Analysts Expect Smaller Increase on CPI

Stocks gapped up 1.5% Tuesday in what appeared to be a relief rally in the making.  However, it was a Bull Trap that the Bears sprung immediately leading to a steady selloff that lasted all morning, more than filling the gap before flattening out near the lows by lunchtime. Still, the whipsaw was not done. So, stocks reversed and a strong rally kicked in about 12:30 pm, followed by another selloff, and then another rally, etc.  This action gave us indecisive, big wick, black candles that both printed new 52-week lows and look to be ending in the green in the QQQ and SPY.  The technology and healthcare sectors led on the day with Utilities lagging. On the day, SPY was up 0.23%, DIA closed down 0.26%, and QQQ rose 1.21%.  The VXX fell 3.4% to 27.05 and T2122 remained deeply oversold at 1.33.  10-year bond yields fell but then rebounded to close just below 3% at 2.993% and Oil (WTI) fell 3.45% to $99.56/barrel. 

After the close, OXY, GFS, FNF, HRB, RXT, GO, ALC, SCSC, DAR, and ADV all reported beats on both revenue and earnings.  Meanwhile, ELY missed on revenue while beating on earnings.  On the other side, WELL reported beating the estimates on revenue but missed on the bottom line.  Finally, EA, COIN, RBLX, WYNN, YELL, RKT, OSCR, GSM and DBD reported misses on both lines.

Cryptocurrency markets are in turmoil as twice in the last 2 days a major “stablecoin” has decoupled from its supposed dollar pegging.  The idea behind a stablecoin is that a computer algorithm maintains a 1:1 peg to the dollar by buying/destroying digital assets.  (This would be like the dollar under the gold standard, but with a computer printing/burning dollars in an attempt to maintain the dollar-gold exchange rate.)  The first to decouple was Luna, which dove more than 80% in value.  Then UST dropped as far as to 31 cents and is now trading at 50 cents on the dollar.  Both stablecoin are part of the same project Terra.  Terra creator Do Kwon (who has also amassed billions of dollars’ worth of bitcoin) said Tuesday he is close to announcing a plan to recover and return to a 1:1 dollar peg. The moral of the story is that stablecoins aren’t.

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On the Russian invasion story, Finland’s Foreign Minister Haavisto said his country is now just days away from applying for NATO membership.  Meanwhile, the war may be expanding as Belarus moved their special forces to the border of Ukraine claiming that the US and its allies are increasing their presence on that country’s border.  Ukraine said that it will turn off natural gap pipelines from Russia to Europe as Russia’s forces have disrupted operations at several facilities.  This pipeline accounts for a third of Russian gas exports to Europe and this may well reduce supplies for EU countries.

The economic news coming later this week includes Apr. PPI, Weekly Initial Jobless Claims, the WASDE Report, and a Fed speaker on Thursday.  Then on Friday, we see Apr. Imports/Exports, Michigan Consumer Sentiment, and a couple more Fed speakers.

The talk in financial markets seems to be all expecting a Fed “overshoot.” In other words, they are assuming that inflation has now peaked and the Fed is behind the curve, tightening into a slowing economy. That would lead to a so-called hard landing. This is all just US-focused, but there are and will be impacts on global markets from the Russian aggression and Western responses with the CIA reporting Putin is preparing for a very long-term conflict. For example, food prices will be raised when the supply of grain is reduced a significant amount. And oil prices cannot help but be impacted as the West is at least nominally banning Russian oil while Saudi Arabia and the UAE are warning about a lack of capacity to expand production to offset those reductions. My point is that markets tend to front-run the economy by 3-9 months and it is impossible to forecast something when the future environment is not known. So, watching the chart is much better than predicting the market in months-long positions.

Overnight, Asian markets were mixed again but on more muted moves than earlier this week.  Shenzhen (+1.80%), Hong Kong (+0.97%), and Shanghai (+0.75%) led the gains while Thailand (-0.58%), India (-0.45%), and Taiwan (-0.35%) paced the losses.  This came as Chinese Consumer Prices rose by 2.1% in April, the fastest increase since November.  Meanwhile, in Europe, markets are mostly in the green despite a spike in natural gas prices on the Russian pipeline news.  The FTSE (+1.11%), DAX (+1.29%), and CAC (+1.94%) are leading the region higher in early afternoon trading.  As of 7:30 am, US Futures are pointing toward a gap up to start the day once again.  The DIA implies a +0.86% open, the SPY is implying a +1.13% open, and the QQQ implies a +1.48% open ahead of key inflation data.  10-year bond yields are down again to 2.93% and Oil (WTI) is up almost 3.5% to $103.22/barrel in early trading.

The major economic news scheduled for release on Wednesday includes Apr. CPI (8:30 am), Crude Oil Inventories (10:30 am), 10-year Bond Auction (1 pm), and Apr. Fed. Budget Balance (2 pm).  There is also another Fed speaker (Bostic at noon).  Major earnings reports scheduled for the day include ICL, NOMD, PFGC, PRGO, SLVM, TM, WEN, and WWW before the open.  Then after the close, DOX, APP, CPA, CPNG, PAAS, STE, and DIS report.

So far this morning WWW, OCPNY, and ICL have reported beats on both revenue and earnings.  Meanwhile, NOMD, ADRNY, PCRFY, BRTHY, and EC all missed on revenue while beating on earnings.  On the other side, BRDCY, SGIOY, AJINY, MNBEY, and PRGO have reported beating the estimates on revenue but missed on the bottom line.  Finally, TM, TAK, FUJIY, AGESY, SMTOY, ATC, and WEN have reported misses on both lines.

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Premarkets are up significantly and most analysts are saying that they expect the April CPI to show that inflation has now peaked (expecting an +8.1% print versus last month’s +8.5% number). This means that the risk this morning is on the downside as an unexpectedly hot print could reverse overnight gains and shock markets. Either way, there is no reason to panic and chase the open Futures are backing off earlier highs. Regardless of the number, the Fed is still very likely to raise rates by half a percent in June and it would take a significant shock one way or the other to move them off that amount of hike. This means that markets will still have several weeks to adjust before the Fed regardless of today’s number. Again, no need to panic or experience FOMO. So, once again the question is whether the implied gap up is a “dead cat” bounce or the beginnings of a reversal. The smart money remains in the “relief rally at best, bull trap at worst” camp given the strong bear trend and current over-extension. So, if you are bound to go long in this move, be very cautious and extremely nimble. The bears still have all the momentum.

Stick with your trading rules and manage the things that you can control while trying not to worry about the things you have no control over at all. Trade with the trend, don’t chase, keep consistently taking profits when you have them, and move your stops in your favor. Remember that the first rule of making big money in the market is to not lose big money in the market. So, don’t be stubborn, and protect yourself from yourself. You also don’t need to be in the market all the time. If this isn’t a market condition you thrive in, then get out of the way. It will settle out at some point and it’s far better to wait and have money the market condition you prefer than to force trades now and be busted when things do turn. Keep in mind that nobody is right all the time. If you’re wrong, just admit it and take your loss. Focus on your process and enjoy yourself.

Ed

Swing Trade Ideas for your consideration and watchlist: VMD, NXPI, OXY, MCK, WDC, HPQ, ABC, EPAM, JPM, MRK, VLO, VZ, CHRW, GSK, EXPD, PVH. 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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🎯 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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