On Monday, markets gapped higher at the open (up 0.60% in the SPY, up 0.69% in the DIA, but up only 0.21% in the QQQ). After 20 minutes of meandering sideways around the opening level, all three major indices began to selloff. DIA pulled back the least, stopping its descent at about 11:20 am. Meanwhile, the SPY reached its lows (at the Friday closing level) shortly after noon. At the same time, QQQ sold off the most reaching its lows at about 12:10 pm. From these lows, the SPY and QQQ have put in a very slow, almost sideways, climb, regaining a fraction of the ground lost during the morning selloff by the highs, which were reached at about 3 pm. For its part, DIA did the same very slow climb but having lost the least was able to regain its opening level. Again, DIA reached its highs of the day just after 3 pm. This action gave us indecisive candles across all three major indices. The SPY printed a black-bodied Spinning Top, the DIA printed a black-bodied Doji, and the QQQ printed a black-bodied Bearish Engulfing Candle with wicks on both ends.
On the day, nine of the 10 sectors were in the green with Energy (+2.33%) leading the way higher while Technology (-0.44%) lagged behind the other sectors. At the same time, the SPY gained 0.19%, the DIA gained 0.65%, and QQQ lost 0.69%. VXX fell more than 3.5% to 47.97 and T2122 climbed up to the top end of the mid-range (just outside of overbought territory) at 76.12. 10-year bond yields spiked to 3.541% on the day while Oil (WTI) skyrocketed 5.43% to $73.02 per barrel. Monday saw a gap higher as banking fears quieted down. However, after the open, action was very indecisive and even leaned bearish (especially in the tech-heavy QQQ that has led the market for some time now). This all happened on lower-than-average volume (much lower in the SPY and QQQ).
In stock news, CRM announced it has reached a deal with activist investor Elliott Management, which will avoid a proxy fight. The move came after CRM disbanded its mergers and acquisitions committee, reported stronger-than-expected results, said it will double buybacks and promised more headcount reductions. Then, at midday, DIS said it will begin the first of three rounds of layoffs (totaling 7,000 job cuts announced in February) this week. Meanwhile, LCID announced it is recalling 637 of its 2022-2023 vehicles due to electrical problems that could result in a loss of power while driving. (LCID delivered only 4,494 vehicles as of the end of last year. So, this is a significant portion of LCID production.) In other electric vehicle news, LICY announced it will open a new facility to break down (recycle Lithium) batteries in France in 2024. The project will be similar to plants LICY already has under construction in Germany and Norway. Meanwhile, CVS said late Monday that it expects to close its $8 billion acquisition of SGFY this week. (This likely means CVS has gotten past antitrust scrutiny and approvals.) Elsewhere, after hours, AMTI cut 57% of its workforce and has begun exploring strategic alternatives. At the same time, PINS announced a restructuring plan which includes the roughly a 4% workforce reduction announced in February. The announced plan includes subleasing leased office space in San Francisco. Finally, the Wall Street Journal reported that LYFT announced it has named David Risher (former AMZN and MSFT executive) as CEO beginning April 17.
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In stock legal and regulatory news, RACE hailed a deal, between Germany and the EU, which will allow small-volume manufacturers like RACE to continue producing internal combustion engine vehicles beyond 2035 as long as they can be run on “carbon-neutral e-fuels.” (Exactly what constitutes a “carbon-neutral e-fuel” was not explained.) Elsewhere, the US Supreme Court declined to hear an appeal that was a challenge on US steel import tariffs. This leaves the 25% tariffs on European steel in place and was a loss for DORM and several other Turkish steel importers who were the plaintiffs. Meanwhile, AMZN lost its bid to avoid a class-action consumer lawsuit (damages are estimated between $55 billion and $172 billion) filed by residents of 18 states over pricing policies. Later in the day, it came out that the FDIC will backstop the deal whereby FCNCA will acquire much of SIVB assets. The FDIC will provide FCNCA with a line of credit. At the same time, the former TSLA employee who had their $137 million racial bias verdict reduced by an appeals court has filed suit again rather than accept the $15 million reduced amount. The new trial begins this week. In other legal news, the newly-fired FOX News producer is recanting her testimony supporting FOX in the $1.6 billion defamation case filed against FOX by Dominion Voting Systems. That same former employee filed amended discrimination and retaliation lawsuits against FOX as well.
