Global Markets Very Bullish, PEP Beats

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Monday saw a knee-jerk gap lower at the open in fears generated by the Israel vs Hamas “war.”  This caused a 0.46% gap down in the SPY, a 0.35% gap down in the DIA, and a 0.67% gap down in the QQQ.  At that point, all three major index ETFs chopped sideways until about 11:00 a.m., when the Bulls started a strong rally that lasted until about 2:45 p.m.  The rest of the day saw a very modest drift lower with a slight rally back the last 15 minutes of the day.  This action gave us gap-down, strong white candles with small wicks on both ends across the SPY, DIA, and QQQ.  All three also retested their T-line (8ema) and passed that test (held support) on the day.  (It is worth noting that QQQ is now back up to and about to test its 50sma).  This happened on above-average volume in the DIA and just below-average volume in both the QQQ and SPY.

On the day, nine of the 10 sectors were in the green again with Energy (+3.54%) way out front (by 2.25%) leading the way higher.  Meanwhile, Healthcare (-0.01%) was the only sector in the red (barely), lagging behind the other sectors.  At the same time, the SPY gained 0.64%, DIA gained 0.60%, and the tech-heavy QQQ gained 0.51%.  VXX fell 1.52% to close at 23.28 and T2122 climbed to the center of its mid-range to close at 52.27.  Bond markets were closed for Columbus Day, so 10-year bond yields remain at 4.795% while Oil (WTI) spiked a massive 4.28% on the day on Israel-Hamas news to close at $86.32 per barrel. So, the knee-jerk reaction at the open was met with some re-evaluation and then the Bulls took over.  Most of the day was spent confirming the Friday move, which now looks a little less like “just short-covering.”  However, Absolute Breadth diverged from other market breadth indicators like McClellan, Zweig, and Adv/Decline. 

There was no major economic news reported Monday, in part because it was a holiday for the Fed and Federal government.

In Autoworker contract talks and strike news, on Monday UAW workers began striking Mack Truck plants after its 4,000 employees rejected (by 73% to 27%) a five-year contract proposal from Mack owned by VLVLY (Volvo).  The rejected deal called for a 19% pay increase over the next five years.  On the company side, STLA laid off 570 more workers, GM laid off 200 additional workers, and F added 70 employees to its layoffs (all blamed on the impacts of the UAW strike).

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In stock news, BMY announced Sunday night that it is acquiring MRTX for $5.8 billion.  BMY was volatile but closed little changed on Monday after this news.  On Monday morning, GOOGL announced that it is significantly reducing the size of its recruiting team after 12,000 layoffs back in January.   At the same time, the Wall Street Journal reported that MSFT is losing an average of $20/user/month on one of its first AI products.  In retail news, AMZN is holding its second “Prime Deal Days” of the year today and tomorrow.  AMZN is obviously hoping to get a jump on Black Friday and “steal” sales from brick-and-mortar stores ahead of that day.  However, retail industry analysts are suggesting consumers wait until the traditional Black Friday and Cyber Monday for better deals.  Elsewhere, in a blow to non-union TSLA, Reuters reports that a significant number of its German workers have joined the IG Metall union.  The move seems to be over health, safety, and required overtime concerns at the German TSLA “giga factory”.  At the same time, Investing.com reports that a 2-year holding period on a significant portion of QSR stock ends today.  Later, Reuters reported the NWLI has agreed to buy AEL for $1.9 billion (a 20% premium over Friday’s close).  In banking news, C has sold its Chinese consumer wealth portfolio to HSBC for $3.6 billion in a deal that is expected to close in the first half of 2024.  (There was no word on C’s cost basis in that unit.)  Meanwhile, in the midst of XOM’s late-stage negotiations to buy PXD, it was reported that the head of XOM’s shale oil and gas unit (which is what PXD is) was arrested on charges of sexual assault.  Late in the day, HYMTF (Hyundai) cut the asking price of its Chinese manufacturing plant (300k cars/year capacity) by a whopping 30%, down to $353 million.  At the same time, EADSY (Airbus) confirmed it delivered 55 jets in September.  This brought their 9-month total to 488 jets delivered.

In stock government, legal, and regulatory news, EU antitrust regulators asked users (specifically MSFT and AAPL users) whether tough new rules should apply to MSFT Bing and Edge as well as AAPL’s iMessage.  This was done via a survey those users had 5 days to complete.  A decision on the matter is due within five months.  Later, the Financial Times reported that EU competition regulators had ordered ILMN to sell its Grail unit after the company closed the $8 billion deal without EU approval in 2021.  (The EU has already fined ILMN $445 million over closing the deal without approval.)  ILMN plans to appeal.  At the same time, the US Supreme Court has postponed the GOOGL antitrust case (brought by Indian competition regulators) hearing until January.  In Chip news, two South Korean companies were given indefinite waivers on supplying chip-making equipment to their Chinese factories.  Samsung and SK Hynix will be allowed to continue sending such equipment without individual waivers for each shipment.  (Samsung makes 40% of its NAND memory in China and Hynix makes 40% of its DRAM memory in that country too.  Together those companies control 70% of the DRAM market and 50% of the NAND market globally.)

So far this morning, PEP beat on both the revenue and earnings lines.  Those numbers were also a 6.7% quarter-on-quarter increase and resulted in a modest 3.7% upside surprise.  PEP also raised its earnings guidance for the full year 2023.

