or are just in better financial shape than analysts knew). On another hopeful note, in their report, CLX not only beat expectations but also raised guidance and said there would be no further layoffs in 2023.
After the close, AMZN, GILD, HIG, X, CTSH, LPLA, MCHP, CLX, SKX, POST, MEOH, DECK, COLM, BYD, OTEX, SIGI, ENSG, TEAM, GEN, and CRUS all beat on the revenue and earnings lines. Meanwhile, F and RGA beat on revenue while missing on earnings. On the other side, QCOM, KMPR, HUBG, BZH, and CVCO all missed on revenue while beating on earnings. Unfortunately, AAPL, GOOGL, GOOG, SBUX, SKYW, and MTX missed on both the top and bottom lines. It is worth noting that MCHP, POST, and TEAM all raised their forward guidance. However, CTSH, SKX, and COLM lowered their forward guidance.
Overnight, Asian markets leaned to the green side with the exception of China. Hong Kong (-1.36%), Shanghai (-0.68%), and Shenzhen (-0.63%) were the only red in the region. Meanwhile, India (+1.38%), Australia (+0.62%), and Singapore (+0.61%) led the region higher. In Europe, the picture is much redder in color at midday. The FTSE (+0.25%) is among the minority of bourses in the green while the DAX (-0.55%) and CAC (-0.15%) are more typical in early afternoon trade. As of 7:30 am, US Futures are pointing toward a down start to the day. The DIA implies a -0.26% open, the SPY is implying a -0.72% open, and the QQQ implies a -1.29% open at this hour. At the same time, 10-year bond yields are flat at 3.396% and Oil (WTI) is off just pennies to $75.69/barrel in early trading.
The major economic news events scheduled for Friday include Jan Avg. Hourly Earnings, Jan. Nonfarm Payrolls, Jan. Participation Rate, and Jan. Unemployment Rate (all at 8:30 am), Services PMI (9:45 am), and ISM Non-Mfg. PMI (10 am). Major earnings reports scheduled for the day include AON, ARCB, AVTR, SAN, BSAC, BBU, BEPC, BEP, CBOE, CHD, CI, LYB, MOG.A, NFG, REGN, SAIA, SNY, and ZBH before the opening bell. Then, after the close, there are no scheduled reports.
So far this morning, SAN, BBU, REGN, AON, ZBH, CHD, NFG, and UI have all reported beats to both the revenue and earnings lines. Meanwhile, CI, LYB, ASAZY, CBOE, and AVTR missed on revenue while beating on earnings. On the other side, BEP beat on revenue while missing on earnings. Unfortunately, SNY, ARCB, and SAIA missed on both the top and bottom lines. No major changes to guidance have been announced yet this morning.
So, the big news overnight was the disappointing misses by the big dog tech names, AAPL and GOOGL and GOOG (which both complained of low interest from advertisers). F also missed on earnings, and probably more importantly, had a dismal report compared to arch-rival GM’s information from earlier in the week. Combined with this morning’s bad reports from trucking companies (ARCB and SAIA), the mix is likely to have Mr. Market in a worried mood (in terms of the economy) ahead of the January Payrolls report. Regardless of mood, we have to realize that it is going to be hard for the SPY or QQQ to go up when AAPL, GOOG, and GOOGL go down. Even with the beats by AMZN to help, that will be a tough lift given how much volume those three tickers trade each day. With that said, it is worth noting that all three have made significant recoveries from their pre-market lows. As a result, the major indices (SPY and QQQ) are hanging in too ahead of the data.
With that background, it looks like the recent leaders (QQQ and SPY) are going to gap down. However, neither is even close to retesting its up-trending T-line (8ema). DIA is retesting its T-line from above again. However, it has been chopping sideways in its wedge for some time now. So, this is nothing to be too worried about. SPY did complete its Golden Cross yesterday (50sma crossing up the 200sma). However, QQQ also ran into a resistance level. So, technically, markets still have a bullish bias. However, remember that it’s Friday… payday. So, pay yourself, lock in profits, and prepare your account for the weekend.
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.
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