Markets opened just on the red side of flat Wednesday but then started a slow grind higher, rising all the way into the 2 pm FOMC announcements. However, traders did not like what they saw from the Fed and we got a massive, volatile selloff for the next 5 minutes, leading into a sideways chop until 2:30 pm when Fed Chair Powell began to speak. Once again this caused another huge selloff for 5 minutes taking us to the lows of the day. Then the dip-buyers stepped in and have been rallying back up toward the T-line (8ema) on the daily chart up until 3:15 pm when the bears stepped back in. This action is giving us indecisive, black-bodied, Spinning Top candles in all major indices.
On the day, eight of the ten sectors are in the red with Financial Services (-1.12%) and Energy (-1.10%) leading the way lower while the Healthcare (+0.15%) sector held up best. Meanwhile, the SPY was down 0.64%, the DIA was down 0.47%, and the QQQ was down 0.74%. This action took place on greater than average volume. The VXX fell by 3.43% to 14.08 and T2122 dropped to just outside the oversold territory at 26.22. 10-year bond yields were also volatile but now down to 3.479% and Oil (WTI) was up more than 2.6% again to $77.38 per barrel. So, overall, it was a mildly bullish day right up until the Fed chopped it down with an axe. After that, it was schizophrenic while traders try to evaluate the Fed projection, parse the Fed statement, and read between the lines of Chair Powell’s responses to questions.
In economic news, the November Import Price Index fell more than expected at -0.6% (compared to the forecast of -0.5%) and the November Export Price Index fell less than expected at -0.3% (versus the forecast of -0.4%). Both of those indicate a lessening of inflation pressure. Later in the morning, EIA Weekly Oil Inventories unexpectedly spiked (following last night’s API lead) by 10.231 million barrels (compared to a forecasted 3.595 million barrel drawdown). However, as we know, the Fed was the main stage of the day. The Fed is projecting Q4 Interest Rates of 4.4% this year, 5.1% in 2023, 4.1% in 2024, and 3.1% in 2025. They said they expect longer-term interest rates to be 2.5%. They also decided to increase Interest rates to 4.25% – 4.50% (a smaller than the recent, 0.50% hike). The FOMC statement said they welcome the October and November reductions in inflation, but then implied they will keep rates high through 2023 (when the market had been expecting a rate cut in the next year). Meanwhile, the unanimously-approved policy statement remains hawkish. During his presser, Powell echoed this when he said the Fed policy is not “sufficiently restrictive” yet and “more rate hikes are appropriate.” Finally, he said it will take “substantially more evidence that inflation is cooling” (before stopping the ever more restrictive policy).
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In stock news, CVX announced that it is forming a joint venture with a Swedish firm Baseload Capital to develop large-scale geothermal electricity generation projects in the US. Elsewhere, GM recalled 825k 2020-2023 trucks and SUVs over an issue with daytime running lights and headlights. In Canada, the trial over the ROG purchase of SJR wrapped up with many expecting a quick verdict. (The two are on the same side seeking the deal to go through with the Canadian government blocking their merger over antitrust concerns.) Meanwhile, a subsidiary of AIG filed for bankruptcy last evening in order to complete the wind-down of the business unit that was at the center of the 2008 financial crisis. The unit still owes its parent $37 billion and AIG has already taken the $37 billion as a loan loss. Finally, after the close, WBD raised its estimates of “scrapped content” expenses to $3.5 billion (a $1 billion increase).
In government news, on Wednesday, it was reported that the SEC will be voting on rules that would require orders to be auctioned at market (which would kill the existing “payment for order flow” model that brokerages use as of today). After the close, the SEC did vote to move forward on the new rule proposals. Elsewhere, the SEC and Dept. of Justice filed charges against 8 social media influencers for securities fraud in relation to a “pump and dump” scheme. In unrelated news, the same agencies charged an employee of major financial services firm TIAA-CREF with “front-running” that company’s trades, which amounts to both securities and wire fraud. Finally, the NLRB voted 3-2 to throw out a Trump-era rule that prohibited small “micro union” organizing (which is a key union organizing tactic where small groups organize and then the small groups can merge into one larger union (when the union might not have won a vote of all employees of a company or facility).