Overnight, Asian markets were mostly green on strong moves.  Japan (+2.43%), Malaysia (+1.26%), Singapore (+1.03%), and Australia (+1.01%) led a broad-based rally.  More trouble in the Chinese real estate sector (Country Garden warned it may not be able to repay its debt) and analyst warnings about Korea’s Samsung, caused Shanghai (-0.70%), Shenzhen (-0.56%), and South Korea (-0.26%) to be the only red in the region, far under-performing the other nine exchanges.  In Europe, we see green across the board at midday, like Asia, on strong moves.  The CAC (+1.57%), DAX (+1.71%), and FTSE (+1.58%) lead the region higher.  However, a few of the smaller bourses are up 2% – 4% in early afternoon trade.  In the US, as of 7:30 a.m., Futures are pointing toward a very modest green start to the day, just on the green side of flat.  The DIA implies a +0.16% open, the SPY is implying a +0.10% open, and the QQQ implies a +0.07% open at this hour.  At the same time 10-year bond yields are down sharply to 4.705% and Oil (WTI) is off half a percent to $85.97 per barrel in early trading.

The major economic news scheduled for Tuesday is limited to three Fed speakers (Bostic at 9:30 a.m., Waller at 1 p.m., and Kashkari at 3 p.m.). The only major earnings report scheduled for the day is PEP before the open.  There are no major earnings reports set for after the close.

In economic news later this week, on Wednesday, we get Sept. PPI, EIA Short-Term Energy Outlook, FOMC Meeting Minutes, API Weekly Crude Oil Stocks report.  We also hear from Fed members Bowman at 4:15 a.m. and Waller at 10:15 a.m.  On Thursday, Sept. CPI, Weekly Initial Jobless Claims, EIA Crude Oil Inventories, Federal Budget Balance, and the Fed’s Balance Sheet are reported.  Finally, on Friday, we get Sept. Export Price Index, Sept. Import Price Index, Michigan Consumer Sentiment, Michigan Consumer Expectations, Michigan 1-year Inflation Expectations, and Michigan 5-year Inflation Expectations are reported.  Fed member Harker also speaks at 9 a.m.

In terms of earnings reports later this week, on Wednesday, again there are no reports.  However, earnings season starts again on Thursday, as CMC, DAL, DPZ, FAST, INFY, SVNDY, and WBA report.  Finally, on Friday, we hear from BLK, C, JPM, PNC, PGR, UNH, and WFC all report as earnings season kicks off again.

In miscellaneous news, at mid-afternoon on Monday Reuters reported that Venezuela and the US are in talks to provide sanctions relief to the Central American heavy oil producer.  The Biden Administration is encouraging Maduro to negotiate with political opposition over elections since his 2018 election was widely seen as a sham.  At the same time, such a move would add more “heavy, sour” crude to world markets AND help Venezuela repay its foreign debt.  (As an aside, US refineries are geared toward refining “heavy, sour” like that produced in Canada and Venezuela rather than the light, sweet crude produced in the US.  As a result, regardless of record oil production in the US, gasoline prices are held high in the US by the oil companies.  The talks are aimed at increasing the global “heavy, sour” supply and possibly reducing US gas prices.) Meanwhile, on Monday, Fed Vice Chair Jefferson and Dallas Fed President Logan both noted that higher bond yields are likely to give the FOMC reason to pause any further rate hikes.

In Israeli-Hamas news, the “war” has been over for a day or two.  By this I mean Hamas has been shoved back into Gaza.  The current phase is the Israeli punishment of Hamas phase (more than 1,000 targets bombed) with it widely expected a ground invasion will follow, again aimed at retribution.  The unknown number of hostages Hamas took is at least publicly irrelevant to Israeli action decisions.  Meanwhile, US airlines have suspended flights to Israel over security concerns.  Fertilizer stocks shot higher Monday as the main export port for Israeli potash is just north of Gaza and well within Hamas rocket range.  (Israel accounts for just less than 3% of global potash production.)

With that background, it looks like markets are very tepid this morning. The Bears don’t seem to have strength, but the Bulls have no conviction either despite the big bullish moves in Asia and Europe. All three major index ETFs are printing small, white-bodied, but indecisive candles so far in the premarket. We do have a trio of Fed speakers on tap to potentially change the narrative during the day. However, with no major news or earnings scheduled, it would not be out of the question that markets are drifting while they wait on CPI and/or the resumption of earnings season at week’s end. In terms of extension, none of the three major index ETFs are far above their T-line (8ema) yet and the T2122 indicator is now smack-dab in the middle of its range. So, again we have room to run if either the Bulls or Bears can find energy. Expect potential volatility as Israel almost certainly will invade Gaza soon (which is likely to cause another short-term knee-jerk). However, geopolitical concern will soon return to the much more important Russian invasion of Ukraine.

