Bears Say “Not So Fast” to the Relief Rally

The bulls came back from the long weekend with some energy.  The major indices gapped up 1.5% – 1.7% at the open Tuesday.  All 3 managed to deliver some follow-through the first 90 minutes of the day.  At that point, all 3 began trading sideways the rest of the session.  This action has created a Morning Star type signal in the SPY and DIA.  Meanwhile, the QQQ followed up Friday’s Bullish Harami with a gap-up white candle that tested and failed its T-line (8ema).  However, all 3 also had upper wicks.  It is worth noting that this action all happened on far lower-than-normal volume.  On the day, SPY gained 2.49%, DIA gained 2.20%, and QQQ gained 2.33%.  The VXX fell a little over 1% to 24.38 and T2122 climbed out of the oversold territory into the mid-range at 36.56.  10-year bonds surged to 3.307% and Oil (WTI) gained just under 1% to $110.58/ barrel. 

Before the open Tuesday, K announced that it will split into 3 listed companies (Snack Foods, Cereals, and Plant-based).  The proposed spinoffs would not be finalized until 2023.  As a result, K gapped about 5.14% higher at the open, but then sold off during the session to close up 1.95%.  Later, during the day, the Dept. of Justice reached a settlement with META over its violations of federal housing law via discriminatory advertising.  If the court agrees, META would pay the maximum allowable fine.

Late in the day, Reuters reported on a new research report released by the San Fran. Fed which finds roughly half of US inflation is a result of supply issues.  The research found that another third of inflation is demand-driven. The remainder is due to unknown (ambiguous) causes. In other Fed news, Richmond Fed President Barkin told the press that he agrees with Chair Powell’s assessment that the FOMC will do a hike of 50-75 basis points at the end of July.

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In technical analysis news, after Tuesday’s strong session, only DVA, META, WRK, AOS, SSWI, and HD remains at 52-week lows among S&P500 members.  (None of the 502 members of SPY are at 52-week highs.)  114 of the 502 are currently above their T-line, including TSLA, AAPL, NVDA, AMZN, MSFT, GOOGL, UNH, BAC, JNJ, COST, KO, C, BA, MRK, BMY, ABBV, WMT, CSCO, and VZ.

After the close Tuesday, LZB beat on both lines. So far this morning, KFY and WGO also beat on both the revenue and earnings lines.

In an interesting twist, mortgage demand surged 8% week-on-week.  What makes this interesting is that this happened as interest rates made the largest jump higher in the last 13 years (up to 5.98% from 5.65% last week for a 30-year, fixed-rate mortgage).  Most of this jump in demand came from a surge in the adjustable-rate mortgage applications, meaning home buyers are betting the Fed was right last year and inflation will be “transitory” and come back down.  Also of note is that the “average loan” applied for is $420,000, well down from the $460,000 peak earlier in the year according to CNBC.  This would mean that on average, buyers are looking for more modest homes (in the area of 10% less expensive than they were buying earlier this year).

The CEO of Daimler Truck (the world’s largest truck maker based on the dominance of Europe) told CNBC that his company is now facing enormous supply chain pressure.  He said the company is facing the worst shortage of parts he has seen in his 25-year career with the company, with thousands of trucks unable to progress in manufacturing due to a lack of parts.  He went on to say the company is facing heavy pressure from inflation in the form of energy costs (remember this is a German company subject to shortages and energy costs heavily influenced by Russian supply reduction and also resourcing of parts that used to come from Ukraine).  While he said there are signs of an easing in chip shortages out of Asia, it is the more traditional parts that are in the worst shape in terms of short supply.  All this said, it is important to realize the company is apparently more than passing on those costs as it reported an 17% year-on-year revenue increase and an 11% year-on-year profit increase just last month.  

Overnight, Asian markets were down sharply across the board.  Hong Kong (-2.56%), Taiwan (-2.42%), and South Korea (-2.74%) paced the losses Meanwhile, New Zealand (-0.21%) and Japan (-0.37%) were the “winners” in the region.  In Europe, we have a very similar story taking shape at mid-day.  Only Russia (+0.15%) shows any green with the FTSE (-1.18%), DAX (-1.89%), and CAC (-1.46%) leading the region lower in early afternoon trading.  As of 7:30 am, US Futures are pointing toward a gap down to start the day.  The DIA implies a -1.05% open, the SPY is implying a -1.24% open, and the QQQ implies a -1.44% open at this hour.  10-year bond yield are plummeting to 3.199% and Oil (WTI) is dropping hard, down 3.35% to $104.80/barrel in early trading.

The major economic news events scheduled for release Wednesday Fed Chair Powell testifies before Congress (9:30 am) and Fed Member Harker speaks at 11:30 am. On the earnings front, KFY and WGO report before the open.  Then after the close, FUL, KBH, SCS, and WOR report.

In economic news coming later this week, on Thursday we get Q1 Current Accounts, Weekly Jobless Claims, Mfg. PMI, Services PMI, Crude Oil Inventories, Fed Bank Stress Test Results, and Fed Chair Powell testifies again.  Finally, on Friday, we get Michigan Consumer Expectations and May New Home Sales.

On the earnings front, this is another very slow week.  On Thursday, we get reports from CAN, DRI, FDS, GMS, RAD, and FDX.  Then on Friday, we hear from KMX and CCL.

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Beware of chasing gaps. After a brutal week and a 3-day weekend to recover, traders look to be gapping the market higher at the open. However, whipsaw action has been the hallmark of markets lately and nothing material has changed since last week. The trend remains strongly bearish and we remain well oversold. If you just can’t help yourself from going long, be sure you are focused, hedged, and/or small. You will need to be quick. Remember, feeling better after an extra day off is no reason to start picking bottoms.

Trading is our job. So, do the work and follow the process. Wait for confirmation. Stick with your trading rules, trade with the trend, and consistently take profits when you have them. Always move your stops in your favor. Remember that 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 steadily over the long run in Trading…not by striking it rich on one or two trades. So, give up that lottery ticket mentality.


Swing Trade Ideas for your consideration and watchlist: MULN, MRK, DG, CF, TTWO, TSLA, CHWY, NET, DISH. 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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🎯 Dick Carp: the scanner paid for the year with HES-thank you

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🎯 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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