Wednesday was a typical Fed Day.  Everybody seemed to be waiting on the FOMC.  The SPY gapped up 0.29%, DIA gapped up 0.27%, and QQQ gapped up 0.27%.  From there, SPY traded sideways in a tight range until 2 p.m.  Meanwhile, DIA drifted very, very slowly higher until 2 p.m.  QQQ took the opposite course selling off until 11:30 a.m. and then trading sideways back at Tuesday’s closing level until 2 p.m.  At 2 p.m., Mr. Market was disappointed by the Fed statement, jerking lower for 5 minutes only to recover over the next 30 minutes.  However, once Fed Chair Powell began speaking, it was “Katy bar the door” as all three major index ETFs sold off sharply and steadily right into the close.  This action gave us large black Bearish Engulfing candles in the SPY and QQQ.  The DIA printed a black-bodied candle with a large upper wick.  All three also failed a retest of their t-line (8ema).  This all happened on below-average volume in the SPY and QQQ with average volume in the DIA.

On the day, seven of the 10 sectors were in the red with Technology (-1.40%) way out in front leading the rest lower.  Meanwhile, Communication Services (+0.27%) held up better than the other sectors.   At the same time, the SPY lost 0.92%, DIA lost 0.22%, and the tech-heavy QQQ lost 1.44%.  VXX gained 3.77% to close at 21.18 and T2122 fell only slightly and remains at the low end of the mid-range at 23.21.  10-year bond yields spiked up to 4.395% while Oil (WTI) fell 1.02% to end the day at $90.27 per barrel.  So, again it was a typical Fed Wednesday where we saw price largely drift sideways until 2 p.m., followed by a fast knee-jerk, slow recovery, and then another strong move.  Just don’t be surprised if there is another reaction at the open or early Thursday after Mr. Market has had a night to sleep on it and get his emotions in check. 

The major economic news reported Wednesday included EIA Weekly Crude Oil Inventories which saw a drawdown of 2.135 million barrels.  This was interestingly far less of a draw than the API reported Tuesday night and was just slightly less than the forecast of 2.200 million barrels.  However, it was down sharply compared to the prior week’s 3.954-million-barrel inventory build.  With that said, the big show Wednesday was the Fed.  As expected, the FOMC kept the Fed Funds Rate unchanged at 5.25% – 5.50%.  The “Dot Plots” were also released showing the current Q3 Fed Funds Rate estimate is 5.6% (which is a bit odd since we are sitting well below that and there is not another FOMC meeting in Q3).  One year out, the Q3 projection is 5.1% (which is greatly increased from the prior prediction of 4.6%).  However, that implies two rate cuts between now and the end of 2024.  This is what really spooked markets as the prior plots implied four cuts next year.  Two years out, again we see a major revision upward in the forecast to 3.9% (up from 3.4%).  Three years out the Fed average forecast is for 2.9%, which is down from the previous 3.1%.  Then the Long-Term Fed Funds Rate Projection is 2.5%, which is unchanged from the previous forecast.  Also buried in the Fed report was a significant increase in the Fed expected GDP for 2023, up from 1.0% in June to now expected 2.1% growth this year.  They also expect far less unemployment than they previously did.  In June they expected unemployment to top out at 4.5% in 2024, now they see 4.1% as the terminal unemployment rate.  (We are currently at 3.8% unemployment.) 

The Fed statement still implied one more rate hike this year and stiffened the hawkish “higher for longer” stance.  Then during his press conference, Chair Powell said that a soft landing is not the base case.  He said, “No, I would not do that … I’ve always thought that the soft landing was a plausible outcome … I do think it’s possible.”  Still, regardless of his words, the data released absolutely screams “soft landing” with higher GDP estimates, reduced unemployment expectations, and projected rate cuts (new cycle) starting in a year or less.  So, the bottom line is that the Fed did exactly what was expected, holding rates steady.  They also reinforced what they said they were going to do…keep rates higher longer.  Finally, they told us they are very nearly done raising rates and see us having the softest of landings, just as we have seen in the economy.  (Yet the market took the news poorly because it was hoping for rate cuts to come early in 2024 and continue steadily that year.)