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

LTA Scanning Software
TC2000 Discount

🎯 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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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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DISCLAIMER: Investing / Trading involves significant financial risk and is not suitable for everyone. No communication from Hit and Run Candlesticks Inc, its affiliates or representatives is not financial or trading advice. All information provided by Hit and Run Candlesticks Inc, its affiliates and representatives are intended for educational purposes only. You are advised to test any new trading approach before implementing it.  Past performance does not guarantee future results.  Terms of Service

Israel-Palestine Dominates News Vacuum

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Friday gave us the gap lower at the opening bell on what most attributed to fear over a strong payroll report (fear it will lead the Fed to more hikes).  We opened down 0.57% in the SPY, down 0.30% in the DIA, and down 0.81% in the QQQ.  After an hour of grinding along the lows (and a little lower in the DIA), the Bulls ripped the face off of the Bear chasers.  This resulted in a strong rally in all three major index ETFs until just after noon and then a slow further rally to the highs at about 2:45 p.m.  At that point, all three just ground sideways and a bit lower into the close.  This action gave us strong white-bodied Bullish Engulfing candles in the SPY, DIA, and QQQ.  All three crossed back above their T-line (8ema), barely in the DIA, strongly in the QQQ, and somewhere in between those two on the SPY.

On the day, nine of the 10 sectors were in the green with Technology (+2.03%) far out ahead (by three-quarters of a percent) leading the way higher.  Meanwhile, Consumer Defensive (-0.31%) lagged behind the other sectors. At the same time, the SPY gained 1.19%, DIA gained 0.88%, and the tech-heavy QQQ gained 1.68%.  VXX fell 1.25% to close at 23.64 and T2122 climbed up out of the oversold territory into the lower end of the mid-range at 29.94.  10-year bond yields spiked to close at 4.797% while Oil (WTI) gained a bit more than half of a percent to end the day at $82.79 per barrel.  So, we saw a Bullish whipsaw after a significant open lower.  Some analysts believe this was just largely a short covering rally.  While I tend to be in this camp, short covering does not necessarily count out a bottom.  For example, all three major index ETFs put in above-average volume (far above average in the QQQ) on Friday.  Absolute Breadth also increased slightly.  

The major economic news reported Friday included the September Avg. Hourly Earnings (month-on-month) which came in the same as the August increase at +0.2%.  This is a bit better than expected compared to a forecast of +0.3%.  The September year-on-year Avg. Hourly Earnings also came in just a touch better (from a Fed standpoint) than forecast at +4.2% (versus the +4.3% forecast and +4.3% August reading).  At the same time, September Nonfarm Payrolls came in extremely hot a +336k (compared to a forecast of +170k and the August value of +227k).  There were also big upward revisions to both the July and August job creation numbers.  Likewise, September Private Nonfarm Payrolls were also extremely hot at +263k (versus the +160k forecast and the +177k August reading).  The Sept. Participation Rate remained steady at 62.8%.  Still, even with the massive number of jobs created, the Sept. Unemployment Rate remained steady at 3.8% (compared to a 3.7% forecast and the 3.8% August reading).  As always, interpretation is everything.  The bears (and largely out of the White House party) thought these numbers were a dire warning to the Fed that they MUST hike rates massively and relentlessly to avoid Armageddon.  On the other hand, the bulls (and the party in the White House) see the data as validation that the economy is creating a huge number of jobs while inflation keeps slowly ticking lower.  In short, everything is rosy.  I will leave it to you to decide how you see the data.  For myself, I am between the two extremes but lean toward the latter interpretation.  Either way, I fully expect the Fed to do what they have been saying and signaling for months…hike once more this year and then hold steady, most likely through Q3 of next year.

Speaking of the Fed, Cleveland Fed President Mester (typically a hawk) commented on the Payrolls report Friday in an interview with CNN.  Mester said, “With this one report, [the data] continues to say it’s a strong labor market, but it is getting a little bit less tight than we saw before … We also in that report saw that wage growth is tempering a bit.”  She went on to characterize the overall economy as “economic growth has been strikingly strong and yet we’re still making progress on inflation.”  She continued “We are basically at or near” the peak of the tightening campaign and the main question is how long the Fed should keep rates high to bring inflation back to 2% by the end of 2025.”

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In Autoworker contract talks and strike news, the UAW did not widen its strike on Friday.  The UAW reported that the last-minute counter-offer from GM made a major concession as the automaker agreed to include EV battery plants in their UAW offer.  In addition, GM raised their wage increase offer to 23% (surpassing the F and STLA offers).  North of the border, Unifor (UAW equivalent in Canada) says that GM is fighting key elements of the recent F contract agreed and approved by the union to avoid a strike.  The key issues are GM’s classification of full-time employees as temporary contract workers (avoiding higher wages and benefits), health allowances for retirees, and product investment commitments.  The Unifor strike deadline for GM is Monday night at midnight.

In stock news, MGM clarified its report of “significant” impacts on Q3 profits from the cyber-attack back in September.  On Friday, the company said that they estimate the revenue lost is $110 million (which was less than some analysts had feared).  Elsewhere, to add insult to injury, a day after a Commerce Dept. investigation was announced (into the percentage of staff that comes from the US) TSM now faces a labor cost threat from a coalition of 14 unions who say the company is stalling negotiations.  Elsewhere, AMZN announced that its first two Kuiper satellite internet network satellites were launched Friday at 2 p.m.  (Kuiper will compete with Elon Musk’s SpaceX.)  At the same time, AMGN announced it had completed the $27.8 billion acquisition of HZNP.  Late in the day, Reuters reiterated what was reported here before the open Friday, saying that XOM is now in advanced talks to purchase PXD in a deal that could be over $60 billion.  At the same time, T faced rumors Friday late that it is considering divesting its 70% ownership of DirecTV (purchased for $16 billion in 2021).

