Markets gapped modestly higher at the open Friday. The SPY gapped up 0.45%, the DIA gapped up 0.32%, and the QQQ gapped up 0.59%. After that, with the exception of some volatility the first 40 minutes, the bulls were in control in all three major indices. We saw a slow, steady rally the rest of the day, which closed near very the high. This action gave us gap-up, large, white-bodied candles with small lower wicks and almost no upper wick. All three of the major indices crossed back above their T-line (8ema) and the DIA is back up very near a retest of its 50sma.
On the day, all 10 sectors were in the green with Technology (+2.09%) leading the way higher and Consumer Defensive (+0.39%) lagging behind the other sectors. At the same time, the SPY was up 1.60%, the DIA was up 1.14%, and QQQ was up 2.07%. The VXX fell almost 3% to 10.90 and T2122 spiked higher into the edge of overbought territory at 83.16. 10-year bond yields dropped back below the key 4% level to 3.958% and Oil (WTI) jumped up 2.16% to $79.85 per barrel. So, overall, Friday was a risk-on, bullish day with a slow, steady gain all across the market and all day long. This all happened on greater-than-average volume in both the SPY and QQQ but a little less-than-average volume in the DIA.
In economic news, the February S&P Global Composite PMI came in slightly below the expectation at 50.1 (compared to a forecast of 50.2 but above the January reading of 46.8). At the same time, the February US Services PMI came in slightly above the anticipated level at 50.6 (versus the forecast of 50.5 and well above the January value of 46.8). Moments later, the ISM February non-Mfg. PMI also came in above forecast at 55.1 (compared to an expected value of 54.5 but still slightly below the January reading of 55.2). So, overall, the data suggest the global economy is just slightly less strong than anticipated (but still expanding), but the US economy was a bit stronger than expected last month. Finally, on the Fed front, Richmond Fed President Barkin said Friday that he doesn’t see a case for a rate pause yet. He also said he could see the terminal Fed Funds rate reaching 5.5%-5.75%. However, Barkin also called for the Fed to “move more deliberately (smaller hikes) than we did last year.”
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In stock news, on Friday, AMZN announced it will push back the start of construction of its new Virginia second headquarters. No timetable was given for the resumption of the project that was expected to create 25,000 jobs. Elsewhere, META announced price cuts on its VR Headsets ($1499 to $999 and $499 to $429) in an effort to stimulate demand. At nearly the same time, Bloomberg reported that RIVN executives have been telling employees the company could produce 62,000 electric vehicles in 2023. However, the company denied the report and said its forecast of 50,000 vehicles for the year still stands. Later, TSM told Reuters they will be hiring more than 6,000 new engineers in 2023. However, those new jobs are mainly for their Taiwanese facilities. Meanwhile, NVDA said the Biden Administration limiting items it authorizes to sell to Huawei is likely to have a “high economic impact” on NVDA. Reuters reported that QCOM will also suffer moderate economic impact from the decision. After hours, SI announced they are discontinuing its crypto payment exchange network effective immediately. The company said it was a “risk-based decision” after serious doubts had been raised earlier in the week as to whether SI could remain afloat. On Saturday, Sky News (UK) reported that GS is among the suitors interested in acquiring the Subway sandwich chain. Subway was put up for sale at a $10 billion price tag last week.
In stock legal and regulatory news, on Saturday, the HHTSA announced that TSLA has recalled about 3.500 Model Y cars over loose bolts securing second-row seat frames. On Sunday, Investing.com reported on how the EU is expected to rule on two deals. It reports that sources tell them the EU will approve the MSFT $69 billion acquisition of ATVI. However, AVGO is expected to receive an antitrust warning over the impact of its $61 billion acquisition of VMW. This likely means AVGO will need to propose remedies to the EU concerns in order to move forward. Ohio reported Saturday that another NSF train derailed in the state, this time in the Western half of the state. NSF reports that there were no hazardous materials on the train, although authorities had residents shelter in place as a precaution and the accident caused power outages in the area after taking out power lines.
In miscellaneous news, on Saturday San Francisco Fed President Daly said the Jan. inflation data “suggests the disinflation momentum we need is far from certain.” She went on to suggest that “tighter (Fed) policy, for a longer time, is likely needed,” but she did not speak to specific policy moves other than to suggest she thinks the 5.1% terminal projection made in December will be revised upward. Elsewhere, on Sunday, the Chinese government set a slightly lower annual growth target compared to 2022. China is looking for GDP growth of 5% according to a report released at the opening of the country’s annual parliament meeting. This compares to the 2022 target of 5.5%. Meanwhile, also Saturday, it was reported that F had filed a patent application for technology that remotely disables heating/air conditioning, radio, and ultimately the car itself if the customer fails to make lease payments on time. The patent also includes a feature for self-driving cars to return themselves to F impound lots. However, F says it has no (current?) plans to deploy these technologies itself. (Still, I be there are a lot of banks that would like to have those features installed.) Finally, the FDA rejected an application from Elon Musk’s Neuralink, which had wanted to start testing its brain implants in humans.
