All Eyes on October CPI With Fed in Mind

Stocks gapped lower on Wednesday (0.50% in the SPY, 0.60% in the DIA, and 0.70% in the QQQ) at the open.  From there we saw a sideways roller coaster ride in all 3 major indices until noon.  At that point, the bears stepped in to lead a steady 45-degree selloff for the remainder of the day.  All three of the major indices closed very close to their lows for the day.  This action gave us big, ugly black candles that complete Evening Star-type patterns for the DIA, SPY, and QQQ.  (Not picture perfect, but show exactly the same sentiment change that an Evening Star shows.)  The DIA is sitting right at a retest of its T-line (8ema), while the SPY and QQQ gave up the T-line levels during the day.  Meanwhile, the SPY also fell back through its 50sma after having climbed above it just a day before.  Once again, only the DIA managed to reach their average volume for the day.

On the day, all ten sectors were in the red with Energy (-4.25%) leading the way lower and Utilities (-0.92%) holding up the best.  Meanwhile, the SPY lost 2.05%, DIA lost 1.92%, and QQQ lost 2.31%.  The VXX was up 3.11% to 18.21 and T2122 fell out of the overbought territory and back toward the bottom of the mid-range at 27.27. 10-year bond yields continue to be very volatile and fell back to 4.084% and Oil (WTI) plunged 3.72% to $85.60/barrel.  So, overall, it was a gap down and then fail to hold the level type of day.  Perhaps, most traders were waiting on today’s CPI print before making any serious moves.  However, traders continue to seek safety in the mega-cap DIA as it tries to hold the rest of the market up.

In economic news, early Wednesday morning (3 am), NY Fed President Williams told a Swiss audience that relatively stable longer-term inflation expectations are correct.  Still, he also expressed concern that some in the US are expecting short-term declines in price pressures, which is a bad expectation according to Williams.  Then at mid-morning, the EIA Weekly Crude Oil Inventories showed a 3.925-million-barrel build of inventory (three times the size of the expected build of 1.360 million barrels).  Later in the day, the WASDE report increased both US corn and soybean production forecasts (corn was raised by 35 million bushels, and beans were raised by 33 million bushels).  However, the US corn crop is still expected to be at a three-year low.

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In stock news, MSFT faces a new European antitrust complaint from technology trade group CISPE over its cloud computing (Azure) practices.  In related news, EU antitrust regulators are now drawing up charges against META over its use of customer data.  If META loses the case, the EU would impose fines of up to 10% of the company’s global turnover  (but appeals would drag this case out for years).  Elsewhere, in another “do we really need this and is it safe” decision, ZOOM and TSLA announced they will be bringing video conferencing to TSLA vehicles.  On the legal front, a lawsuit filed in Seattle Wednesday claims that AAPL and AMZN have colluded to drive up iPhone and iPad prices, by allowing only 7 of the previous 600 resellers to stay on the AMZN platform.  (20% discounts used to be common on Amazon prior to the removal of the vast majority of AAPL product resellers.)  In addition, LLY was ordered to pay TEVA $176.5 million after losing a trial over patent infringement related to a migraine drug.  Meanwhile, COP announced it is cutting 1,100 jobs on Wednesday and expects to save up to $500 million (after taking charges for the separation costs).

In miscellaneous news, at the close on Wednesday, Binance backed out of its rescue buyout of peer exchange FTX.  This leaves the FTX exchange and its native token FTT on the brink of collapse. That fear spread all across the crypto space as Bitcoin dropped 13%, Ethereum plunged more than 15%, and BNB-USD plummeted over 16%.  On the supply chain front, railroad unions and companies have extended the strike deadline to December 4. The previously agreed cooling-off period was previously set to expire on November 19.  Finally, in China, the number of new Covid cases in Beijing jumped to the highest in five months this week.  Most alarming to the Health Ministry was that a large number of those were outside the city’s quarantine zone.  This raises the specter of even wider quarantines.

After the close, G, WYNN, JAZZ, ENS, ATO, TTEC, RNG, RXT, TTEK, CRGY, JXN, and RIVN all reported beats on both the revenue and earnings lines.  Meanwhile, CPNG, and RDFN both missed on revenue while beating on earnings.  On the other side, LNW beat on revenue while missing on earnings.  Unfortunately, STE, APP, VET, BGS, CANO, KGC, RBT, ADV, and NGL all missed on both the top and bottom lines.