In miscellaneous news, overnight it was reported that despite his statements otherwise, Elon Musk has sold another $3.58 billion of TSLA stock. This brought his total 2022 sales of the stock to almost $40 billion. Then in late-breaking news, across the pond the Bank of England has followed the Fed to raise interest rates 0.5% (to 3.5%), which is also a slowing of increase from November’s ).75% increase. Of note, is that the decision to take this action was a 6-3 vote (not unanimous). Finally, the FTX saga continues as it was reported overnight that someone wrote and stored code that was designed to hide the movement of money from FTX to Alameda Research (which was SBF’s personal investing company) by hiding the liabilities. Bloomberg reports that this code was found in a GitHub account that bears the name of an FTX executive.
After the close, LEN, NDSN, and TCOM all reported beats on both the revenue and earnings lines. However, it is worth noting that although LEN had an 11% earnings beat, it reduced its forward guidance. (JBL is scheduled to report at 8 am.)
Overnight, Asian markets leaned heavily red as the region gave its reaction to the Fed news from yesterday. South Korea (-1.60%), Hong Kong (-1.55%), and India (-1.32%) led the region lower while only Shenzhen (+0.32%) managed any gains. Meanwhile, in Europe, we see a lot of red but three smaller exchanges remain in the green at midday. With that said, the FTSE (-0.44%), DAX (-1.15%), and CAC (-1.15%) are more typical and lead the region lower in early afternoon trade. As of 7:30 am, US Futures are pointing toward a gap lower to start the day. The DIA implies a -0.75 open, the SPY is implying a -0.96% open, and the QQQ implies a -1.22% open at this hour. 10-year bond yields are falling again at 3.466% and Oil (WTI) is off one-tenth of a percent to $77.20/barrel in early trading.
The major economic news events scheduled for Thursday include November Retail Sales, Weekly Initial Jobless Claims, NY Fed Empire State Mfg. Index, and Philly fed Mfg. Index (all at 8:30 am), Nov. Industrial Production (9:15 am), as well as October Business Inventories and October Retail Inventories (both at 10 am). The major earnings reports scheduled before the open are limited to JBL. Then after the close, ADBE reports.
In economic news later this week, on Friday, Mfg. PMI and Services PMI are reported. Meanwhile, in earnings later this week, on Friday, we hear from CAN, DRI, and WGO.
The Fed’s message that the inflation fight will take longer and require higher terminal rates than the market has assumed thus far has now had a night to sink in. While the initial wave of volatility has subsided, this morning we get the rethink move of the re-reaction (which closed out Wednesday in a rebound wave). It looks like all 3 major indices will gap back below their T-lines (8ema) at the open today. However, it is far from certain whether the bears have the energy for a long run lower. After all, inflation is coming down, gas prices are as low as they have been in a year, layoffs have picked up (but nothing like they were in 2008), and the indications are that the consumer is still spending for the holidays. So, the world is not ending.
With that background, the short-term trend is bullish trendline looks like it might be broken today if we get any follow-through to the current premarket candles. . There is no problem with over-extension yet, either in terms of the T-line (8ema) or the T2122 indicator. So, both sides have room to run, if they have the buyers/sellers to do it. On the charts, we see resistance right above in the DIA (as well as T-line support/resistance in all 3) as well as potential support not far below in the SPY, QQQ, and DIA. Be ready for more whiplash as we get another shotgun blast of economic data at 8:30 am.
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.
Swing Trade Ideas for your consideration and watchlist: GSK, MRK, DXCM, HAL, NIO, TSLA, DKNG, and CRK. 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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