Public e-Learning 9-7-23 – John
Closed with Losses
Indexes closed with losses on a light day of data here in the U.S., while Asian and European economic news started the day off with a little bearish sentiment. The pressure continued to grow as oil rose to a 10-month high adding worries to its potential inflation impact and helping bond yields to surge higher on the day. To find inspiration today we have Mortgage, Trade, PMI, ISM, Beige Book, Fed speak, and just a few notable earnings events for the bulls and bears to wrangle over. Plan for price action to remain challenging as the bulls look for anything to resume the relief rally and the bears look for some inspiration to resume selling.
While we slept Asian markets traded mixed even as Country Garden made payments allowing China real estate stocks to surge. However, European markets trade bearishly across the board as surging energy prices add additional challenges to an already struggling economy. U.S. futures also suggest a modestly bearish open ahead of earnings and economic data worried about the inflationary and economic impacts of rising energy prices.
Economic Calendar
Earnings Calendar
Notable reports for Wednesday include AEO, AI, CNM, GME, PLAB, PLAY, SPWH, PATH, & VRNT.
News & Technicals’
The European Commission, the executive branch of the European Union, has announced that it has identified six tech giants as “gatekeepers” under its new Digital Markets Act (DMA) — a landmark law that aims to curb the power of the dominant digital platforms. The six gatekeepers are Alphabet, Amazon, Apple, ByteDance, Meta, and Microsoft. These are large digital companies that provide core platform services, such as online search engines, app stores, social networks, and messaging services. The DMA imposes a set of obligations and prohibitions on these gatekeepers to prevent them from abusing their market position and harming competition and consumers. The DMA is one of the first regulatory tools to comprehensively regulate the gatekeeper power of the largest digital companies. The DMA complements but does not change EU competition rules, which continue to apply fully. The European Commission is the sole enforcer of the DMA and will monitor the compliance of the gatekeepers with the law.
The U.S. government is facing the risk of a shutdown at the end of September unless Congress passes a spending bill to fund its operations. The White House and the leaders of both chambers of Congress have agreed to support a stopgap measure, also known as a continuing resolution, that would keep the government running until December 3. However, the stopgap measure still needs to be approved by both the House and the Senate, which could face some challenges from lawmakers who oppose certain provisions or demand additional funding for their priorities. A government shutdown would have negative consequences for the economy, public services, and federal employees. The last government shutdown occurred in 2018-2019 and lasted for 35 days, the longest in U.S. history.
Country Garden, a Chinese property developer, has seen its shares rise after it narrowly avoided defaulting on its bond payments. The company reportedly paid $22.5 million in bond coupon payments on Tuesday, just hours before a 30-day grace period expired. The bond payments were originally due in August, but Country Garden had requested an extension due to liquidity problems. The company has been facing financial difficulties amid the tightening regulations and slowing demand in China’s real estate sector. The successful payment of the bond coupons has eased some of the market concerns and boosted the confidence of the investors. Country Garden’s shares rose by 4.6% on Wednesday, outperforming the broader market.
Tuesday, the stock market closed with losses, while the bond market and the dollar gained. There was no major news that moved the market, but some weak economic data from abroad caught some attention. The services sector in China grew slower than expected in August, showing that the stimulus measures have not boosted consumption yet. Similarly, the final numbers for the services sector in the eurozone were lower than the initial estimates, indicating some slowdown in growth. The energy sector was the best performer today, as oil prices rose after Saudi Arabia announced that it would keep its voluntary production cuts until the end of the year. Oil prices reached a ten-month high of $87 per barrel. Today investors will have Mortgage Applications, International Trade, PMI, ISM, Beige Book, and some Fed speak along with a handful of notable earnings to find bullish or bearish inspiration.
Trade Wisely,
Doug
Trade News, PMI, and Beige Book Today
Tuesday gave us a modest gap lower at the open (down 0.10% in the SPY, up 0.01% in the DIA, and down 0.23% in the QQQ). At that point, we saw a little follow-through by the Bears that bottomed out at about 10:40 a.m. Then the Bull stepped in to rally us until shortly after 11 a.m. From there, the Bears led a long, slow, wavy decline right into the close on the SPY and DIA. Meanwhile, the QQQ ran back and forth between the late morning high and the Friday closing level. This action gave us black-bodied candles with very little wick in the SPY and DIA (with the DIA crossing back just below its T-line and 50sma). Meanwhile, the QQQ printed a white-bodied Spinning Top candle.
