US markets gapped higher at the Friday (+0.70% in the SPY, +0.65% in the DIA, and +0.95% in the QQQ) on solid big bank earnings reports.  However, within 10 minutes, the reversal kicked in to see all 3 major indices sell off hard the first hour.  Then a long, slow, grinding bear trend took over to drive us to the lows of the day within a couple of minutes of the close.  This action gave us a Bear Dark Cloud Cover signal in the SPY and QQQ, with a similar candle in the DIA (just support from the T-line prevented it from reaching the right size to be a true Dark Cloud Cover).  The SPY and QQQ also both failed to find support at their T-lines (8ema).

On the day, all 10 sectors were in the red, with Basic Material (-3.75%) leading the market lower while Healthcare (-1.33%) and Communication Services (-1.36%) held up the best.  Meanwhile, SPY was down 2.28%, DIA was down 1.24%, and QQQ was down 3.01%.  The VXX was up 2.24% to 21.45 and T2122 fell but remains in the mid-range at 34.78.  10-year bond yields have reversed an early loss to jump to 4.022% while Oil (WTI) is down 3.92% to $85.61/barrel.  Overall, Friday was a big “bull trap” bearish reversal day which also partially reversed Thursday’s wild bullish ride.

In economic news Friday, September Retail Sales came in dead flat (compared to a forecast of +0.2% and an August reading of +0.4%).  The September Export Price Index was -0.8% (which was better than the -1.0% forecast and the August -1.7%) while the Sept. Import Price Index was -1.2% (which was lower than the forecast -1.1% as well as the August -1.1%). August Business Inventories grew less than expected at +0.8% (versus the +0.9% forecast and July’s +0.5%). The Michigan Consumer Sentiment reading was better than expected a 59.8 (versus the 59.0 forecast and last month’s 58.6 number).  On the Fed front, in a speech at Harvard, Fed Governor Waller said that a digital dollar would not offer material benefits over current US-dollar-denominated payments.  He said this is especially true since a central bank digital currency would introduce additional threats, such as cybersecurity threats.  Finally, Atlanta Fed President Bostic announced late Friday that he had “accidentally” broken Fed trading rules over recent years by doing personal trading during the Fed blackout (pre-announcement) periods, had filed “incomplete” disclosure documents, and had owned more than the permissible limit of US Treasury Bonds last year.  He went on to say that despite these revelations, he had never traded on non-public information.  However, the Fed has begun an investigation and the same type of activity has led to two Fed resignations in the last year.

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In stock news, ABT recalled some of its liquid Similac brand baby formula (due to a bottle defect) on Friday.  Meanwhile, Reuters reported that CS is in talks with several of its peer big banks about underwriting a potential stock offering to raise capital.  The bank said it would prefer not to sell more shares at the current depressed price, but is making plans in case it becomes unavoidable.  The Wall Street Journal reported that Rupert Murdoch is considering combining FOX (and FOXA) with NWSA.  Elsewhere, SLB is getting backlash from 9,000 Russian employees after the company began cooperating with Russian authorities to carry out military conscription orders at work. On Saturday, a second AAPL store (in OK this time) voted to unionize.

In international news, on Friday, UK Prime Minister Truss fired her finance minister (Chancellor of the Exchequer). She also reversed course on the corporate tax cuts she had promised and dug her heels in to defend as late as Thursday.  However, calls for her to resign (just 38 days into the job) continued this weekend.  Meanwhile, markets in the UK are in crisis due to contradictory, unworkable, and unpopular messaging and policies coming out of the PM and her cabinet. Meanwhile, in China, Xi Jinping opened the Communist Party Congress and is expected to be reelected to an unprecedented third term as the head of the Chinese Communist Party later this week.  In his opening speech, Xi doubled down on his “Zero Covid” policy (which still has several major cities locked down and has quarantines in place for some intracity travel) as well as calling for more competition with the US, including the semiconductor arena.

In dividend news, on Sunday, Investing.com reported last week’s largest dividend hikes.  CMC raised its quarterly dividend by 14.3% to $0.16/share (which amounts to an annual yield of 1.6%). LOCO declared a special dividend of $1.50/share (for holders of record on 10/24) to be payable on Nov. 9.  MCD increased its dividend by over 10% to reach a 2.5% annual yield of $6.08/share.  Meanwhile, SKT increased its annual dividend by 10% to $0.22/share, which is a 1.5% annual yield.

