Thursday was a volatile day in the morning and the Bear’s market in the afternoon.  The SPY “gapped” up 0.16%, the DIA opened dead flat, and the QQQ gapped up 0.43%.  From there, all three major index ETFs traded sideways for the first 45 minutes, sold off the next hour, and rallied until 12:25 p.m.  Then a short, sharp selloff lasted 15 minutes, reaching new lows for all three major index ETFs.  This was followed by an equally sharp rally to the highs of the day by 1:10 p.m.  However, that was when the Bears took over and sold the market the rest of the day, closing not far off the lows. This action gave us large-body, black candles with larger upper wicks and smaller lower wicks.  All three of those major index ETFs retested and failed their T-line (8ema) from below, while DIA retested and failed its 200sma and QQQ came very close to testing and failing its 50sma.  This all happened on heavier-than-average volume in the SPY, DIA, and QQQ index ETFs.

On the day, all 10 sectors were in the red with Consumer Cyclical (-1.46%) out front leading the way lower.  Meanwhile, Energy (-0.29%) held up better than other sectors.  At the same time, the SPY was down 0.88%, the DIA lost 0.75%, and QQQ lost 0.94%.  VXX gained 4.95% to close at 26.30 and T2122 dropped down further into (into the bottom of) its oversold territory at 5.24. 10-year bond yields spiked yet again to 4.994% while Oil (WTI) popped again by 2.42% to close at $90.46 per barrel.  So, on Thursday we had a very volatile market.  There is no way to know for sure the cause of the morning volatility or the afternoon selloff.  However, Fed Chair Powell spoke at noon, it was also midday when Rep. Jordan gave up on having a vote today and decided to back giving more power to appointed Speaker Pro Tempore McHenry (while saying he is still running for the job but would back McHenry for few months).  There was also news out of the Middle East midday as the Israeli Defense Minister reportedly green-lighted the expected ground invasion of Gaza and a US Destroyer intercepted drones/missiles launched by the Yemeni Houthis (backed by Iran) toward Israel.

The economic news reported Thursday included Weekly Initial Jobless Claims that came in better than expected at 198k (compared to a forecast of 212k and a previous week’s value of 211k).  At the same time, the Philly Fed Mfg. Index came in weaker than anticipated at -9.0 (versus a forecast of -6.4 but better than the September reading of -13.5).  For reference, a value above zero means improving conditions, and below zero means deteriorating conditions.  Later, September Existing Home Sales (month-on-month) came in better than expected at 3.96 million (compared to a forecast of 3.89 million but down from the August value of 4.04 million). This amounts to a 2.0% decline month-on-month, which is a bit worse than the August decline from July which was -0.7%.  Finally, after the close, the Fed Balance Sheet continued to show it slow and steady decline, as it moved from $7.952 trillion to $7.933 trillion.

In Fed speak news, as mentioned, Fed Chair Powell gave a speech to the Economic Club of NY.  In the speech, he said pretty much what was anticipated.  Powell said inflation remains too high, but progress has been made and the economy remains strong, especially in the labor market (which is also a Fed mandate).  However, his primary tone was to expect rates higher for longer…and the process will be long.  His notable quotes included “Inflation is still too high, and a few months of good data are only the beginning of what it will take”, “While the path is likely to be bumpy and take some time, my colleagues and I are united in our commitment to bringing inflation down sustainably to 2 percent”, “Incoming data over recent months show ongoing progress toward both of our dual mandate goals —maximum employment and stable prices,” and “Does it feel like policy is too tight right now? I would have to say no.”  Then after hours, Dallas Fed President Logan said “We have some time” to see data before deciding on the next rate move.  She indicated the Fed can be deliberate and hinted at continuing the rate pause.  She noted that tightening monetary conditions (caused by rising bond yields) will help slow economic growth, curbing inflation and giving the FOMC the slack needed to wait.

In Autoworker contract talks and strike news, F laid off another 150 employees at one of its MI plants Thursday, again citing the UAW strike as the reason.  Later, UAW workers in AL ratified a deal with MBGAF (Mercedes) supplier ZF and ended their strike with that supplier.  Elsewhere, in tangentially related news, Reuters reported Thursday that UNP is seeking to renegotiate contracts with its customers, citing the impact of the UAW strike on costs.  However, the primary driver behind the move appears to be inflation impacts, with the UAW strike being a convenient reason to cite for needing renegotiations. 