In stock government, legal, and regulatory news, the UK said the SNAP AI Chatbot may pose a privacy risk for children.  However, the UK Information Commissioner’s Office said it will consider a company reply before deciding whether or not to ban the service in UK.  Later, the US Treasury Dept. issued new EV tax credit guidance on Friday.  The change will allow consumers (as of January) to transfer their $7,500 (new EV) or $4,000 (used) tax credit directly to the dealership.  This will mean a de facto price reduction for electric vehicles. At the same time, the USDA announced that bird flu was detected in a commercial flock of turkeys, the first infection discovered since April.  This comes just as CALM announced that egg prices are down 48% from a year ago (as of September).  Elsewhere, a recall of nearly 10k 2023 electric vehicles by NSANY (Nissan) was announced by the NHTSA.  The recall is related to defective inverter software that could lead to vehicle shutdowns.  After the close, a US District Judge ruled that SBUX must disclose its anti-union spending in efforts to quash a union in Buffalo, NY.  The US Labor Dept. NLRB had demanded the data during its investigation and SBUX had refused.  Also after the close, HEINY (Heineken) had its Brazilian brewery added to the government’s list of companies it says are responsible for labor practices analogous to slavery.  Friday evening, the Mexican government said that WMT will face an anti-trust investigation from the country’s anti-trust panel (related to wholesale distribution of consumer goods).

Overnight, Asian markets were mixed but leaned to the downside on modest moves.  Taiwan (+0.41%) paced the five gaining exchanges while New Zealand (-0.73%) and India (-0.72%) led the seven exchanges in the red.  In Europe, we see a similar mixed picture with a bit more amplitude at midday.  Norway (+1.49%) and Russia (+1.17%) are way out-front pacing the gains while Greece (-1.54%) is by far the biggest loser.  However, the CAC (-0.49%), DAX (-0.73%), and FTSE (+0.22%) lead the region (as usual) on volume in early afternoon trade. In the US, as of 7:30 a.m., Futures point toward a gap down to start the day.  The DIA implies a -0.51% open, the SPY is implying a -0.64% open, and the QQQ implies a -0.83% open at this hour.  At the same time, the 10-year bond yield has spiked to 4.795% and Oil (WTI) spiked 2.64% to $85.80/barrel.

There is no major economic news scheduled for Monday.  There are also no major earnings reports scheduled for either before the open or after the close.

In economic news later this week, on Tuesday we have two Fed speakers (Waller at 1 p.m. and Kashkari at 3 p.m.).  Then Wednesday, we get Sept. PPI, EIA Short-Term Energy Outlook, FOMC Meeting Minutes, API Weekly Crude Oil Stocks report.  We also hear from Fed members Bowman at 4:15 a.m. and Waller at 10:15 a.m.  On Thursday, Sept. CPI, Weekly Initial Jobless Claims, EIA Crude Oil Inventories, Federal Budget Balance, and the Fed’s Balance Sheet are reported.  Finally, on Friday, we get the September Export Price Index, Sept. Import Price Index, Michigan Consumer Sentiment, Michigan Consumer Expectations, Michigan 1-year Inflation Expectations, and Michigan 5-year Inflation Expectations.  Fed member Harker also speaks at 9 a.m.

In terms of earnings reports later this week, on Tuesday, PEP reports.  Then Wednesday, again there are no reports.  However, earnings season starts again on Thursday, as CMC, SAL, DPZ, FAST, INFY, SVNDY, and WBA report.  Finally, on Friday, we hear from BLK, C, JPM, PNC, PGR, UNH, and WFC all report as earnings season kicks off again.

In miscellaneous news, JPM released a market forecast on Friday which predicts a bearish scenario for global equities.  The report cited a very strong dollar, weakening service sector, and interest rates expected to peak in Q4.  JPM suggested that their clients rebalance portfolios to go overweight on technology, consumer staples, and utilities as those sectors get beaten down by currently rising bond yields.  Elsewhere, Bloomberg reported that a bi-partisan group of US Senators (including Majority Leader Schumer) will be in China this week, hoping to get a meeting with Chinese President Xi.  Their hope is to discuss escalating tensions. At the same time, Taiwan is probing four of their companies (at US urging) for helping China’s Huawei set up a network of chip manufacturing plants in Southern China.  (As reported here last week, President Biden is looking likely to meet Xi in mid-November on the sidelines of an Asia Pacific Economic Conference in San Francisco.

In late-breaking news, given the attacks in Israel and Palestine, oil is sure to knee-jerk higher (despite neither place having any real oil production or transit), and oil-levered stocks may take a hit.  The most recent news out of Israel has the IDF placing Gaza under siege (no food, water, fuel, or electricity allowed to enter) and are continuing their pounding of targets in that 141 sq. mile strip.  (The IDF says 500 targets were hit last night alone.)  Elsewhere, CNBC reports that China’s key economic ministries announced Monday that they are targeting a 50% increase in the country’s computing power by 2025.  The six main technology-related ministries jointly announced a goal of 300 exaflops by that date.  (For reference, that would be a computer equivalent to 600 million mainstream laptop computers tied together.)  Just for comparison, the US now has three of the top five supercomputers in the world.  China’s current best (known) is not even among the top 500 of the world’s most powerful computers.

