Big Dogs All Red Early

Markets gapped higher Monday on AI reports.  SPY gapped up 0.84%, DIA lagged gapping up 0.36%, and QQQ gapped up 1.12%.  At that point, all three major index ETFs faded the gap modestly for a few minutes, with SPY and QQQ not even really getting below the open.  Then from 10 a.m. all three rallied to their highs by 10:30 a.m.  From that point, SPY and QQQ sold off until 1 p.m. before chipping sideways the rest of the day.  Meanwhile, DIA chopped sideways around its opening level all day.  This action gave us three gap-up, indecisive, black-bodied candles. The DIA printed a gap-up, black, fat-body, Spinning Top that failed a retest of its T-line (8ema) from below.  At the same time, SPY and QQQ printed gap-up, black-body, Inverted Hammer candles.  The QQQ failed its retest of the T-line, but SPY stayed barely above after its gap above that average.

On the day, nine of the 10 sectors were green as Technology (+0.75%) was out in front leading the market higher.  At the same time, only Healthcare (-0.23%) was in the red. Meanwhile, SPY gained 0.59%, the DIA gained 0.19%, and the QQQ gained 0.82%. VXX fell 2.33% to close at 13.86 and T2122 fell a bit but remains smack in the middle of its mid-range at 47.67.  10-year bond yields climbed again to 4.328% and Oil (WTI) jumped another 2.13% to close at $82.77 per barrel. So, premarket reports about AAPL licensing GOOGL’s AI engine and services for its future iPhones led to an AI frenzy early. This led to a broader rally, but fairly quickly melted into profit-taking.  This all happened on less-than-average volume in the SPY and QQQ as well as extremely low volume in the DIA.

There was no major economic news scheduled for Monday.

After the close, STNE reported beats on both the revenue and earnings lines.

So far this morning, CAL, CNM, and TME all reported beats on both the revenue and earnings lines.  Meanwhile, XPEV missed on the revenue line while coming in as expected on the earnings line at -$0.21/share. 

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In stock news, on Monday the CEO of natural gas developer TELL stepped down and the company announced it is pursuing strategic options that include a possible sale.  At the same time, in a PR move after its recent cyberattack has crippled many healthcare providers, UNH announced it had provided over $2 billion in loans and advances to the impacted medical facilities. In addition, UNH said it is beginning distribute updated software and will gradually resume full services to medical facilities and their end customers (patients).  Later, despite the issues it faces from absorbing CS, the CEO of UBS said his bank will pursue acquisitions in the US.  (No specific targets or timeline was given other than “in coming years.”)  At the same time, STLA announced it had increased its stake in ARCH (electric vertical takeoff and landing aircraft maker).  STLA said it had recently acquired another 8.3 million shares through the open market.  Later, TSLA CEO Musk defended his use of the prescription drug ketamine, saying it was beneficial for shareholders.  At the same time, FSR stock plummeted again after the company announced it would pause production for six weeks effective immediately and that it had secured an additional $150 million of financing from an existing investor.  Later, BRKB announced it is speeding up its stock buyback purchases, buying about $2.3 billion in stock in the quarter as of March 6.  (BRKB bought $2.2 billion of its own stock in Q4 and a total of $9.4 billion for all of 2023.) Finally, the UAW has filed to request a unionization vote at the VLKAF (Volkswagen) plant in TN. This comes after more than 70% of employees signed cards requesting unionization. In something of a US oddity, VLKAF said it welcomes union representation (which is the norm in its European homeland, but an outlier feeling among US Automakers who fight unions tooth and nail.)

Elsewhere, ATMU announced it is officially separated from CMI and is now operating as an independent company.  At the same time, NVDA announced it had partnered with TSM and SNPS to expedite the manufacturing of its AI-focused chips by using a new NVDA-designed lithography platform.  Later, KR announce it had reached a definitive deal to sell its specialty pharmacy business to CarelonRx (a subsidiary of ELV).  Details of the deal were not released.  At the same time, NVDA announced a new GPU architecture designed specifically to enhance computing power and energy efficiency for use in AI applications.  (GOOGL, AMZN, DELL, and TSLA have endorsed the platform and are expected to be large customers through NVDA cloud providers MSFT and ORCL later in the year.)  NVDA also announced a new 800Gb/s ethernet platform for supporting intense AI computing.  (That is between 5- and 9-times faster data transfer than current data transfer speeds.)  Later, DRQ and INVX announced an all-stock deal to merge.  (DRQ shareholders will own 52% of the merged company and INVX the other 48%.)  Later, dozens and dozens of companies announced partnerships with NVDA on some sort of AI product or service (literally too many to mention).

In stock legal and governmental news, on Monday, JOAN filed for Chapter 11 bankruptcy.  Later, trade groups representing hedge funds sued the SEC.  The suit alleges that the new rule requiring funds that routinely buy large lots of US bonds and then sell them in smaller chunks register as broker-dealers exceeds the agency’s authority.  At the same time, a US appeals court revived REGN’s antitrust lawsuit against NVS.  Later, the competition authority in Turkey announced they had imposed interim measures on META and would take other measures to stop the sharing of user data between Instagram and Threads (both platforms owned by META) in order to take advantage of a dominant market position.  After the close, Reuters reported that on Tuesday the US Dept. of Energy is set to announce final rules which significantly soften the originally-announced rules on fuel economy.  The new rules slash (by 72% and only after 2027) electric vehicle mileage ratings to soften their impact on overall carmaker average mileage ratings.  The rule will slowly increase the percentage of EV mileage used for the calculation to a 65% reduction by 2030.  In other words, the new rules mean EVs have very little impact on average mileage of carmaker vehicles.