In stock news, on Thursday, TSLA joined GM and F in slowing its expansion of EV production capacity.  TSLA CEO Musk said, “People hesitate to buy a new car if there’s uncertainty in the economy.”  Later, Reuters reported that Japan’s JFE Steel is in talks to buy a stake in TECK or at least TECK’s metallurgical coal unit.  At the same time, NOK announced it plans to cut 14,000 jobs between now and 2026.  Elsewhere, DG announced the reinstatement of former CEO Vasos (who had left in 2022).  Later, ENPH announced the availability of its EV chargers throughout North America.  (The lack of immediate availability has been a drag in charger installations in 2023.)  By mid-afternoon, STLA announced a deal to do an asset transfer deal with China’s Dongfeng Motor Group. The deal will increase STLA exports, allowing STLA to further penetrate the Chinese markets.  Dongfeng will get STLA land rights and buildings in the swap.  After the close, CVS removed many common decongestants (recently found ineffective by studies) from store shelves and discontinued their sale. 

In stock government, legal, and regulatory news, the EPA ordered NSC to do more cleanup in East Palestine OH (site of their Feb. derailment and chemical spill).  At the same time, AMZN asked a US District Court to dismiss the FTC lawsuit, claiming the FTC was using poorly defined concepts and terms to punish the company.  (The terms mentioned were “manipulative” or “deceptive.”)  Later, WBA settled a class action suit brought by investors in now-bankrupt RAD for $192 million.  (The investors claimed WBA had misled them about WBA’s interest in buying RAD back in 2017.)  Meanwhile, PFE won unconditional approval for its acquisition of SGEN from EU antitrust regulators.  In the early afternoon, MO filed suit against 34 vape manufacturers, seeking an injunction as it claimed they violated state and federal laws to “illegally compete” with MO’s NJOY vape unit.  At the same time, Bloomberg reported that the FDIC and Fed are considering rules to curb the system leverage by regulating how banks can trade with hedge funds.  Currently, hedge funds are allowed to employ significant leverage by betting on the spread between Bond futures and the cash market price of the same vehicle with banks.  The FDIC and Fed can only regulate the banks but this new rule on banks would be a means of curbing systemic risks posed by hedge funds by denying them the bank trading partners.  Elsewhere, on Thursday the CFPB proposed new rules that would make it easier for consumers to transfer their data between financial service providers.  The “open banking draft” rule is intended to supercharge competition in the financial services sector by giving customers the ability to easily walk away from bad service.  The rules should be finalized in 2024.  (The EU, UK, and others already have such rules.)

After the close, AMTB, ASB, OZK, CSX, KNX, and WAL all reported beats to both the revenue and earnings lines.  Meanwhile, ISRG missed on revenue while beating on earnings.  It is worth noting that the regional banks continued their massive revenue growth quarter-on-quarter (ASB +49.2%, OZK +67.8%, WAL +44.3% just to name three.)

Overnight, Asian markets were red across the board.  South Korea (-1.69%) Thailand (-1.66%), and New Zealand (-1.27%) led the region lower.  In Europe, we see the same thing taking shape at midday.  The DAX (-1.24%), CAC (-1.16%), and FTSE (-0.82%) are leading the region lower in early afternoon trade.  In the US, as of 7:30 a.m., Futures are pointing toward a modestly red start to the day (relative to the rest of the globe).  The DIA implies a -0.22% open, the SPY is implying a -0.21% open, and the QQQ implies a -0.28% open at this hour.  Meanwhile, 10-year bond yields are “down” to 4.933% and Oil (WTI) is up modestly to $90.60 per barrel in early trading.

There is no major economic news scheduled for Friday. However, again we hear from Fed member Harker (9 a.m.) and Mester (12:15 p.m.).  The major earnings reports scheduled for before the open include AXP, ALV, CMA, EEFT, HBAN, IPG, RF, and SLB.

