ADP Payrolls, Service PMI, and Fed Minutes

Markets diverged Tuesday with the large caps gapping three to four-tenths of a percent higher at the open while the QQQ opened flat.  At that point, the SPY and especially the QQQ started an all-day selloff.  Meanwhile, the DIA rallied and then meandered sideways, never falling back below the gap-up open.  This left us with a huge black Bearish Engulfing candle in the QQQ, a Shooting Star (at another all-time high) in the DIA, and a Black Spinning Top candle very near the all-time high close in the SPY.  On the day. SPT lost 0.03%, DIA gained 0.59%, and QQQ lost 1.30%.  VXX was flat at 17.88 and T2122 backed off but remains in the overbought territory at 89.68.  10-year bond yields spiked again to 1.651% (which was actually a step back from 1.68% earlier in the day) and Oil (WTI) rose 1.22% to $77.01/barrel. 

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The mid-morning JOLTS report showed that a record 4.53 million workers quit their jobs in November (a 8.9% increase over October).  However, the number of job openings also declined more than expected to 10.56 million (vs 11 million expected).  However, those 10.56 million openings was still significantly smaller than the 6.88 million people who were unemployed and seeking work for the month.  This suggests that employers may be pulling back a bit on hiring, but the great resignation is still dwarfing the slowdown, which maintains pressure on salaries to move higher.

During the day it was announced that Toyota has surpassed GM to become the top-selling car-maker in the US.  This ends a 90-year win streak by GM.  The news is evidence that Toyota has been better able to manage supply chain problems (chip shortages) than its US counterparts (who have all suffered much more frequent plant closings due to a lack of parts).  The actual numbers were Toyota sold 2.3 million vehicles in the US (up 10.4% from 2020), while GM sold 2.2 million vehicles in 2021 (down 12.9% from 2020) and F sold 1.7 million vehicles.  Despite losing the crown to Toyota, GM stock was up almost 7.5% and F was up a whopping 11.67% on the day after announcing a doubling of their production plans for the electric F-150 Lightning.

In miscellaneous news, 30-year fixed mortgages hit a 9-month high last week (half a percent higher than one year ago).  This caused mortgage demand to fall as refinance loan applications were down 2% on the week and new home purchase applications were down 4%.  In the Auto sector, Chrysler (owned by STLA) announced plans to go completely electric (no internal combustion) by 2028.  Once a major automaker, Chrysler and affiliated brands are back on the outs. However, they will be the largest carmaker to go "all-electric" if they reach the goal as announced.

Overnight, Asian markets were mixed but leaned heavily to the red side.  Shenzhen (-1.79%), Hong Kong (-1.64%), and South Korea (-1.18%) led the way lower as Chinese property developers are suffering more scrutiny and pushback from their government.  In the latest move Evergrande was ordered to demolish 39 buildings in one of its projects in the name of “environmental laws.”  In Europe, stocks are mixed at mid-day.  The FTSE (+0.16%), DAX (+0.70%), and CAC (+0.60%) are leading the continent higher, but most of the smaller exchanges are in the red in early afternoon trading.  As of 7:30 am, US Futures are pointing to a mixed open.  The DIA implies a +0.04% open, the SPY is implying a -0.05% open, and the QQQ implies a -0.36% open at this hour.

The major economic news scheduled for release Wednesday includes Dec. ADP Nonfarm Payrolls (8:15 am), Dec. Services PMI (9:45 am), Crude Oil Inventories (10:30 am), and Dec. Fed Meeting Minutes (2 pm).  The only major earnings reports scheduled for before the market Wednesday are RPM and UNF.  There are no major reports scheduled for after the close.

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Markets may wait this morning for some read-through from the 2 pm December Fed Meeting Minutes. However, the divergence among the major indices indicates rotation, which leads me to think the larger issue is over-extension and fear of declining growth. The ADP Payroll number may, in fact, be the better read-through for the market today. So with the QQQ in a pullback, SPY consolidating, and DIA trying to go it alone to new highs, be very careful chasing the bulls. You don't want to be behind them when the herd spins around and heads back down the hill.

Remember that the first rule of making a lot of money in the market is to not lose a lot of money in the market. So, when you're wrong, admit it and take your loss. (That's why we set stops.) Stick to your trading rules and on managing the things you can control. Don't chase, trade with the trend, keep consistently taking profits when you have them, and move your stops in your favor.

Ed

Swing Trade Ideas for your consideration and watchlist: SYK, JBHT, IPG, DRI, XLI, MT, TTWO, FCX. 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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🎯 Dick Carp: the scanner paid for the year with HES-thank you

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🎯 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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