With that background, it appears the Bears are gapping all three major index ETFs lower. However, premarket candles in all three are white-bodied and indecisive. In other words, the Bears are not getting follow-through after the initial knee-jerk gap. We have scheduled news, speakers, or earnings to change the narrative. So, expect the Israel-Palestine war to drive the news cycle all day. In terms of extension, none of the three major index ETFs are far below their T-line (8ema) and the T2122 indicator is now back in its mid-range. So, again we have room to run if either the Bulls or Bears can find energy. Expect more volatility at the open as traders who do not trade the premarket session get their first chance to over-react. It could be a bumpy day. (Mondays like this are the reason for hedging, lightening up, and/or buying option insurance on Friday can be a good idea.)

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

LTA Scanning Software
TC2000 Discount

🎯 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.

Hit and Run Candlesticks / Road To Wealth Youtube videos

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.

Free YouTube Education  •  Subscription Plans • Private 2-Hour Coaching

DISCLAIMER: Investing / Trading involves significant financial risk and is not suitable for everyone. No communication from Hit and Run Candlesticks Inc, its affiliates or representatives is not financial or trading advice. All information provided by Hit and Run Candlesticks Inc, its affiliates and representatives are intended for educational purposes only. You are advised to test any new trading approach before implementing it.  Past performance does not guarantee future results.  Terms of Service

Strong Jobs Report

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Markets whipsawed on Friday after the strong jobs report pushed bond yields to their highest level of the year.  However, the overdue relief bounced indexes sharply off the morning lows as a strong short squeeze took hold.  Unfortunately, a new conflict erupted this weekend after a surprise Hamas attack on Israel prompted a declaration of war spiking oil prices and adding another geopolitical worry to the world.  With a PPI, FOMC Minutes, CPI, and the beginning of 4th quarter earnings on Friday traders will have to be prepared for just about anything.  Keep in mind that more than 90% of companies within their blackout period volume could be anemic with bursts of wild data-driven volatility.

Asian markets closed their Monday session mixed after Hong Kong canceled the morning session and Shanghai resumed trading after their Golden Week.  European markets trade mixed but mostly lower in a choppy morning session as they monitor the new Middle East war. U.S. futures point to a lower open with rising bond yields, higher oil prices, and more geopolitical concerns worrying investors.

Economic Calendar

Earnings Calendar

There are no noteworthy earnings reports for Monday.

News & Technicals’

The recent attacks in Israel have caused several airlines to cancel their flights to and from the country. American, Delta, and United, which are the three major U.S. airlines, announced that they have suspended their flights to Israel this weekend, citing security concerns. British Airways and Lufthansa, which are the largest airlines in the UK and Germany, respectively, also followed suit and canceled their service. The flight cancellations come amid the escalating violence between Israel and Hamas, the militant group that controls Gaza. The conflict has resulted in hundreds of deaths and injuries, as well as widespread damage to buildings and infrastructure. The airlines said that they will monitor the situation and resume their flights when it is safe to do so.

The ongoing conflict between Israel and Hamas has raised concerns about the stability of oil markets in the Middle East. Oil prices surged on Monday as the violence escalated for the third consecutive day, with Hamas launching rockets at Israel and Israel responding with airstrikes on Gaza. However, analysts say that the impact of the conflict on oil supply and transport is likely to be limited unless it spreads to other countries in the region or disrupts major oil facilities. According to Vivek Dhar, Commonwealth Bank’s director of mining and energy commodities research, “For this conflict to have a lasting and meaningful impact on oil markets, there must be a sustained reduction in oil supply or transport”.

Thousands of workers with Mack Trucks, a subsidiary of Volvo Group, are set to go on strike Monday after rejecting a proposed contract from the company. The United Auto Workers (UAW) union, which represents about 3,900 Mack Trucks employees, announced that 73% of its members voted against the tentative deal that was reached last week. The union said that the deal did not meet its expectations on issues such as wages, health care, job security, and retirement benefits. The union is also negotiating with the Detroit automakers, and some workers said they were influenced by the higher standards set by those talks. The strike will affect Mack Trucks plants in Pennsylvania, Maryland, and Florida.

Equity markets whipsawed on Friday after a strong jobs report boosted the yields to the highest level of the year, but stocks reversed finally beginning a relief rally with a substantial short squeeze. However, the data increased the chances of another rate hike this year and unfortunately, the bond yields are higher this morning.  Sadly a new war erupted this weekend when Hamas launched a surprise attack on Israel spiking oil prices and adding more geopolitical uncertainties setting the stage for a lower open this morning.  Now with more than 90% of companies within their blackout period volume could be anemic as we wait for PPI, FOMC minutes, CPI, and the kickoff to the 4th quarter earnings season with big bank reports on Friday.  Challenging and volatile may prove to be an understatement with all the uncertainty clouding the path forward. 

Trade Wisely,

Doug

Bullish Engulfing Pattern

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When I hear the word engulfing, I imagine a wave washing over a shore or a building being consumed by flames. To engulf means to sweep over something, to surround it, or to cover it completely. Thus, it should come as no surprise that a Bullish Engulfing pattern features one candlestick covering (or engulfing) another. This two candlestick pattern occurs after a downtrend and is formed by one bearish candlestick (which is covered) and one bullish candlestick (which does the covering). It occurs frequently, so it is important that you learn to identify and interpret it. Ready for a quick lesson? To learn more about the Bullish Engulfing pattern’s formation and meaning, simply scroll down.