So far this morning, BAC and BK both reported beats on the revenue and earnings lines.  In particular, BAC beat revenue estimates by nearly $7 billion.  (SCHW reports at 8:45 am).  In other bank news, the Wall Street Journal reports that GS implemented a sweeping reorganization, splitting its largest unit into three divisions while also combining its asset management and wealth management businesses into a single unit.  

Overnight, Asian markets were mixed with Australia (-1.40%), Taiwan (-1.23%), and Japan (-1.16%) leading the losses.  Meanwhile, India (+0.73%), Thailand (+0.68%), and Shanghai (+0.42%) paced the gains.  However, in Europe, the exchanges are green across the board.  The FTSE (+0.72%), DAX (+0.91%), and CAC (+0.93%) are leading the region higher partially on the good news that Germany has no filled 95% of their natural gas storage (ahead of winter) and partially on a nearly total reversal by the UK government on it unfunded tax cuts and freeze of cost-of-living adjustments.  As of 7:30 am, US Futures are pointing to a significant gap up to start the week.  The DIA implies a +1.03% open, the SPY is implying a +1.24% open, and the QQQ implies a +1.49% open at this hour.  10-year bond yields continue being volatile as they have plunged back down to 3.947% and Oil (WTI) is flat at 85.61/barrel in early trading.

The major economic news events scheduled for Monday are limited to NY Empire State Mfg. Index (8:30 am) and Federal Budget Balance (2pm tentative).  The major earnings reports scheduled for the day include BAC, SCHW, and BK before the open.  There are no major reports scheduled for after the close.

In economic news later this week, on Tuesday we get Sept. Industrial Production and API Weekly Crude Oil Stocks Report.  Then Wednesday, we see Sept. Building Permits, Sept. Housing Starts, EIA Weekly Crude Oil Inventories, Fed Beige Book, Fed member Bullard speak. On Thursday, Weekly Jobless Claims, Philly Fed Mfg. Index, and Sept. Existing Home Sales are reported.  Finally, on Friday, Fed member William speaks.

In earnings reports later this week, on Tuesday, ACI, GS, HAS, JNJ, LMT, SBNY, STT, and TFC report.  Then Wednesday, we hear from ABT, ALLY, ASML, BKR, CFG, CMA, ELV, LAD, MTB, NDAQ, NTRS, PG, PLD, SCL, TRV, UNF, WGO, AA, CCI, EFX, IBM, KALU, KMI, KNX, LRCX, LSTR, LVS, LBRT, PPG, STLD, TSLA, and UMPQ.  On Thursday, ABB, ALK, T, BX, DHR, DOV, DOW, EWBC, ERIC, FITB, FCX, GPC, HRI, KEY, MAN, MMC, MSM, NOK, NUE, PM, POOL, DGX, SNA, SNV, TSCO, UNP, WSO, WBS, SAM, CSX, RHI, SNAP, SIVB, UFPI, WAL, and WHR report.  On Friday, we hear from AXP, ALV, EEFT, HCA, HBAN, IPG, RF, SLB, and VZ.

Volatility seems to want to continue to be the rule, as premarket futures indicate we will be popping back inside Friday’s big, ugly black candle. However, do not get caught up in emotions. Remember the bull trap on Friday and the bear trap on Thursday that ripped the face off those who chased the gap those days. So, just let things settle out for a while before you go adding any new positions.

Extension isn’t a factor today, either in terms of the T-line or T2122. However, volatility and intraday reversal are valid and serious concerns. This will be a big earnings week (see above) and Fed speakers are also likely to cause gyrations as traders keep trying to outguess the FOMC. Remember that the downtrend remains intact in all the major indices and, for what it is worth, we also had a bearish candle signal on Friday. So, be cautious and demonstrate patience (wait for confirmation).

Don’t be stubborn. If you have a loss, just admit you were wrong and take it before it grows. And when price does move in your direction, always move your stops in your favor (remember the “Legend of the man in the green bathrobe“…it is NOT HOUSE MONEY, it’s all OUR MONEY!). Also, keep in mind that trading is not a hobby. It’s a job. 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. Lastly, remember that you get rich slowly and steadily in Trading…not by striking it rich on one or two trades. So, give up that lottery ticket mentality.

See you in the trading room.

Ed

Swing Trade Ideas for your consideration and watchlist: DHC, WFC, JPM, BA, LUV, SB, NWL, EA, IGT. 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.

🎯 Mike Probst: Rick, Got CTL off the scanner today. Already up 30%. Love it.

🎯 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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