So far this morning, CMA, EEFT, HBAN, and TLSNY all reported beats to both the revenue and earnings lines.  Meanwhile, AXP and SLB have missed on revenue while beating on earnings.  On the other side, ALV, IPG, and RF beat on revenue while missing on the earnings line.  It is worth noting that the banks continue to post significant quarter-on-quarter revenue growth.  For example, CMA (+36.0%), HBAN (+35.2%), and RF (+19.7%).

In US Congressional news, Rep. Jordan failed to garner any more support for his bid to become Speaker of the House on Thursday.  So, voting was again postponed (canceled for the day).  Jordan’s GOP opponents leaked to the press that they’ve been planning their opposition and intend to slowly decrease his vote total, by increasing the number who vote for someone else, on each successive vote. (This sounds like a pretty odd approach that would mean some who are in opposition actually vote for Jordan in early rounds of votes. Nonetheless, it was leaked to multiple news outlets.) After another fiery closed-door shouting/swearing match amongst the GOP caucus, opponents refused to even talk with Jordan.  As a result, Jordan said he will now back giving appointed Speaker Pro Tempore “increased interim powers” for the rest of 2023…but will continue running for the job in hopes of ceasing the post in January.  (Jordan believes the two-plus months would allow him to pressure and sway his GOP opponents.  However, other GOP Reps. say the time will make no difference, the bullying/pressure will increase opposition, and the move would only prolong the GOP agony by reigniting the fight in January.)  Meanwhile, the extreme right-wing group of the GOP that brought down former speaker McCarthy despises the idea of empowering McHenry anyway, because he was chosen by and is a very close ally of McCarthy.

In miscellaneous news, while fear of inflation makes the headlines, there are places where disinflation is taking place.  For example, a bumper corn crop has caused global corn stockpiles to grow with the USDA expecting that after the US harvest, US storage of corn will have increased 55% from a year earlier.  As a result, all the companies that use corn inputs are seeing major decreases in cost.  CALM (largest egg producer in the US) says that their input cost per dozen eggs has fallen almost 11% in the 3-months ending on Sept 2 and corn supplies won’t peak for 2-3 months.  Elsewhere, the Biden Administration announced two separate offers to buy oil to refill the strategic petroleum reserve totaling 6 million barrels.  The offers would be filled in December and January.  Meanwhile, NOAA released a forecast saying low water levels in the Mississippi River will persist through at least January, despite an improved drought forecast.  The hope of relief from the drought in the Mississippi River Valley comes from the El Nino weather pattern forecast for this winter. 

In mortgage news, Bloomberg reported Thursday that the average home price in the US is now just over $412,000.  Assuming a 20% downpayment ($82,400), and a 7.2% interest rate, an American family would need to make more than $112k per year and spend no more than 30% of their income on housing.  There are only two problems with that math.  The US average 30-year, fixed-rate, 20% down rate is now 8.5% and the US average annual salary is $70k.  In other words, the average American family cannot afford to buy a home…not even close. In related news, long-term US bond yields (which are loosely tied to mortgage rates) are spiking along with other bond yields. The US 10-year bond briefly traded at a 16-year high Thursday of above 5%.

With that background, it looks like the market is still undecided at this point in the premarket. All three index ETFs gapped modestly lower to start the early session. However, they have been putting in indecisive moves since that open with DIA giving us a small black-body candle, QQQ giving us a small white-bodied candle, and SPY giving us a small Doji. So, the market leans bearish but does not seem to have made up its mind yet. All three major index ETFs are back below their T-line (8ema). With no economic news on tap today and Fed Chair Powell having spoken Thursday, it is not likely the Fed speakers will rock the boat much either today. We could get a little volatility from anything the House does. However, the main news risk would seem to be geopolitics and Middle Eastern war and/or terror news. In terms of extension, none of the three major index ETFs are too far from their T-line (8ema). The T2122 indicator is now back down well into its oversold territory. So, we still have some slack to the downside, but more slack to the upside if one of the two sides can gather momentum. Just remember that the market can stay over-extended a lot longer than you can stay solvent being right too early. Also, remember that its Friday, Payday, and time to prepare your account for the weekend news cycle.

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.

Ed

🎯 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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