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Sept. Payrolls and Unemployment On Tap

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Markets started the day flat Thursday, down 0.02% in the SPY, down 0.03% in the QQQ, and down 0.05% in the DIA.  However, the SPY and QQQ immediately sold off, reaching the low of the day shortly after 11 a.m.  Then both began a slower rally that took them back to their highs (high of the day in SPY) about 2:45 p.m.  From there, the pair of index ETFs traded sideways with a very modest bearish trend for the last 75 minutes.  Meanwhile, DIA traded sideways in a very tight range for an hour after the open.  Then it followed the other major index ETFs lower, finding its lows at about 11:50 a.m.  At that point, DIA traded sideways until 1:15 p.m. before following the SPY and QQQ higher until 2:45 p.m.  From there, DIA traded sideways in a tight range for the rest of the day.

On the day, six of the 10 sectors were in the red with Consumer Defensive (-1.67%) way out in front (by almost a full percent) leading the way lower.  Meanwhile, Financial Services (+0.76%) held up better than the other sectors.  At the same time, the SPY lost 0.04%, DIA gained 0.06%, and the tech-heavy QQQ lost 0.29%.  VXX fell 1.28% to close at 23.97 and T2122 climbed but still remained well into the oversold territory at 9.09.  10-year bond yields basically bobbed along sideways after Wednesday’s “fall” to close at 4.714% while Oil (WTI) dropped another 2.10% to end the day at $82.45 per barrel.  

This action gave us very indecisive candles in all three major index ETFs.  The DIA and SPY printed Dojis that remain below their T-line all day.  At the same time, QQQ printed more of a black-bodied Spinning Top which retested its T-line before closing just below it again.  This all happened on below-average volume in all three major index ETFs.  So, we saw a flat open followed by a selloff, a rebound, and finally a lack of conviction in the last hour.  That probably tells us Mr. Market is just waiting on the next shoe to drop this morning (September Payrolls and Unemployment data in the premarket).

The major economic news reported Thursday included August Exports, which came in higher than the previous month at $256 billion (compared with $251.9 billion in July).  At the same time, August Imports were down slightly to $314.3 billion (versus July’s $316.6 billion). Together this gave us an August Trade Balance (Deficit) of $58.3 billion which was better than expected (compared to a forecast of -$62.3 billion and July’s -$64.7 billion.  After the close, the Fed’s Balance Sheet came in below $8 trillion for the first time in over two years at $7.956 trillion (down $46 billion on the week).  Much of the drop was attributed to a big drop in the credit being given to deal with bank failures.

In Fed speak, Chicago Fed President Goolsbee told Bloomberg he doesn’t see treasury yields threatening a soft landing.  (To be fair, the interview was recorded before rates hit 7.5%.) Goolsbee said “On the real side I feel like nothing has happened so far that is convincing evidence that we are off the golden path.” (Goolsbee has been referring to the Fed path to a soft landing as “the golden path.”)  Later San Francisco Fed President Daly hinted at keeping rates steady at the next Fed meeting.  Daly said, “If we continue to see a cooling labor market and inflation heading back to our target, we can hold interest rates steady and let the effects of policy continue to work.”  Finally, Richmond Fed President Barkin said that surging Treasury yields reflect the strong economic data we’ve seen lately along with a heavy supply of bonds in the market.  (More bonds available drive down bond prices, which automatically drives up the bond yields.)

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In Autoworker contract talks and strike news, GM revealed Thursday that it has made a counter-offer to the UAW.  (No details were released.)  Elsewhere, Reuters reported details of the tentative deal between the UAW and VLVLY (Volvo Mack Trucks).  The report showed a 19% hike over 5 years (10% immediately) plus a $3,500 “ratification bonus,” improved benefits (including a $1,000 annual addition to each 401K plan), additional vacation days, and a reduction in the tier-structure (the time it takes to get to top pay scale).    The deal must still be ratified by 4,000 hourly UAW workers.  Meanwhile, UAW President Fain announced he will hold another 2 p.m. Eastern streaming event to update workers on the progress of the talks.  In his post-scheduling the event, he hinted there might be an expansion of the strike but that all three of the automakers may not be hit.

In stock news, BHP told Reuters Thursday that it intends to focus on cost-cutting rather than M&A to improve results over the next year.  Without setting a goal or forecast, the CEO said “If we can cut our cost base by 10%, that’s $20 billion in value…the last time someone created $20 billion with an M&A – I’d like them to tell me when it was.”  At the same time, XOM raised its Q3 profit forecast by $1 billion, citing escalated oil prices.  Elsewhere, a study published in the JAMA Medical Journal showed a link to increased stomach paralysis and other rare gastrointestinal issues for NVO’s wildly popular diabetes drugs Ozempic, Wegovy, and Saxenda which are all widely used for significant weight loss.  Bloomberg said the study found patients on one of those drugs are nine times more likely to develop swelling of the pancreas than a competing diabetes drug.  At the same time, C outlined its layoff process for eliminating layers of management in a brief internal meeting on Thursday.  No specifics were given, but Reuters reports the next layoffs will hit in November. A bit later, CLX announced that its sales took a hard hit from a cyber-attack but also acknowledged a “challenging consumer environment.” In the early afternoon, GSK announced it had raised $1.1 billion by selling 270 million shares of Haleon Plc in the UK. The funds will reportedly be rolled back into its Pharma business unit (Haleon is just an investment).  Meanwhile, STLA announced a $90 million investment in Argentina Lithium & Energy.  STLA will hold 19.9% ownership as a result of the deal.  Late in the day, MRTX shares jumped after Bloomberg reported rumors that French Pharma giant SNY is exploring an acquisition of MRTX.  After the close, MGM announced it expects operational disruptions from its September cyber-attack to negatively impact Q3 results.

