Markets gapped up on Monday (up 0.59% in the SPY, up 0.49% in the DIA, and up 0.86% in the QQQ). After that we had a sag in all three major index ETFs that lasted until 11 a.m. At that point, the SPY and QQQ had only retraced about half of their morning gap before beginning a long, slow rally that lasted the rest of the day. On the other hand, DIA continued to sell until almost noon, at which point it had recrossed the morning gap up. Then DIA followed the other two majors with a very modest afternoon rally getting back up into the middle of the gap. This action gave us a white-bodied Hammer that bounced up off the T-line (8ema) in the SPY and QQQ, as well as a black-bodied Spinning Top that bounced up off the T-line in the DIA. Both the SPY and QQQ crossed back above their 50sma. This all happened on well-below-average volume (far-below in the DIA) in the major index ETFs.
On the day, nine of the 10 sectors were in the green with Consumer Cyclical (+1.04%) and Communication Services (+0.96%) leading a broad rally while Energy (-0.82%) was the only laggard in the red. At the same time, the SPY gained 0.66%, DIA gained 0.25%, and QQQ gained 1.18%. VXX fell another 2.35% to close at 20.78 and T2122 climbed again but remained in the mid-range at 37.21. 10-year bond yields climbed up to close at 4.294% while Oil (WTI) fell just a couple of pennies from Friday’s close to close at $87.31 per barrel. So, on balance, the bulls won the day again and the breadth has improved in the last few days. (For example, 302 of the S&P500 were in the green Monday.) However, the breadth is starting from a very low level and, as an example, only 158 of the S&P500 were up more than the SPY itself. (TSLA did a lot of lifting in both the SPY and QQQ on its +10.09% day.) DIA remains the weak link and laggard.
There was no major economic news reported Monday. However, the NY Fed released the results of its August Consumer Sentiment survey. The bank said that respondents now see slightly higher inflation a year from now compared to the July survey. August showed 3.6% is expected in a year while 3.5% was expected a year out in July. When looking out three years, the average expectation fell slightly from 2.9% in July to 2.8% in August. For the five-year horizon, consumers expect 3.0%, which is up slightly from the 2.9% 5-year-out expectation in July. Elsewhere, a Commissioner for the CFTC proposed the creation of a national database (hard to believe one does not yet exist) where investors and law enforcement can research past fraud convictions and civil fines from agencies for financial misconduct.
In stock news, early Monday QCOM announced it will continue supplying AAPL with 5G chips for its phones and tablets until at least 2026. Previously, the deal was set to end at the end of 2023 and AAPL purchased the INTC modem business in 2019 with the expectation they could replace QCOM with internally-made modems. Later, STLA announced that is has teamed up with an investment firm to begin the third phase of its share buybacks (which is part of the $1.5 billion buyback program announced back in February). This round of buybacks will be comprised of roughly $537 million. At about the same time, BA announced that Vietnam Airlines committed to order 50 of the company’s 737-8 jets for $7.8 billion during President Biden’s post-G20 Summit visit to their country. At the same time, back in the US, SJM announced an agreement to acquire TWNK for $5.6 billion ($4.6 billion plus $1 billion in assumed debt). Elsewhere, DIS and CHTR (second-largest cable operator) reached a deal midday, ending the service disruption that was impacting CHTR customers. (Despite media predictions of this contract dispute potentially changing the industry, it looks as if that was much more hype than reality.) In the mid-afternoon, EVGO announced it had received the first batch of 350kw fast chargers from DLTEF. After the close, analysts say that TSLA’s huge 10% gain was fueled almost completely by industry reports that TSLA’s new “Dojo” supercomputer could add $600 billion in market value by helping speed up the move into robotaxis and software services. In response, stock analysts from JPM, MS, and others raised their TSLA target prices and the stock exploded higher. After the close, GE announced it would sell its 32.4 million share stake in AER via an underwritten public offering. (The deal is worth $2 billion at AER’s closing price.) GE had previously sold 18 million shares of AER in March. Also after the close, UPS said it expects its new contract with the Teamsters to increase its wage and benefit costs by 3.3% annually over the life of the contract, which expires July 31, 2028.
In stock government, legal, and regulatory news, a US federal judge ruled against the motion by META, ruling that the company must face a lawsuit claiming they have violated the medical privacy of patients. At least 664 Hospitals and clinics had let META collect Pixel tracking data, which was then sold to advertisers by META like all other tracking data. In a follow-up to an earlier report, RTX took a $3 billion charge and told airline customers that an average of 350 of EADSY (Airbus) jets will need to be grounded each year (with a maximum of 650 at one time in 2024). This is needed in order to remove the Pratt & Whitney (owned by RTX) engines to check for a metal flaw in internal engine parts. RTX estimates 700 engines will need to be removed from jets to undergo a lengthy quality inspection and that process will last through 2026. (A microscopic impurity was inadvertently introduced into the metal powder used to make internal parts of the engines, potentially causing engine failures when in operation.) In COVID news, the FDA authorized COVID-19 vaccines from BFE/BNTX and MRNA. (A third vaccine from NVAX is still under review.) The approval paves the way for the release of the two vaccines later this week.
