On Tuesday, the SPY and QQQ gapped up while the DIA opened flat.  SPY opened 0.39% higher, QQQ opened 0.70% higher and DIA opened up only 0.01%.  However, at that point, all three major index ETFs spent the rest of the day in a slow downtrend.  (It is worth noting that QQQ’s downtrend was more volatile and roller-coaster-like than the large caps, but all three made the same slow trip lower.)  This action gave us large-body, black candles in all three.  The SPY printed a Dark Cloud Cover candle that failed a retest of its T-line (8ema).  QQQ also failed a retest of its 8ema but failed to did not print a candle signal.  For its part, the DIA did not even get close enough to test its T-line again but did print an Evening Star signal.

On the day, seven of the 10 sectors were in the red with Financial Services (-0.92%) out front leading the way lower while Utilities (+0.30%) held up better than the other sectors.  At the same time, the SPY lost 0.27%, DIA lost 0.50%, and QQQ lost 0.14%. VXX was basically flat to close at 25.14 and T2122 climbed slightly gain but remained well into the oversold area at 10.00.  10-year bond yields rebounded after they opened lower to close at 4.332% while Oil (WTI) fell 0.58% to close at $80.25 per barrel.  This happened on a well-below-average volume in all three of the major index ETFs.  So, volatility reigned in the morning, but the Bulls took over for the second half of the day.      

The major economic news reported Tuesday was limited to July Existing Home Sales which came in a bit below expectation at 4.07 million (compared to a forecast of 4.15 million and a June reading of 4.16 million).  That corresponded to a 2.2% decrease month-on-month coming after a 3.3% month-on-month decline in June.  (Curiously, at the same time, the median home price rose 1.9% to $406,700, just the fourth time the average has topped $400,000.)  Then, after the close, the API Weekly Crude Oil Stocks Report showed a smaller-than-expected draw on inventories at 2.418 million barrels (versus a forecast calling for a drawdown of 2.900 million barrels but much less than the prior week’s 6.195-million-barrel drawdown). 

In Fed speak, Richmond Fed President Barkin told Reuters Tuesday that the Fed needs to be aware of the possibility that the US economy may accelerate rather than slow in the coming months.  If it does, that would have implications for the FOMC’s fight against inflation.  He noted that US Retail Sales were stronger than expected in July and Consumer Confidence is also rising.  Barkin said, “The reacceleration scenario has come onto the table in a way that it really wasn’t three or four months ago.”  He went on to say, “If I got convinced that inflation was remaining high and demand was giving no signal that inflation was going to come down, that would make the case (for further tightening of monetary policy).”  Related to bond rates, Barkin told Reuters, “It doesn’t strike me that having a 10-year (bond) rate over 4 percent is somehow wildly inappropriate.” 

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In stock news, META announced a new AI model that can transcribe and translate 100 languages on Tuesday morning.  The model (SeamlessM4T) offers speech recognition as well as all the speech-to-text, text-to-speech, text-to-text, and speech-to-speech translation modes.  In other META news, the company rolled out a web-based version (pre-announced a day earlier) of Instagram Threads.  Later, IBM announced it had agreed to sell its weather business to private equity firm Francisco Partners for an undisclosed amount.  (The Wall Street Journal previously reported IBM was seeking to sell the unit at a $1 billion valuation.)  Elsewhere, VMW (in the process of being bought by AVGO) announced it has partnered with NVDA to launch a set of tools that will allow customers to create their own AI applications on NVDA hardware running in their own data centers (as opposed to buying AI processing from cloud vendors like MSFT and AMZN).  In the afternoon, industry watchers said that TSLA’s 13,900 new insurance registrations in China last week added to the 14,000 from the week prior and 12,800 the week before suggests a strong August sales pace for TSLA, at least in China.  In M&A drama news, CLF demanded Tuesday afternoon that X reveal all of its buyout offers.  X has previously rejected CLF’s $7.3 billion cash-and-stock offer and has also received offers (that we know of) from MT and private firm Esmark.  Just after the close, the Teamsters announced their 340,000 UPS workers had approved the new 5-year contract recently agreed between the union and company.

In stock legal and regulatory news, some AAL Pilots are fighting their union in the hope of extending their flying careers.  The union opposed the bill in Congress (championed by airlines) that would raise the retirement age from 65 to 67.  However, some pilots are going around their union (with the help of airlines) to lobby Congress on behalf of the bill.  (An airline industry group says the law could “save” the industry 5,000 pilots over the next two years.  Critical amidst an industry-wide pilot shortage.)  At midday, the US Dept. of Justice announced that NMR had agreed to pay a $35 million fine, pay $808k in restitution, and take responsibility in written form in order to avoid prosecution for lying to customers about bond prices.  (NMR had previously been fined $1.5 million and paid $20.1 million in restitution in a civil settlement with the SEC for the same fraud.)  At the same time, the US Consumer Finance Protection Bureau filed suit against CURO, alleging the lender had pushed 10,000 struggling borrowers to simply refinance their short-term loans to increase their fees.  Later, a “reverse discrimination” lawsuit was filed against GCI, but five current and former employees who claim the newspaper publisher discriminates against white staff in order to fulfill diversity goals.  (No damage figure was provided.)  At the same time, Bloomberg reported that FORG will be acquired by private equity firm Thoma Bravo after the US Dept. of Justice declined to challenge the deal.  Later in the afternoon, MO filed a complaint with the US International Trade Commission seeking to ban the import of rival Juul products, which MO claims infringe on two of its patents.  Then, the US Interior Dept. approved a 704-megawatt wind farm off Rhode Island to be owned and operated jointly by DOGEF and ES.  At the close, the US Dept. of Health and Human Services awarded $1.4 billion in grants, including $326 million for REGN to develop next-generation therapies and vaccines for future COVID-19 variants.

