Big Banks Deliver Good Reports So Far

On Thursday, markets gapped slightly higher at the open (up 0.29% in the SPY, up 0.34% in the DIA, and up 0.20% in the QQQ).  However, the bears immediately faded that gap and took us to the low of the day by 10 am.  From that point, the bulls stepped in and we got a slow, wavy, modest bullish trend that reached the highs of the day at 2 pm.  From there, we saw a selloff that lasted until the last 10 minutes of the day.  This action gave us white-bodied, indecisive, Spinning Top types of candles in all three major indices.  The SPY is fighting to cross above its 200sma, QQQ crossed above its 50sma, and DIA is fighting to cross above a resistance level at day end.  This marks the first time since early December that all three major indices are above their 50sma.

On the day, eight of the 10 sectors were in the green again as Energy (+2.13%) led the way higher and Consumer Defensive (-0.39%) lagged behind the other sectors.  At the same time, the SPY was up 0.38%, the DIA was up 0.66%, and QQQ was up 0.54%.  At the same time, the VXX was down almost 5% to 12.33 and T2122 has stayed deep in the overbought territory at 96.88.  10-year bond yields fell to 3.444% and Oil (WTI) has risen 1.20% at $78.34 per barrel.  So, overall, it has been an average-volume, bullish, and yet indecisive day as traders wait on Big Bank earnings on Friday morning.

In economic news, CPI came in just as expected at 6.5% annualized rate (compared to a 6.5% forecast and well below the 7.1% annualized November rate). This news shows that the Fed policy is working and inflation is beginning to come down.  At the same time, Weekly Initial Jobless Claims were a bit lower than expected, coming in at 205k (versus a forecast of 215k and last week’s 206k).  This news may have offset the good trend in the CPI as premarkets immediately sold off, but quickly recovered to flat on the release of these two pieces of data.  Later in the day, the December Federal Budget Balance came in worse than expected at -$85 billion (compared to a forecast of -$70 billion but still far better than the November value of -$249 billion).

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In stock news, LCID won a dismissal of the lawsuit brought against it by investors who claimed management had overstated its production outlook before a SPAC took it public.  Elsewhere, DIS management and board are preparing for a fight with activist investor Nelson Peltz, who formally launched a bid for a board seat on Thursday.  The move by Peltz would seriously threaten new (and former) CEO Bob Iger as Peltz has called for the sale of business units.  In the afternoon, CTSH announced a new CEO effective immediately (former President of INFY).  ERIC reported in Sweden Thursday and its smaller-than-expected provision hinted at a smaller US fine from the US DOJ and SEC.  (ERIC had previously lost a third of its value since the announcement of action by the US government.)  Meanwhile, the Financial Times reports that WBD is considering the sale of its $1+ billion music library.  In other news, TSM has cut 2023 CAPEX by 5%, even after a record Q4 as weak demand for chips has the Taiwanese company worried.  The reduction should not impact the TSM Fabs (Chip production plant) under construction in Arizona.  However, it may preclude or push off plans to build a Fab in Europe or a second Fab in Japan.  Finally, AAPL CEO Tim Cook asked for (and got) a 40% reduction in pay for 2023.  (Don’t worry about Tim, he’ll still make $49 million this year.)

In energy news, the US Energy Information Admin. (EIA) reported a rare build in US natural gas inventories.  The report cited an 11 billion cubic feet increase (compared to a consensus forecast of a 13 billion cubic feet drawdown).  Despite this news, the Feb. natty held up, closing a penny higher than it had on Wednesday.  Meanwhile, Oil (WTI and Brent) were up on Thursday.  The logic behind this might inform why natural gas also held up.  The basic idea is that the December CPI showed that inflation is falling.  If inflation falls, the market guesses that the Fed will ease off on rate increases. In turn, slower interest rate hikes would lead to a dollar that is less strong and potentially more business spending at lower rates.  It is those last two factors that could be read as oil and natural gas will be more valuable in the future and therefore should be bought today.  So, if you followed all of that, a viola, oil prices rose and natural gas prices at least held up after a bearish slide all month.

So far this morning, UNH, JPM, BAC, WFC, DAL, BLK, and FRC all reported beats on both the top and bottom lines.  However, of these numbers, WFC and FRC earnings as well as both lines for BLK showed negative growth (lowered targets).  WIT reported a miss on revenue while reporting in line on earnings.  It is also worth noting that DAL raised its forward guidance.  (C reports at 8:00 am.)  So, the big banks are kicking off earnings season with strong Q4 numbers so far.

Overnight, Asian markets were mostly green.  Japan (-1.25%) and Thailand (-0.34%) were the only red seen.  Meanwhile, Shenzhen (+1.19%), Hong Kong (+1.04%), and Shanghai (+1.01%) led the region higher on mostly solid moves.  In Europe, bourses are mixed at midday but lean to the upside.  The FTSE (+0.49%), DAX (+0.21%), and CAC (+0.31%) are leading the region higher in early afternoon trading.  As of 7:30 am, US Futures are pointing toward a down start to the day.  The DIA implies a -0.28% open, the SPY is implying a -0.37% open, and the QQQ implies a -0.53% open at this hour.  At the same time, 10-year bond yields are up slightly to 3.465% and Oil (WTI) is up two-thirds of a percent to $78.91/barrel in early trading.

The major economic news events scheduled for Friday are limited to December Import / Export Prices (8:30 am), Michigan Consumer Sentiment (10 am), and a Fed speaker (Harker at 7:30 am).  The major earnings reports scheduled for Friday are limited to BAC, BK, BLK, C, DAL, FRC, JPM, UNH, WFC, and WIT all before the opening bell.  There are no major reports scheduled for after the close.

Do not forget that Monday is a market holiday in the US.  However, Canadian markets (TSX) are open Monday.

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With that background, it looks like the three major indices are headed back down toward their T-line (8ema) which should provide some relief to the T2122 indicator over-extension. This opening does take the DIA back below a resistance level and takes the SPY back below its 200sma…at least at this point. With a 3-day weekend ahead, that may be a good reason for us to see light volumes today. However, with CPI direction behind us and now the Big Banks giving us a hint that reports might not be so bad this time around, I would not be surprised to see decent trading volumes at least early today. Either way, be cautious and prepare yourself for the long weekend. Take profits, hedge, and limit your risk exposure because, unlike the big funds, you’re not risking other people’s money, you’re risking your own.

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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