In stock news, UL has hired MS in a new effort to sell its Q-tips and other personal care brands.  At the same time, French supermarkets announced they would be pressing suppliers to cut prices by up to 5%.  Reuters reports this move is expanding in Europe and companies like the aforementioned UL, PEP, KO, and other food and consumer goods companies will face pricing pressure going forward.  Later, Reuters reported that a consortium including KKR and APO is looking to buy the GreenSky Lending unit from GS.  The transaction is now expected to be in the $500 million range, which is a significant haircut from the $2.4 billion GS paid to buy it in September 2021.  At the same time, QCOM announced it is now entering the WIFI Router market.  (It was already a major supplier to the companies in that market.)  In the announcement, QCOM said it has orders in place from CHTR for this new line of products. Elsewhere, BAC announced it is raising the company’s minimum wage to $23/hour effective in October, with a target of raising it to $25/hour by 2025.  (This was a $1/hour increase over the company’s current minimum of $22/hour.)  Later, AMZN announced it plans to hire 250k extra holiday workers for its distribution and delivery units.  By mid-afternoon, it was announced that WDC is considering a split (splitting its hard drive unit from its flash memory business) of the company based on calls from activist investors Elliott Investment Mgmt.  At the same time, it emerged that WDC is also in merger talks with the owners of Kioxia (formerly Toshiba’s flash memory division).

In stock government, legal, and regulatory news, a federal judge in New York rejected an NFLX dismissal motion and ordered the company to face a defamation lawsuit from a Manhattan prosecutor portrayed in one of their crime dramas.  Later, a federal court in TX dismissed the shareholder case against TSLA related to a toxic workplace causing financial harm to the plaintiffs.  However, it was dismissed for evidential deficiencies without prejudice, meaning the plaintiffs can amend the suit and resubmit it later. Later, Bloomberg reported that XOM is lobbying President Biden and other administration officials to allow hydrogen derived from natural gas to be eligible for environmental tax credits available under the 2022 Inflation Reduction Act.  (Those credits are currently reserved for solar, wind, battery minerals, and “pure” hydrogen projects.  Elsewhere, GE filed suit against a supplier (AOG Technics) who was implicated in a scandal over fake components and forged certifications identified by the EU Aviation Safety Agency.  At the same time, RYAAY (Ryanair) has been notified that Italy’s antitrust agency has opened an investigation of the company over potential abuse of a dominant market position.  Later, AZN was sued in the US by a former senior director who claimed the company had refused to pay $189k in owed bonuses and stock options because she worked from home more than two days per week.  In the “you can’t make this stuff up” department, attorneys who sued TSLA board members, forcing them to return $700 million in excess pay have now filed with the court seeking $229 million ($10,690/hour) in attorney fees.  After the close, AMZN said it would be dropping a planned new fee for merchants who do not use its shipping services in the face of an expected FTC lawsuit.

In Autoworker contract talks and strike news, Canadian Unifor union workers will vote on the tentative deal reached with F on Saturday.  Meanwhile, in the US, UAW strikes are expanding with 190 union workers going on strike against an MBGAF (Mercedes) supplier in AL.

After the close, KBH reported beats on both the revenue and earnings lines.  It also raised its forward guidance.  Meanwhile, FDX missed on revenue while beating quite significantly ($4.55/share actual vs. $3.70/share consensus estimate) on earnings.

