Bears in Control with Q3 Productivity Up

On Tuesday markets opened flat only for all three major indices to start a long, steady selloff that lasted until 3:30 pm.  However, the shorts took profits the last 30 minutes of the day to take us out up off the lows. The SPY and QQQ both also failed their uptrend lines during the day.  This action gave us big black candles with small wicks at both ends.  All three major indices also retested and failed their T-lines (8ema) on the day.  This action took place on a larger-than-average volume in the DIA with a bit less than average volume in the SPY and QQQ.

On the day, nine of the ten sectors were in the red with only the Utilities (+0.11%) able to stay in the green while Technology (-2.23%) led the way lower. In the meantime, the SPY was down 1.45%, the DIA was down 1.05%, and the QQQ was down 2.07%. The VXX was up by more than 3% to 15.07 and T2122 has dropped into the oversold territory at 15.85.  10-year bond yields were down a bit to 3.531% and Oil (WTI) was off 3.38% to $74.35 per barrel.  So, Tuesday was slow melt which saw the large caps close down a fourth straight day and the QQQ close lower for the third straight session.

In economic news, October Imports were up about $3.5 billion while October Exports fell just under $2.5 billion. This gave us an October Trade Balance deficit that was a bit less than expected at -$78.20 billion (compared to a forecast of -$80 billion) but also above the prior month’s actual of -$74.10 billion.  Then after the close, the API Weekly Crude Oil Stock Report saw a larger-than-expected drawdown at -6.426 million barrels (versus a forecasted drawdown of 3.884 million barrels and last week’s drawdown of 7.850 million barrels).

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In stock news, the EU Privacy Watchdog group ruled that META can no longer run ads based on users’ personal data without the users’ explicit consent.  On this side of the pond, the CEO of BAC told Bloomberg that the company will be slowing hiring as fewer than expected employees are leaving the company, but continues to seek talent.  This stands in contrast to MS, which let 2% of its workforce (1,600 people) go on Tuesday.  In other news, Bloomberg reported AAPL has scaled back and delayed (until 2026) its plans to offer self-driving car software for electric vehicles.  Meanwhile, a US District Judge ruled in favor of GSK, PFE, and SNY throwing out 50 thousand of US lawsuits that had claimed the heartburn drug Zantac caused cancer.  However, about 10,000 similar cases in state and local courts remain intact.  Finally, Reuters reports that MOS says that it is cutting potash production at its Saskatchewan Canada mine citing slower-than-expected demand.

In energy news, Oil (WTI) closed very near a one-year low on Tuesday.  This comes as Fed and recession fears have overcome last month’s OPEC+ production cuts.  Earlier in the day, the EIA released projections that US oil production for the year would rise marginally more than their previous estimates to 11.87 million barrels per day average (compared to the previous estimate of 11.83 million barrels per day).  They also now estimate that 2023 production in the US will reach 12.34 million barrels per day.  Still, they expect US oil consumption to be 20.36 million barrels per day and forecast that will rise to 20.51 million barrels per day in 2023.

After the close, PLAY and TOL reported beats on both the revenue and earnings lines.  Meanwhile, CASY missed on revenue while beating on earnings.  Unfortunately, SFIX missed on both the top and bottom lines.  It is also worth noting that TOL and SFIX have both reduced their forward guidance.

Overnight, Asian markets leaned to the downside.  Hong Kong (-3.22%) was an outlier while Australia (-0.85%), Singapore (-0.83%), and Japan (-0.72%) paced the losses.  Only Shenzhen (+0.17%) managed to stay green.  Meanwhile, in Europe, we see a similar picture taking shape at midday.  Only the FTSE MIB (+0.01%) and Greece (+0.15%) are in the green while the FTSE (-0.05%), DAX (-0.39%), and CAC (-0.41%) lead the way lower in early afternoon trade.  As of 7:30 am, US Futures are pointing toward a red start to the morning.  The DIA implies a -0.29% open, the SPY is implying a -0.45% open, and the QQQ implies a -0.70% open at this hour.  10-year bond yields are up slightly to 3.54% and Oil (WTI) is on the green side of flat at $74.35/barrel in early trading.

So far this morning, THO and CPB reported beats on the revenue and earnings lines.  Meanwhile, UNFI beat on revenue while missing on earnings.  (ASO, BF.B, and OLLI all report later but before the opening bell.) 

The major economic news events scheduled for Wednesday include Q3 Labor Cost and Q3 Nonfarm Productivity (both at 8:30 am), and EIA Crude Oil Inventories (10:30 am).  The major earnings reports scheduled for the day include ASO, CPB, WLY, THO, and UNFI before the open.  Then after the close, GME and GEF report.

In economic news later this week, on Thursday we get Weekly Initial Jobless Claims.  Then on Friday, November PPI and Michigan Consumer Sentiment are reported.  In earnings later this week, on Thursday, we hear from CIEN, GMS, HOV, KFY, AVGO, CHWY, COO, COST, DOCU, LULU, and RH.  Finally, on Friday, we hear from LI.

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Overnight the Democrats expanded their tiny majority in the US Senate as Senator Warnock won the GA runoff election. Elsewhere, the first electric vehicle maker unionization vote is taking place in Ohio today and Thursday as the UAW seeks to unionize the GM battery plant in Northeastern Ohio. In non-election news, the large banks warned of recession yesterday and are preemptively cutting jobs to preserve profitability. For their part, WMT says the consumer is strong and we actually need a recession to tame inflation. This all came as the demand for mortgages fell again last week, even as mortgage interest rates fell from 6.49% to 6.41% for a 30-year, fixed-rate, conforming loan. The Mortgage Bankers Assn. said demand fell by 1.9% last week (but were 86% lower than the same week of 2021).

With that background, it looks like premarkets are down again as the QQQ test support and the SPY is reaching to do the same. DIA has not gotten there yet, but could do so on a bad day. The short-term trend remains bearish within the mid-term bullish trend no broken. Note that we have no extension from the T-line is only potentially a problem in the QQQ at the moment. However, we did dip into the oversold area of the T2122 indicator yesterday. Of course, we do have Q3 Productivity and Labor Cost data at 8:30 am, but those are not usually huge market movers. So, overall, if the bulls cannot rally to hold support levels we could see a bearish run for several percent in the QQQ and SPY (with the DIA holding up better on the rotation to the safety of the mega-cap names).

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: No trade ideas today. 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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