So far this morning, MT, BAM, AZN, USFD, RWEOY, BDX, NIO, DDS, TDG, KELYA, SBH, SLVM, and NICE all posted beats on both the revenue and earnings lines.  At the same time, AEG, WRK, TPR, EPC, and EYE all missed on revenue while beating on the earnings line.  On the other side, PRMW beat on revenue while missing on earnings.  Unfortunately, WE and SIX missed on both the top and bottom lines.  It is worth noting that USFD and PRMW raised their forward guidance.  However, BDX, NIO, TPR, SBH, WE, and YETI all lowered their forward guidance.

Overnight, Asian markets were mostly down.  Singapore (+0.24%) and Malaysia (+0.252%) were the only green in the region.  Meanwhile, Hong Kong (-1.70%), Shenzhen (-1.33%), Taiwan (-0.99%), and Japan (-0.98%) led the rest of the area’s exchanges lower.  In Europe, stocks are slightly more mixed, but still lean to the red side at midday.  The FTSE (-0.03%), DAX (+0.04%), and CAC (-0.40%) lead the region on volume with Russia (+1.33%) being an outlier in early afternoon trade.  As of 7:30 am, US Futures are pointing toward a modestly higher start to the day. The DIA implies a +0.17% open, the SPY is implying a +0.27% open, and the QQQ implies a +0.50% open at this hour.  10-year bond yields are up slightly to 4.09% and Oil (WTI) is off four-tenths of a percent to $85.47/barrel in early trading.

The major economic news events scheduled for Thursday include October CPI and  Weekly Initial Jobless Claims (both at 8:30 am), and October Federal Budget Balance (2 pm).  We also hear from 4 Fed speakers (Waller at 2 am, Mester at 12:30 pm, George at 1:30 pm, and Williams at 6:35 pm).  The major earnings reports scheduled for the day include AZN, AZUL, BDX, BAM, CAE, CEPU, EPC, GBTG, KELYA, EYE, NICE, PRMW, RL, SBH, SIX, TPR, TDG, USFD, WRK, WE, and YPF before the open.  Then, after the close, BZH, COMP, EDR, FLO, ITUB, STN, and TOST report.     

In economic news later this week, on Friday, we get Michigan Consumer Sentiment.  In terms of Friday earnings reports, AQN reports before the open.

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With crypto markets in mayhem (the FTX exchange may file for bankruptcy today), and control of Congress still an unknown (it looks like the GOP will win the House and the Dems may just barely hang on to the Senate with their VP tie-breaker, but neither is decided yet as races remain uncalled and/or in need of a runoff election), all eyes are on the October CPI data to come out at 8:30 am. The consensus is expecting an annual rate of 8.0%, which seems like a big ask to me since last month’s number was 8.2%. So, I think the risk is to the upside. If we do get a hotter-than-expected number, markets may shoot lower as traders realize that would likely mean the Fed needs to keep up its aggressive rate hikes. If the consensus number is hit (or even beaten), look for the bulls to run (under the expectation that would mean the Fed will ease up in December). In either case, we should know how the market will react well before the open.

With that background and before that data, it looks like the markets are set to open with a modestly green “inside day” type of price as of now. Extension is no issue at all, either from the T-line or in terms of the T2122 indicator. Bear in mind that divergence between the mega-cap DIA (which has been pulling markets higher pretty much single-handedly as of late) remains a very real factor as traders have been seeking the haven of the big, stodgy names. So, beware of the knee-jerk reaction to the CPI number as well as any surprises from election decisions or sore loser challenges in various “election denying” spots around the country. Those could cause a market blip. However, the key thing to keep in mind is that you are no The Amazing Carnac” and you can’t predict reversals. So, just follow the trend and manage your risk. Slow and steady wins the race.

Be deliberate and disciplined, but don’t be stubborn. Remember that it is 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 the loss before it gets out of hand. And when price does move in your direction, always move your stops in your favor and take a little profit off the table. (You have to remember the “Legend of the man in the green bathrobe“…in that situation, it is NOT HOUSE MONEY you’re betting, it’s all OUR MONEY!). Finally, trading is not your hobby. It’s a job. The money is real. 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. I know the Powerball is huge right now, but give up that lottery ticket mentality.

See you in the trading room.


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

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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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