Overnight, Asian markets were nearly red across the board with only Thailand (+0.42%) staying in the green.  Meanwhile, South Korea (-1.75%), Japan (-1.37%), and Australia (-1.37%) led the region lower.  In Europe, we see the same picture taking shape at midday.  Only Greece (+0.11%) is in the green while the CAC (-1.56%), DAX (-1.20%), and FTSE (-0.71%) lead that region lower.  In the US, as of 7:30 a.m., Futures are pointing to a down start to the day.  The DIA implies a -0.52% open, the SPY is implying a -0.77% open, and the QQQ implies a -1.02% open at this hour.  At the same time, 10-year bond yields are spiking to 4.441% and Oil (WTI) is down two-thirds of a percent to $89.08 per barrel in early trading.

The major economic news scheduled for Thursday includes Q2 Current Account, Weekly Jobless Claims, Philly Fed Mfg. Index, and Philly Fed Mfg. Employment (all at 8:30 a.m.), August Existing Home Sales (10 a.m.), and Fed Balance Sheet (4:30 p.m.).  The major earnings reports scheduled for Thursday include DRI and FDS before the open.  Then, after the close, there are no earnings reports scheduled.

In economic news later this week, on Friday, S&P US Mfg. PMI, S&P U Services PMI, and S&P Global Composite PMI are reported.

In terms of earnings reports later this week, on Friday, there are no major earnings reports scheduled

The following long paragraph is about dysfunctional government.  Skip it if you prefer.  I feel this is important to the market because stock markets tend to go down in the face of dysfunctional government, including shutdowns, and the credit rating of the US is directly related to downgrades from rating agencies likely…which affects bonds and then markets as well.  At any rate, in the Senate Majority Leader Schumer had to use a fairly rare procedural maneuver Wednesday night to sidestep culture war obstructionist Senator Tuberville’s non-filibuster hold on government business.  (Tuberville did not fight Schumer’s move because the move relieved pressure he had been getting from colleagues in his own party while still allowing him to continue his farce blockage).  The move by Schumer let the Senate vote on the appointment of a new Chair of the Joint Chiefs of Staff (Air Force General Brown), which they confirmed by a vote of 83-11.  Two other high-profile positions (Commandant of the Marine Corps and Army Chief of Staff) are expected to be voted on today using the same procedural move, with similar results expected.  However, more than 300 other senior military officers (unit and base commanders in many cases) remain blocked (leaving their positions filled by “acting commanders” due to the anti-governance Senator. The Senate rules allow any single obstructionist Senator to halt governance for any even completely unrelated reason.  Meanwhile, in the House, after the close, Speaker McCarthy said he will try again today to pass the Defense Appropriations bill (which failed its vote on Tuesday).  It appears McCarthy thinks he has now placated the 5 extremists from his party who voted against the bill Tuesday.  (As opposed to compromising with the other party to gain a broad consensus, because party is more important than country.  Besides the job of Congress is not to pass laws in the interest of all the people, but instead to rule over the opposing party and take as much as you can from “their side” while blaming them for doing what you’re doing.)  The fear, of course, is that if those 5 were bought off, that in itself is a good incentive for another tiny group to bolt (or threaten to do so) in order to get their share of the appeasement. Another example of the tyranny of the minority. And with that taking place, there are eight business days left for the House to pass a continuing resolution to avoid a government shutdown (or, in a less likely scenario, pass 12 appropriations bills, get them through the Senate, reconcile the two versions, pass the revisions in both Houses and get President Biden’s signature). 

With that background, the premarket is telling us the rout is continuing with Bears on the warpath. All three of the major index ETFs gapped down to start the early session and have followed through with strong bearish moves. All three remain below their T-line (8ema) and 50sma. So, for now, the short-term trend is clearly headed lower with a retest of the mid-to-late-August low in the cards for SPY today with DIA headed in that direction and QQQ probably still a day or so away from such a retest. In terms of extension, the premarket move has all three major index ETFs stretched below their T-line (although QQQ is clearly the most stretched). However, the T2122 indicator is still just in the lower side of its mid-range. So, it is not extremely clear whether we are stretched enough to see a reversal soon.

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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