After the close, CASY and ORCL both missed on revenue while beating on earnings. Neither company changed forward guidance, although the ORCL quarterly guidance did disappoint by not raising after weaker than was expected cloud revenue for the quarter being reported.
In Autoworker contract talks or strike news, STLA said they plan to make a new offer to the UAW after the union made its own counteroffer on Sunday. The UAW responded by saying they are ready to negotiate 24×7 until things get hammered out and that some progress has been made, but there is a long way to go. For its part, STLA sent an email to employees saying the negotiations are on a good path and that many of the negotiating subcommittees had reached a tentative deal over things like health and safety concerns. Elsewhere, industry analyst J.D. Power said they estimate that the production cuts from a strike against all three major automakers could raise new car prices by 1% each week the strike lasts. They also say TM, HMC, and VLKAF (Volkswagen) could be winners from a domestic-maker strike. However, JDP believes they would run out of inventory quickly as well amidst any significant-length strike. (The current contract ends at midnight on Thursday night and the union has already voted to authorize a strike.)
Overnight, Asian markets were mostly in the red but the biggest movers were on the green side. Japan (+0.95%) and Taiwan (+0.85%) were by far the largest gainers. At the same time, South Korea (-0.79%) and Hong Kong (-0.39%) were the leaders of the more numerous down exchanges. In Europe, the bourses are more evenly split at midday, with six of the 15 exchanges in the green, led by Russia (+1.03%) while eight of the bourses are in the red, led by Finland (-1.11%). The CAC (-0.06%), DAX (-0.32%), and FTSE (+0.52%) are typical of the spread and lead the region on volume as usual. In the US, as of 7:30 a.m., Futures are pointing toward a down start to the day. The DIA implies a -0.18% open, the SPY is implying a -0.26% open, and the QQQ implies a -0.28% open at this hour. Meanwhile, 10-year bond yields are flat at 4.29% and Oil (WTI) is up a little more than two-thirds of a percent to $87.90 per barrel in early trading.
The major economic news scheduled for Tuesday includes the EIA Short-Term Energy Outlook and WASDE Ag Report (both at noon), August Federal Budget Balance (2 p.m.), and API Weekly Crude Oil Stock Report (4:30 p.m.). In addition, SEC Chairman Gensler is scheduled to testify before the Senate Banking Committee at 10 a.m. There are no major earnings reports scheduled for Tuesday, either before the bell or after the close.
In economic news later this week, on Wednesday, August Year-on-Year CPI, August Month-on-Month CPI, and EIA Weekly Crude Oil Inventories are reported. On Thursday, we get August Month-on-Month PPI, Weekly Initial Jobless Claims, August Retail Sales, July Business Inventories, July Retail Inventories, and the Fed Balance Sheet. Then Friday, August Export Price Index, August Import Price Index, NY Empire State Mfg. Index, August Year-on-Year Industrial Production, August Month-on-Month Industrial Production, Michigan Consumer Sentiment, Michigan Consumer Expectations, Michigan Consumer 12-month Inflation Expectation, and Michigan Consumer 5-Year Inflation Expectations are reported.
In terms of earnings reports later this week, on Wednesday, CBRL reports. On Thursday, we hear from ADBE, CPRT, and LEN. Finally, on Friday, there are no major earnings reports scheduled again.
In miscellaneous news, AAPL is expected to introduce another new iPhone (v15) today. At the same time, the US vs. GOOG antitrust case gets underway. This case accuses GOOG of using exclusive (or effectively exclusive) business contracts to stop competitive search engines from gaining or even maintaining any market share. GOOG is expected to counter by claiming the definition of search is too narrow and if you include searches on AMZN, the AAPL store, SPOT, DASH, and many others then it is possible to say GOOG does not have a search monopoly.
In last-minute stories, Bloomberg reports that Mexico has overtaken China to become the US’s largest supplier of goods (origination point of US imports). Interestingly, Mexico’s currency is the strongest-performing one in the world so far this year, which is saying something given the strength of the Dollar. The Mexican stock market is also one of the best-performing. Elsewhere in the world, Russia’s Putin traveled across his country to meet North Korea’s Kim Jung Un. Putin is desperate for more weapons for his so-far-failed invasion of Ukraine and North Korea has always been and probably will always be in desperate need of economic assistance.
With that background, it looks like the Bears want to test the Bulls resolve after a positive Monday. The SPY and DIA are both retesting their T-line (8ema) from above and the SPY is retesting its 50sma from above in this morning’s premarket action. All three major index ETFs are showing very small candles at this time. So, it may be a wait-and-see market or it could be that there is indecision early this morning. Either way, we are not seeing major volatility or move so far before the opening bell. The very short-term and mid-term trends remain bullish, but only just so in the short-term. (The previous short-term downtrend has been broken, but we have not yet proven we can hold above it. So, it is really a presumed resumption of the mid-term uptrend.) As far as extension goes, none of the major index ETFs are very far from their T-line and the T2122 indicator is still sitting in the lower end of its mid-range. So, there is plenty of slack for either the Bulls or the Bears to make a move. Again, it’s a matter of finding the buyers or sellers to get the move started.
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.
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