Overnight, Asian markets were mixed but leaned to the red side.  Eight of the 12 Asian exchanges were down with Hong Kong (-1.24%), South Korea (-1.10%), and India (-1.08%) leading the way lower.  In Europe, the picture is more mixed at midday with eight of the 15 exchanges in the green, six in the red, and one unchanged.  The CAC (+0.19%), DAX (+0.03%), and FTSE (-0.23%) lead the region on volume (as always) in early afternoon trade.  In the US, as of 7:30 a.m., Futures are pointing toward a gap lower to start the day.  DIA implies a -0.24% open, the SPY is implying a -0.41% open, and the QQQ implies a -0.58% open at this hour.   At the same time, 10-year bond yields are flat at 4.326% and Oil (WTI) is also flat at $82.71 per barrel in early trading.

The major economic news scheduled for Tuesday includes February Building Permits and February Housing Starts (both at 8:30 a.m.) and API Weekly Crude Oil Stocks (4:30 p.m.).  The major earnings reports scheduled for before the open are limited to CAL, CNM, TME, and XPEV.  Then.  Then, after the close, ZTO reports.

In economic news later this week, on Wednesday, EIA Weekly Crude Oil Inventories, Fed Rate Decision, Fed Statement, Fed Chair Press Conf., Q1 Current Interest Rate Projection, Q1 1st Year Interest Rate Projection, Q1 2nd Year Interest Rate Projection, and Q1 Longer Term Interest Rate Projection are reported.  On Thursday, we get Weekly Initial Jobless Claims, Weekly Continuing Jobless Claims, Philly Fed Mfg. Index, Philly Fed. Mfg. Employment, S&P Global Mfg. PMI, S&P Global Services PMI, S&P Global Composite PMI, Feb. Existing Home Sales, and Fed Balance Sheet.  Finally, on Friday the only scheduled news is Fed member Bostic speaking.

In terms of earnings reports later this week, on Wednesday, BNTX, GIS, HTHT, JKS, OLLI, PDD, SIG, CHWY, FIVE, GES, KBH, MU, SCS, and WOR report.  On Thursday, we hear from ASO, ACN, BZUN, CMC, DRI, DBI, FDS, LU, TITN, WGO, AIR, FDX, LULU, NKE, and WS.  There are no major earnings reports scheduled for Friday.

In miscellaneous news, on Monday NASDAQ said it had resolved a glitch that had affected premarket trading.  No details of the incident were given.  However, the exchange said all systems were operating normally at the open.  Elsewhere, Energy Sec. Granholm said the administration plans to return the US strategic petroleum reserve to pre-drawdown levels by year-end.  (The reserve currently has 362 million barrels and it held 565 million barrels before the first inflation-control sale in March 2022.)  This was at least part of the cause for Oil (WTI) price increases Monday.  At the same time, 47 countries (include the EU, Japan, Canada, and numerous pacific island nations) called for a charge (tax) on global shipping to reflect the sector’s CO2 emissions.  This support has more than doubled from the 20 nations that supported it when France proposed the charge in 2023.  (The proposed charge is $150 per ton of CO2 or about $80 billion per year at current shipping volumes.)  China, Brazil, and Argentina oppose the idea.  Meanwhile, BAC and EPFR Global Data reported Monday that US equity funds saw a significant inflow of money ($56 billion) last week.

In late-breaking news, the Bank of Japan abandoned negative interest rates (for the first time since 2007), raising its short-term rate from -0.1% to a range of 0% to +0.1%.  The BOJ also ended most of its asset purchases and perhaps most importantly said it will abandon the policy of buying/selling short-term bonds to control long-term bond yields. (So, the BOJ introduced the first rate tightening AND quantitative tightening in a generation on Tuesday.)  Even though the move had been widely signaled and expected, the move caused an immediate selloff in the Yen against other currencies.

With that background, it looks like the Bears are pushing back on Monday’s bullish move. All three major index ETFs gapped lower to start the early session. Since that point, they have all printed black body candles and are trading near the premarket lows. However, none of the three have reached the Friday close level yet. All three are back below their T-line (8ema) and all three T-lines are falling. So, the short-term trend is now clearly bearish. Meanwhile, the longer-term trend in the three major index ETFs have now all rolled over. Best case, you might say SPY and DIA are more sideways than truly bearish, but technically they meet the definition of lower highs and lower lows. In terms of extension, none of the three major index ETFs is too far from its T-line and the T2122 indicator remains in the center of its mid-range. This means both sides still have plenty of room to run if they can gather the momentum. Looking at those 10 Big Dog tech names, all 10 are in the red during the premarket. (It seems the blizzard of AI announcements at NVDA’s event Monday only had short-lived power.) This tends to point toward a red market Tuesday, since it is hard to fight the sheer dollar flows from those 10 tickers.

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 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 gains are 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.


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