In cryptocurrency news, COIN is waiting on the filing of a lawsuit and charges by the SEC (claiming the company sold unregistered securities) which were announced via the receipt of a Wells Notice letter last week. However, Binance (the world’s largest cryptocurrency exchange) and its CEO Changpeng Zhao will be the first crypto exchange to be tested by the US government. The US Commodity Futures Trading Commission (CFTC) filed suit against Binance over regulatory violations on Monday. (Binance recently made news when its due diligence prior to a proposed white knight acquisition turned up the fraud and mismanagement at now-defunct FTX.
In energy news, the major cause behind Oil’s huge rise Monday came from a halt to exports from Iraq’s Kurdistan region. Turkey stopped pumping Iraqi oil following its loss of an arbitration case confirming that Bagdad’s approval was required for the shipping of Kurdish oil. This instantly dropped global oil supplies by 450,000 barrels per day. Adding to the pain, Russia was quick to announce “it is close to achieving its goal of cutting production 500,000 barrels per day (down to 9.5 million barrels per day produced).
After the close, PVH and EE reported beats on both the revenue and earnings lines. PVH also raised its forward guidance.
Overnight, Asian markets were mostly green. New Zealand (+1.36%), Hong Kong (+1.11%), and South Korea (+1.07%) led the broad-based rally. Meanwhile, Taiwan (-0.81%), Shenzhen (-0.72%), and India (-0.20%) paced the losses. In Europe, we see a similar picture taking shape at midday with an even split of red and green among the bourses. The CAC (+0.01%), DAX (+0.06%), and FTSE (+0.07%) lead as always on market size. However, Greece (-1.22%), Denmark (-0.39%), and Belgium (-0.36%) pace the losses. On this side of the pond, US Futures are pointing toward a start to the day just on the red side of flat. The DIA implies a -0.02% open, the SPY is implying a -0.10% open, and the QQQ implies a -0.15% open at this hour. At the same time, 10-year bond yields are rising again to 3.568% as money leave bonds early and Oil (WTI) is on the green side of flat at $72.89/barrel in early trading.
The major economic news events scheduled for Tuesday include Feb. Trade Goods Balance and Feb. Retail Inventories (both at 8:30 am), Conference Board Consumer Confidence (10 am), and the API Weekly Crude Oil Stocks report (4:30 pm). Fed Vice Chair for Bank Supervision Barr, FDIC Chair Gruenberg, and Treasury Department Undersecretary Liang are also scheduled to testify to (be grilled by) the House at 10 am. The major earnings reports scheduled for the day are limited to CNM, ESLT, IHS, MKC, SNX, and WBA before the opening bell. Then after the close, CALM, PLAY, JEF, LULU, and MU report.
In economic news later this week, on Wednesday, Feb. Pending Home Sales and EIA Weekly Crude Oil Inventories are reported. Thursday, we get Q4 GDP, Q4 GDP Price Index, Weekly Initial Jobless Claims, and Treasury Sec. Yellen speaks. Finally, on Friday, Feb. PCE Price Index, Feb. Personal Spending, Chicago PMI, and Michigan Consumer Sentiment are reported as well as Fed Member Williams speaking.
In earnings later this week, on Wednesday, we hear from CTAS, PAYX, UNF, CNXC, FUL, and RH. On Thursday and Friday, there are no major earnings reports scheduled.
So far this morning, WBA, MKC, and HIS have reported beats on the revenue and earnings lines. Meanwhile, ESLT beat on revenue while missing on earnings. On the other side, CNM reported inline on revenue while missing on earnings. (SNX reports later in the premarket). It is worth noting that HIS raised its forward guidance.
In late-breaking news, BABA founder Jack Ma returned to China Monday (after more than a year abroad) in what many saw as a potential sign that President Jinping may be softening his stance on the technology sector. Then overnight it was announced that BABA will split into six different business units, each with its own CEO and board as well as its own ability to raise outside funding and go public. Ma will not be CEO of any of the units, but his return to China is perceived as the blessing of the move by the government. BABA shares were up almost 9% in premarket on the news. Elsewhere, Bloomberg reports SCHW has more than $29 billion in unrealized, long-dated bond losses on its books (as of year-end). In addition, the report said higher interest rates are starting to cause its customers to move money out of SCHW and into money-market vehicles.
With that background, it looks like the markets are in a “wait and see” mood this morning. All three of the major indices sit just above their T-line (8ema) with DIA and SPY also sitting just above the 17ema. DIA also sits just atop its 200sma. So, overextension is not an issue in any of the big indices, nor does the T2122 indicator look stretched. The economic news scheduled is not likely to be market-moving today. However, it is possible some news about the banking sector will come from the (mostly political) grilling of regulators by the House today. The market remains very choppy with a bullish lean in the SPY, a full-blown bullish trend in the QQQ, and much more of an undecided feel to the DIA.
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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