In volatility news, Vietnamese electric vehicle maker VFS (VinFast) continued its massively volatile ride in the six days since its IPO.  On Tuesday, VFS closed up almost 109%after having been up more than 167% at one point in the session.  At the same time, SRE fell almost 50% Tuesday while FN climbed 31.58% by the close.

After the close, LZB, TOL, and URBN all reported beats on both the revenue and earnings lines.  It is also worth noting that TOL raised its forward guidance.

Overnight, Asian markets were mixed but leaned toward the green side.  Taiwan (+0.85%), New Zealand (+0.75%), and Japan (+0.48%) led the more plentiful gaining exchanges.  Meanwhile, China is still on the struggle bus with Shenzhen (-2.14%) and Shanghai (-1.34%) pacing the losers.  In Europe, stocks are mixed with more of the bourses in the red than in the green at midday.  The CAC (-0.14%), DAX (-0.03%), and FTSE (+0.64%) are typical of the spread with only Switzerland (+1.00%) moving more than a percent in early afternoon trade.  In the US, as of 7:30 am, markets are looking to open just on the green side of flat so far.  The DIA implies a +0.13% open, the SPY is implying a +0.13% open, and the QQQ implies a +0.06% open at this hour.  At the same time, 10-year bond yields have backed down strongly again to 4.259%, and Oil (WTI) is down 1.52% to $78.42 per barrel in early trading.

The major economic news scheduled for Wednesday includes Building Permits (8 am), Preliminary August S&P US Mfg. PMI and Preliminary August S&P Global Composite PMI (both at 9:45 am), July New Home Sales (10 am), and EIA Crude Oil Inventories (10:30 am).  The major earnings reports scheduled for before the opening bell include ANF, AAP, ADI, BBWI, DY, FL, GRAB, KSS, LANC, PTON, and WSM.  Then, after the close, ADSK, GES, NTAP, NVDA, SNOW, and SPLK report.

In economic news later this week, on Thursday, we get July Durable Goods Orders, Weekly Initial Jobless Claims, Fed Balance Sheet, and Bank Reserve Balance with the Fed.  The Central Bankers Jackson Hole Conference also starts.  Finally, on Friday, Michigan Consumer Sentiment, Michigan Consumer Expectations, Michigan Consumer Inflation Expectation, and Michigan Consumer 5-year Inflation Expectations are reported.  Fed Chair Powell also speaks as the Jackson Hole Conference continues.

In terms of earnings reports, on Thursday, BURL, DLTR, NTES, WOOF, RY, TD, WB, GPS, INTU, MRVL, JWN, ULTA, and WDAY report.  Finally, on Friday, there are no earnings reports scheduled.

In miscellaneous news, accounting firm Ernst & Young reported that in 2022, for the first time ever, US oil and gas companies paid out more in earnings to shareholders than they spent on exploration and field development.  The E&Y report said the top 50 US oil and gas producers spent $58.8 billion on buybacks and dividends while only spending $55.1 billion on exploration and development.  The report predicted the trend will continue as well as seeing more money plowed into acquisitions rather than actual finding and producing oil and gas.  Elsewhere, Bloomberg reported Tuesday evening that bond sales by US financial institutions topped $2 trillion so far this year, reaching that milestone in the fastest time ever. This comes the same day that S&P downgraded 10 US regional banks, including KEY and CMA.  Finally, mortgage demand dropped to a 28-year low as interest rates spiked last week.  The national average rate for a 30-year, fixed-rate, conforming loan spiked to 7.31%.  This caused new purchase loan applications to fall 5% for the week while refinance applications dropped 3%.

So far this morning, ANF, DY, GRAB, and KSS all beat on both the earnings and the revenue line.  Meanwhile, BBWI missed on revenue while beating on earnings.  On the other side, AAP and PTON both beat on revenue while missing on earnings.  However, ADI and FL missed on both the top and bottom lines.  It is worth noting that ADI, FL, and PTON all lowered their forward guidance.

With that background, it looks like the market is tepid at this hour. While the premarket session opened higher, all three major indices are printing black candles in the early session and have fallen back near Tuesday’s closing level. The SPY and QQQ are failing another retest of their T-lines (8ema) on the early move. The short-term trend remains bearish. Also, on top of the normal resistance levels, all three major index ETFs have to climb through their T-lines AND their 50sma (where they are all flirting with a Blue Ice Failure pattern) to make a push. In other words, the Bulls have their work cut out for them at this point. With that said, the SPY and especially the QQQ are trying to reverse to break the downtrend. Of course, the much longer-term trend is still bullish since last year but that has been pushed hard recently by the Bears. As far as extension goes, there is no issue with extension below the T-line (8ema). However, the T2122 indicator remains oversold, although it isn’t pegged to the bottom of its range. So, once again we have room to move in either direction, but the relief pause or bounce may be here. Just remember the market can remain too extended a lot longer than we can remain solvent betting on a reversal that has not happened yet.

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.

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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