Overnight, Asian markets were mixed but leaned to the green side. South Korea (+1.20%), Japan (+1.11%), and Taiwan (+0.99%) led the region higher. Meanwhile, in Europe, markets are even more mixed and lean to the red side at midday. The FTSE (-0.60%), DAX (+0.19%), and CAC (+0.17%) lead the region on volume. However, Russia (+0.88%), and outlier Greece (-3.26%) are the biggest movers in early afternoon trade. As of 7:30 am, US Futures are pointing toward a mixed and flat start to the day. The DIA implies a -0.10% open, the SPY is implying a -0.07% open, and the QQQ implies a +0.01% open at this hour. At the same time, 10-year bond yields are down briskly to 3.921% and Oil (WTI) is off 1.44% to $78.53/barrel in early trading.
The major economic news events scheduled for Monday is limited to January Factory Orders (10 am). Major earnings reports scheduled for the day are limited to CIEN and AZUL before the opening bell. Then, after the close, TCOM, NTNX, BBAR, and PTVE report.
In economic news later this week, on Tuesday, Fed Chair Powell testifies before Congress and then we get API Weekly Crude Oil Stocks Report is released. On Wednesday, we get ADP February Nonfarm Employment Change, Jan. Imports and Exports, Jan. Trade Balance, Fed Chair Powell testifies before Congress again, Jan. JOLTs Job Openings, EIA Crude Oil Inventories, WASDE Ag Report, and Fed Beige Book. On Thursday, Weekly Initial Jobless Claims are reported. Finally, on Friday, we get Feb. Avg. Hourly Earnings, Feb. Nonfarm Payrolls, Feb. Participation Rate, Feb. Unemployment Rate, and Feb. Federal Budget Balance.
In earnings news later this week, on Tuesday, DKS, DOLE, ESAB, FERG, SE, THO, CASY, CRGY, and CRWD report. The Wednesday, we hear from, ABM, BF.A, CPB, GOL, KFY, LTH, and REVG. On Thursday, BJ, GBTG, JD, WLY, TTC, QFIN, DOCU, GPS, ORCL, ULTA, and MTN report. Finally, on Friday, we hear from, ERJ.
So far this morning, CIEN reported beats on both the revenue and earnings lines. (AZUL has no specific announcement time other than BMO.)
In late-breaking news, Bloomberg reports that Harris Associates (long the largest holder of CS stock) sold its entire stake in the Swiss bank over the last 3-4 months. (Harris had held more than 10% of CS stock last year.) In other banking news, UBS announced it is cutting employee bonuses by 10% while simultaneously raising the pay of CEO Hammers. Elsewhere, President Biden is expected to veto the Republican bill that would ban funds from even considering a company’s ESG record when deciding which stocks to buy. (The truth is that the E is the only record that mattered as massive amounts of donations and lobbying in support of the bill came from the oil and gas industry.) It appears there will not be enough votes to override a veto. So, this is a win-win for Washington as Senators and Congressmen can tell their backers that they tried and yet funds will still be able to consider a company’s environmental record and risk when deciding whether to invest in it.
With that background, it looks like the market is undecided to start the week after Friday’s strong move by the bulls. With so much market-moving jobs data coming this week, it seems traders may be waiting on a Fed clue from Chair Powell’s testimony to the Senate Tuesday (and maybe House on Wednesday) before increasing or changing their bets. The recent downtrend line is broken in all three major indicies. However, we have not had a new higher-low to signal a bullish trend yet. Extension is not a problem according to T2122, or, of course, the T-line. As I see it, the DIA is testing a potential resistance level, SPY has a little room to run before hitting its next resistance level, and QQQ has the most headroom above before hitting its next potential resistance level. DIA also has its 50sma just overhead. Continue to be careful in an unsettled market (especially where the Fed wants to raise expectations for their terminal rate and tamp down any hope for a rate cut this year). (With that said, current Fed Fund Futures say there is a 69.4% probability of a quarter-point hike in two weeks while 30.6% are betting on a half-point hike. Not a single sole has bought futures to indicate they are betting on either no hike or a larger than half-percent hike.)
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.
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