In stock government, legal, and regulatory news, the UK announced Thursday morning that it will investigate the AMZN and MSFT dominance of the cloud computing market.  (The two combined have 80% market share with GOOGL being the closest competitor with 5%-10% of the market.)  Later, the Commerce Dept. said it is examining TSM, whose $40 billion AZ plant is a crucial planned recipient of US CHIPS Act funds.  Recent information indicates that nearly half of the project’s workforce comes from Taiwan.  This is, of course, contrary to the act’s goal of increasing US employment and chip manufacturing capability.  (TSM has had a very hard time filling jobs with qualified, i.e., experienced, US workers and has found it most expedient to bring in staff from the Taiwanese facility, of which the AZ fab is designed to be a mirror image.)  Elsewhere, GIFI announced a settlement of a lawsuit with Hornbeck Offshore Services.  After the settlement, the court dismissed the suit.  (No terms were released.)  At the same time, principally INTC, NVDA, and QCOM (but including others) launched a large-scale lobbying campaign in Washington in a bid to defeat semiconductor sales to China.  (NVDA was particularly vocal with the trio above claiming the restrictions could cost their firms $50 billion in lost sales per year from China.)  The three companies also testified before a House committee hearing Thursday.  Later, TSLA asked the Mexican government to build new infrastructure in the Northern Mexican state where the company intends to construct a new car plant.  (These improvements included upgrades to the region’s electric grid and railway system.)  In the afternoon, the NHTSA held a public hearing and recommended the government mandate a recall of 52 million air bag inflators (11 million of those produced under license by ALV).  These inflators were used between 200 and 2018 by 12 different car makers.  At the close, the SEC sued TSLA CEO Musk related to his X (Twitter) purchase. The SEC is attempting to force Musk to testify in the agency’s probe of his purchase of the company.  (Musk defied a subpoena to appear on Sept. 15 from the agency.)

After the close, LEVI missed on revenue while beating on earnings.  The company also cut its full-year guidance again.  (It cut forward guidance just 3 months ago as well.)

Overnight, Asian markets were mostly green.  Thailand (-0.97%) was the only major outlier to the downside while Hong Kong (+1.58%) was an outlier to the upside.  Singapore (+0.61%) and India (+0.55%) were the more typical leaders to the upside.  In Europe, we see the same picture taking shape at midday with only two of the 15 bourses showing red.  The CAC (+0.69%), DAX (+0.83%), and FTSE (+0.40%) lead the region higher in early afternoon trade.  In the US, as of 7:30 a.m., markets are now looking to start the day on the upside.  (Of course, this is pre-Payrolls data.)  The DIA implies a +0.20% open, the SPY is implying a +0.21% open, and the QQQ implies a +0.27% open at this hour.  At the same time, 10-year bond yields are higher at 4.744% and Oil (WTI) is just on the green side of flat at $82.43 per barrel in early trading.

The major economic news scheduled for Friday includes Sept. Avg. Hourly Earnings, Sept. Nonfarm Payrolls, Sept. Private Nonfarm Payrolls, Sept. Participation Rate, Sept. Unemployment Rate (all at 8:30 a.m.).  We also hear from a Fed speaker (Waller at noon).  The major earnings reports scheduled for before the open are limited to. There are no major earnings reports scheduled for Friday (either before the bell or after the close).

In miscellaneous news, Nat Gas hit a price not seen since January as the commodity broke $3 to close at $3.184.  After hours, AMC announced that cultural phenom Taylor Swift is helping it rake in money.  A film of Swift’s recent Eras tour will open on Oct. 13 and has already surpassed $100 million in advance ticket sales.  Meanwhile, Politico reports that in the wake of the GOP mess in Congress, the Biden Administration is now looking at using State Dept. grants as a way to send more weapons to Ukraine.  The idea seems to be grating the money to Ukraine who would use the funds to buy arms from US weapons manufacturers such as GD, NOC, and RTX.  (The same mechanism has been used to transfer weapons to Taiwan in the past.)  At the same time, the National Assn. of Realtors said the average US mortgage rate has now hit a 22-year peak of 7.49% for a 30-year, fixed-rate loan.

