Banks Flush, Energy Edgy, Airlines Short-Staffed

The major stock indices gapped 0.4% – 0.9% higher at the open Thursday.  Then the QQQ immediately faded that gap before reversing to cross the gap again and run up to new highs at about 11:30 am.  The other 2 major indices simply ground sideways all morning after the gap.  From 11:30 am to 1 pm all 3 major indices sold off back down through the gap to the lows of the day before rebounding yet again to recross the gap in the late afternoon, closing at new highs for the day.  Six of the 10 sectors were up (with the Healthcare sector leading the way) and four of them were down (with Energy by far down the worst performer).  So, after tremendous volatility all 3 major indices printed indecisive, Spinning Top action.  Of the 3, only the QQQ has managed to cross its T-line with the other two majors failing a T-line retest.  Again Thursday, this happened on lower-than-average volume.  On the day, SPY gained 0.95%, DIA gained 0.70%, and QQQ gained 1.49%.  The VXX fell almost 2% to 23.40 and T2122 climbed, but remains inside oversold territory at 16.88.  10-year bond yields fell to 3.091% and Oil (WTI) rebounded off early lows to close down 2% to $104.06/barrel.

During the day we got a number of bad economic data points.  Q1 Current Accounts (difference between the value of imports and exports) came in at a record $291 billion.  Initial Weekly Jobless Claims also came in slightly above forecast.  Later we heard that the June Mfg. PMI and June Services PMI both came in below expectation. However, it is worth noting that both indexes came in above 50, meaning there was more activity in the last month than in the previous month. This added to the energy market fears of a tumble in economic activity (drop in demand).

Related to dividends, the results of the Fed Stress Test on major banks showed that all 33 institutions that were tested passed the test with flying colors.  The test shows these banks can withstand a hypothetical scenario of 10% unemployment, a 40% drop in real estate prices, and a 55% drop in stock prices.  Passing the test now frees up those major banks to pay dividends and initiate share buyback programs.

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In business news, UAL announced they will drop 12% of their flight schedule, citing labor shortages (pilots in particular).  This follows Wednesday’s AAL announcement that they are dropping flights to 4 smaller cities for the same reasons. Elsewhere, INTC stepped into politics by warning they would have to delay their recently announced new $20 billion chip fabrication plant in Ohio…unless Congress passes the $52 billion semiconductor industry subsidy package very soon.  INTC CEO Pat Gelsinger went on to say the company’s 2021 commitment to spend $100 billion on increasing US chip production would need to be reconsidered unless the bill becomes law soon.  (Two different versions of this bill have already passed in the House and Senate.  The versions are now being negotiated to reach a final form that can be passed and then sent to President Biden for signature. Apparently, INTC thought its threat might be enough to get a finalized bill across the finish line sooner.)

In technical analysis news, after Thursday, among SPY members, only 48 tickers closed above their 50sma.  Among these are BAC, JPM, QCOM, AVGO, V, HD, COST, PYPL, MU, KO, C, PFE, ADBE, BA, PG, DIS, ABBV, NFLX, WMT, MA, CSCO, and CMCSA.  21 of the SPY components are trading at 52-week lows, including META, DE, CAT, FCX, NXPI, GE, MO, DOW, EXPE, EMR, HLT, CMI, MLM, BBWI, WYNN, IR, VMC, RHI, WRK, LNC, and DVA.  In addition, 236 of the SPY constituents are now above their T-line (8ema).

After the close, FDX reported that is missed on both the revenue and earnings lines.  So far this morning, KMX has also beat on both the top and bottom lines.  CCL reports at 9:15 am.

On the Russia story, China and India have stepped up their purchase of Russian oil and gas.  In fact, they’ve bought so much that despite Western embargoes, sanctions, and Russia’s own reduction of gas shipments to Europe, they have sold more energy in the last month than ever before.  Simply put, Russia is rolling in money thanks to their friends China and India.  At this point, the EU is seriously worried about a 100% shutdown of Russian natural gas pipelines.  Germany, Italy, Austria, and the Netherlands are all scrambling to prepare coal-fueled power plants in the event Moscow turns off their gas altogether.  This caused the EU to warn of the collapse of global energy markets if Russia were to shut down its pipeline in the fall/winter.  In particular, Germany warned of a “Lehman Brothers moment”  for energy markets if that happened with contracts being broken as countries fight each other for every cubic foot of natural gas, every gallon of oil, and railcar of coal.

Overnight, Asian markets were green across the board.  South Korea (+2.26%), Hong Kong (+2.09%), and Shenzhen (+1.37%) led the region higher.  In Europe, stocks are mostly following Asia’s example at mid-day.  However, 3 European exchanges are also sharply lower as Finland (-2.85%), Sweden (-1.60%), and Russia (-1.09%) are well in the red.  The FTSE (+1.41%), DAX (+0.95%), and CAC (+2.11%) are leading their region higher in early afternoon trading.  As of 7:30 am, US Futures are pointing toward another gap to start the day, this one higher.  The DIA implies a +0.67% open, the SPY is implying a +0.78% open, and the QQQ implies a +0.90% open at this hour.  Meanwhile, 10-year bond yields are up to 3.117% and Oil (WTI) is up more than 1.8% to $106.20/barrel in early trading.

The major economic news events scheduled for release Friday are limited to Michigan Consumer Expectations and May New Home Sales (both at 10 am).  We will also hear from Fed hawk Bullard at 7:30 am.  On the earnings front, we get reports from KMX and CCL before the open.  There are no major reports scheduled after the close.

In cryptocurrency news, hackers have again pulled off a major theft, raising fear in the reeling asset class.  This time, $100 million worth of Ethereum from Horizon (a so-called blockchain bridge, which acts as a network hub allowing tokens to be exchanged between blockchains).  Relatively speaking, this was a smaller theft compared to the $600 million Ronin Network and $320 million Wormhole heists.  Still, in a market reeling from stablecoins that go to zero value, threats of government oversight, regulation, and taxation around the globe, this is yet another blow to the “DeFi” movement.

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Volatility is still the watchword in US markets and in particular the stock and bond exchanges. Intraday reversals and whipsaw action still reign in this market. Today we look to be gapping higher at the open again, but so far none of the major indices have taken out the top of the range we’ve dropped into the last 2 weeks. So, caution and taking your time remain the smart plays. Remember that we immediately faded the gap seemingly every day in the last week. So, don’t be in a hurry to chase that gap. As the saying goes, slow is smooth and smooth is fast. The mid-term and long-term trends remain strongly bearish, while the trend this week is bullish and we are still oversold, but more to the edge of that territory than the last few days. So, there isn’t much of an edge for trend traders at the open today.

As always, remember that trading is our job. So, do the work and follow the process. Demonstrate patience and wait for confirmation. Stick with your trading rules, trade with the trend, and consistently take profits when you have them. Always, always, always move your stops in your favor. Remember the “Legend of the man in the green bathrobe“…it’s not house money, it’s all our money (so don’t give very damn much of it back). Also, the first rule of making big money in the market is to not lose big money in the market. So, don’t be stubborn. If you have a loss, just admit you were wrong, respect your stop, and take the loss before it grows. As they say, the best time to have taken a $500 loss is when you are now staring at a $1,500 loss. 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: BKKT, TUP, COIN, W, XBI, SHOP, U, TDOC, TLRY, BYND. 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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🎯 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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Disclosure: We do not act on all trades we mention, and not all mentions acted on the day of the mention. All trades we mention are for your consideration only.

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