All Eyes on Chair Powell This Morning

Markets gapped higher at the open (by a half of a percent in the large-cap indices and by three-quarters of a percent in the QQQ), following the rest of the world higher.  Then the bulls gave us a follow-through that lasted until we reached the highs of the day at about 11:30 am.  At that point, the bears stepped in to lead an afternoon selloff that took us lower, all the way into the close.  The large caps completely faded the gap, getting into negative territory by day end.  However, while the QQQ sold off, it held up better than the large caps.  This action saw the SPY retest and fail its 50sma and the coinciding resistance level.  It has also brought the QQQ up near a retest of its own 50sma above before pulling back.  We should also note that all three major indices printed Shooting Star-type candles.

On the day, six of the 10 sectors are in the green as Technology (+1.52%) led the way higher and Healthcare (-1.17%) lagged behind the other sectors.  At the same time, the SPY was down 0.06%, the DIA was down 0.29%, and QQQ was up 0.65%.  Volume was back below average again in all 3 indices.  Meanwhile, the VXX was up 0.52% to 13.47, and T2122 fell but remains in the overbought territory at 85.33.  10-year bond yields plunged down to 3.53% and Oil (WTI) was up 1.53% at $74.90 per barrel.  So, overall, it was a gap-up, Shooting Star type of day with the bulls happy early and the bears completely in control during the afternoon

In economic news, Atlanta Fed President Bostic spoke to an Atlanta business group, basically reiterating the recent comments made by Fed Chair Powell.  Bostic said they (Fed) are prepared to take rates higher and stay higher for longer to tame inflation.  (And, yes, even at the risk of tipping the economy into recession.)  Meanwhile, San Francisco Fed President Daly told the Wall Street Journal that she expects rates to go “somewhere above 5%” and that “doing so in more gradual steps does give you the ability to respond to incoming information.”  However, it did seem that both speakers were talking about whether the Fed will raise 0.25% or 0.50% on February 1. It is also worth noting that neither of these Fed Presidents have a vote in 2023 (both were voters in 2022).

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In stock news, LMT announced a $14.2 billion sale of F-35 fighter jets to Canada (to be delivered in 2026).  Elsewhere, two retailers increased their holiday sales forecasts as AEO and ANF both said Monday that consumers had been snapping up their winter gear during the holidays.  However, on the other side, LULU lowered its Q4 guidance.  In the healthcare space, MRNA is reportedly evaluating a $110-$130 price range for its Covid-19 vaccine once it moves from government contracts to commercial sales.  This is a similar range to the one PFE revealed it is considering.  (The original price for both was $15-$16 per dose and then rose to $26/dose in the July 2022 government contract.)  After the close, Bloomberg reported that AAPL is preparing to stop using chips from AVGO and QCOM in its devices by the end of 2024 (replacing those chips with Wi-Fi chips built to internal designs).  Finally, Bloomberg reported that MSFT is in discussions with OpenAI bout investing as much as $10 billion into the creator of the artificial intelligence chatbot named ChatGPT.

In energy news, the US Federal government has rejected the initial batch of bids to resupply 3 million barrels of crude into the Strategic Petroleum Reserve.  No details on the bid prices were given, but the Dept. of Energy had previously said it is looking to refill the 180 million barrels recently released at a price of $70/barrel.  Meanwhile, the price of the largest exported grade of Russian oil (Urals grade) was selling at well less than half of the international price.  Urals was selling for $37.80/barrel (compared to $79.80/barrel for Brent) at the Baltic Sea port of Primorsk. This is far less than even the G-7 imposed price cap.  All of which is proving that sanctions on Russia are having a serious economic impact. Finally, the German energy regulator said that a natural gas shortage is increasingly unlikely due to conservation efforts and a mild winter.  The Federal Network Agency said Germany’s gas storage facilities are currently still 91% full.

After the close, JEF beat on both the revenue and earnings lines.  However, both lines also showed negative growth (lowered targets) with earnings less than half of the same quarter in 2021.  The company blamed a persistent slump in the number of M&A deals as the cause.  So far this morning, BBBY reported misses on both lines (expected after very recent warnings that the company may file for bankruptcy). ACI and SNX report later in the premarket period.

Overnight, Asian markets were mixed but leaned to the downside.  Singapore (-1.29%), India (-1.03%), and Malaysia (-0.56%) led the region lower while Japan (+0.78%), Shenzhen (+0.50%), and Taiwan (+0.34%) paced the gains.  In Europe, with the sole exception of Portugal (+0.16%), we see red across the board at midday.  The FTSE (-0.19%), DAX (-0.45%), and CAC (-0.73%) are leading the region lower in early afternoon trade.  As of 7:30 am, US Futures are also pointing toward a down start to the day.  The DIA implies a -0.36% open, the SPY is implying a -0.33% open, and the QQQ implies a -0.45% open at this hour.  At the same time, 10-year bond yields are back up to 3.563% and Oil (WTI) is up a half of a percent to $75.04/barrel in early trading.

The major economic news events scheduled for Tuesday are limited to Fed Chair Powell speaking (9 am) and the API Weekly Crude Oil Stocks (4:30 pm).  The major earnings reports scheduled for the day are limited to ACI, BBBY, and SNX before the opening bell.  Then after the close, NOTV reports.

In economic news later in the week, on Wednesday, we get EIA Crude Oil Inventories.  On Thursday, December CPI, Weekly Initial Jobless Claims, the WASDE Ag Report, and the December Federal Budget Balance are reported. Finally, on Friday, we get December Import/Export Prices, Michigan Consumer Sentiment, and hear from Fed member Harker.

In terms of earnings, on Wednesday, we hear from KBH.  On Thursday, INFY and TSM report.  However, on Friday, we hear from BAC, BK, BLK, C, DAL, FRC, JPM, UNH, WFC, and WIT.

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In late-breaking news, COIN announced that it is cutting 20% of its workforce after having cut 18% back in June 2022. The cuts last June were attributed to “growing too fast” while the current cuts are blamed on “market conditions created by bad actors” (referring to FTX). Finally, the Dollar is trading up against the Yen and Pound while it is flat against the Euro this morning. The overall Dollar index is up 0.32% today, which will provide a headwind to commodity prices.

With that background, it looks like all three major indices look like they are headed for a retest of their T-line (8ema) in premarket action. This looks like at least an initial follow-through to Monday’s Shooting Star signal. However, this is far from a definitive direction change and none of the three major indices has even re-entered the three-week consolidation zone again. So, for the moment, this looks like volatility (chop) as markets wait on Fed speakers and CPI later in the week. Fed Chair Powell, may have an outsized impact this morning with no other economic data or major earnings news to offset his tone. So, be cautious in chasing the premarket move unless you are very nimble.

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

Swing Trade Ideas for your consideration and watchlist: No Trade Ideas today. 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

🎯 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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Disclosure: We do not act on all trades we mention, and not all mentions acted on the day of the mention. All trades we mention are for your consideration only.

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