In late-breaking news, TSLA announced it will cut its US prices again on its Model 3 and Model Y cars.  (A 3%-4% cut in Model 3 prices and a 3.7% cut in Model Y.)  The move comes after TSLA vehicle deliveries for Q3 missed the market expectations.  At the same time, PHG (Philips) took a hit overnight as the FDA said it does not believe the data shared by the medical device maker is sufficient to evaluate the risks posed by the company’s recalled sleep apnea ventilators.  (More than 10 million of those devices were recalled after a number of deaths were attributed to breathing toxic materials produced by the breakdown of some silicone components of the device.)  Elsewhere, Bloomberg reports this morning that XOM is in “advanced talks” on buying PXD in a $60 billion deal.  It would be the oil giant’s biggest acquisition since Mobil back in 1999.  (The CEO of PXD had previously announced his retirement at year end.)  Finally, a meeting between President Biden and Chinese President Xi next month is looking more likely.  The meeting would take place on the sidelines of an APEC (Asia-Pacific Economic Cooperation) summit in San Francisco in Mid-November.

With that background, it looks like the Bulls are tentatively and indecisively in charge prior to today’s data drop. All three major index ETFs are easing closer to their T-line (8ema) from below. All three are also printing very small, white-body, Spinning Top type candles very early. In terms of extension, none of the three major index ETFs are far below their T-line (8ema) but the T2122 indicator is now in the middle of its oversold range. So, we are not extremely oversold and have some slack to run with if either the Bulls or Bears can find energy. Expect some volatility at 8:30 a.m. and again at the open (and possibly when the UAW streams its news mid-afternoon). Also remember that this is Friday, payday, and time to get your account ready for the weekend news cycle. Just remember, the first rule of making big money in the market is to not lose big money in the market.

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

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Sputtering Relief Rally

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The price action Wednesday produced a sputtering relief rally that provided some hope through the lack of momentum kept uncertainty high.  The sharp decline in the ADP signaled a weakening jobs market while at the same time suggesting the rising rate increases may be coming to an end.  Big tech names enjoyed the majority of the bullish energy while the energy sector sector pulled back sharply on worries of consumer demand declines.  Today we face data from International Trade, Jobless Claims, Natural Gas figures, as well as several Fed speakers to find bullish or bearish inspiration.  Plan your carefully with the likely market-moving Employment Situation report before the bell on Friday.

Overnight Asian markets closed mixed but mostly higher inspired by the pullback in treasury yields.  European markets are also showing some relief with modest gains across the board this morning despite the plunge in Metro Bank. Though U.S. Future has recovered some of its overnight lows they still suggest a modestly lower open ahead of trade and jobless numbers.  Buckle up for another day of uncertainty as we wait on the big Friday jobs report.

Economic Calendar

Earnings Calendar

Notable reports for Thursday include CAG, LW, STZ, LEVI.

News & Technicals’

Metro Bank, a British retail bank, saw its shares plunge by more than 29% on Thursday before trading was suspended by the London Stock Exchange. The reason for the sharp drop was the news that the bank was trying to raise £600 million ($727 million) in debt and equity, amid its financial troubles. The bank has been struggling since 2019 when it revealed a major accounting error that damaged its reputation and profitability. The bank has been trying to improve its balance sheet and reduce its costs, but it has faced challenges from the pandemic, the low-interest rate environment, and the intense competition in the UK banking sector. The bank said that it was in talks with existing and new investors to raise the funds, but it did not provide any details or confirmations. The London Stock Exchange, which lists the stock, confirmed to CNBC that the trading was briefly suspended due to its circuit breaker mechanisms, which are designed to prevent excessive volatility.

Ofcom, the UK’s communications regulator, has expressed its concern that the cloud computing market is dominated by a few large players, known as “hyperscalers”. These are companies like Amazon Web Services (AWS) and Microsoft Azure, which provide cloud services such as storage, computing, and networking to other businesses. According to Ofcom’s estimate, AWS and Microsoft Azure together account for about 60% to 70% of the total cloud spending, leaving little room for other competitors. Ofcom said that this could limit the choice, innovation, and quality of cloud services for consumers and businesses in the UK. Ofcom also said that it is monitoring the cloud market and exploring potential regulatory interventions to promote competition and protect consumers.

LG Energy Solution, a South Korean company that makes batteries for electric vehicles (EVs), has announced that it will supply EV batteries to Toyota, the Japanese automaker, for its cars that will be produced in the U.S. LG Energy Solution’s CEO, Youngsoo Kwon, said in an exclusive interview that the company will invest about $3 billion to build new factories for battery cells and modules exclusively for Toyota and that the factories will be completed by 2025. He also said that the company decided to invest in the U.S. market because of the high inflation, labor costs, and tax incentives in the country. He said that the IRA tax credit, which is a federal tax credit for EV buyers, is a big factor that offsets the costs and boosts the demand for EVs in the U.S. He said that LG Energy Solution is aiming to become a global leader in the EV battery market by partnering with Toyota and other automakers.

Indexes Wednesday began a sputtering relief rally after finding some encouragement in the ADP payroll data showed some signs of a slowing labor market, which could ease the inflation pressure. The bond yields helped ease rate pressures declining modestly giving stocks a little breathing room The sectors that have been lagging, such as consumer discretionary and technology, performed better on Wednesday. However, the energy sector was a big loser, as the oil prices dropped by more than 5%, their worst daily decline in a year. Today we have a few notable earnings, International Trade, Jobless Claims, Natural Gas figures as well as several more Fed speakers to inspire the bulls or bears. Keep in mind the next big market-moving report is Friday before the bell with the release of the Employment Situation numbers so plan your risk carefully because the sputtering relief could continue as we wait.

Trade Wisely,

Doug