On the day, nine of the 10 sectors were in the red with only Energy (+0.10%) hanging onto green territory while Basic Materials (-0.1.93%) and Industrials (-1.74%) led the way lower. At the same time, the SPY lost 0.43%, DIA lost 0.55%, and QQQ gained 0.13%. VXX gained two-thirds of a percent to close at 21.35 and T2122 plummeted back down to the other side of the mid-range to just outside the edge of oversold territory at 21.48. 10-year bond yields shot up to close at 4.266% while Oil (WTI) gained another 1.39% to close at $86.74 per barrel. This all happened on extremely low volume (not much more than half of the 50-day average) in all three of the major index ETFs. So, the Bears had control on the day, but it sure felt like just a tepid pullback after last week’s pre-holiday rally.
The major economic news reported Tuesday was limited to July Factory Orders, which came in down but better than expected at -2.1% (compared to a forecast of -2.5% but much worse than the June reading of +2.3%).
In Fed news, Fed Governor Waller said Tuesday that the latest economic data was giving the FOMC space to wait and see whether it needs to raise rates again. He went on to note that he currently sees nothing that would force the Fed to raise the cost of short-term borrowing again. Waller said, “we have to wait and see if this inflation trend is continuing … I want see a couple of months continuing along this trajectory before I say we’re done doing anything.” (For what it’s worth, the market is pricing in only an 8% chance of a rate hike in just over two weeks at the September meeting and just over a 40% chance of a hike at any of the three remaining scheduled 2023 meetings.) Later in the day, the NY Fed said that it believes the neutral rate (neither restrictive or stimulative), known as R-star had fallen in Q2. The Fed analysis pegged 0.57% as the R-star for Q2, down from 0.68% in Q1. It is worth noting that analysts add the Fed target of 2% inflation to that R-star. In this case, it would mean a 2.57% rate would be neutral for the economy. Since the Fed currently has rates at 5.25% to 5.50%, that means the Fed is being very restrictive.
SNAP Case Study | Actual Trade
In stock news, on Tuesday, WBD announced that the Hollywood writer’s strike will hit the company’s 2023 profits. The company expects the impact to be $300 million – $500 million for 2023 reducing earnings to $10.5-$11 billion. Elsewhere, STLA said that its testing shows that 24 of the company’s existing internal combustion engines work, without modification, on new e-fuels. (E-fuels are synthetic fuels that blend existing standard fuels with carbon that has been captured and hydrogen created from sustainable electric sources like wind, solar, and nuclear.) At the same time, UAL announced that it had resumed flight departures after a computer issue had forced them to have the FAA ground all non-departed flights earlier in the day. By midday, MA denied reports that the company is planning to increase the fees charged merchants when a credit card is processed. This came after the Wall Street Journal reported it had obtained documents and sources claiming that both MA and V have plans to raise those fees in October and April respectively. After the close, Reuters reported that the head of GM manufacturing said that current UAW demands “have significant costs attached that would threaten our ability to maintain our manufacturing momentum.” Also after the close, ENB announced they had agreed to acquire 3 utilities from D for a total purchase price of $14 billion ($9.4 billion in cash and $4.6 billion in assumed debt). In the early evening, AAPL announced it had extended its deal with soon-to-IPO ARM in a deal that extends until 2040. (AAPL uses ARM chips in all of its phones, tablets, and computers. During the evening, COIN announced it would be launching a new lending platform aimed at large institutional investors. (A regulatory filing shows that COIN has raised $57 million to fund the development and launch of this new platform.)
In stock legal and regulatory news, TSLA filed suit in China against Chinese chip designer Bingling, claiming the company violated its intellectual property rights. (Bingling specializes in chip design related to battery efficiency optimization.) Later, the NHTSA announced a decision that 52 million airbag inflators should be recalled. (The agency had first called for the recall in May, but the maker, Arc Automotive, refused.) This would impact 12 automakers, including GM, F, STLA, TSLA, TM, HYMTF, MBGAF, BMWYY, VLKAF, and models from 2000 through early 2018. The next step will be a public hearing in October to compel the recall. After the close, the Wall Street Journal reported that the FTC is planning to file an antitrust suit against AMZN later this month after the e-commerce giant refused to offer concessions related to its pricing and rules requiring third-party sellers to use “Fulfillment by Amazon” to avoid fees.
On Monday evening, ZS posted beats on both the revenue and earnings lines. The company also raised its forward guidance. So far this morning, CNM reported in-line revenue but missed on the earnings line by a penny. At the same time, EXPR missed on both the top and bottom lines.
US mortgage demand fell last week to a 27-year low, even as interest rates fell slightly. Total applications for new home purchase loans fell two percent for the week (and were 28% lower than one year prior). Meanwhile, refinancing applications were down five percent week-on-week (and were 30% lower than the same week in 2022). This all took place while the average rate for a 30-year, fixed-rate, conforming loan dropped from 7.31% to 7.21% (with closing points also decreasing from 0.73 to 0.69).
Overnight, Asian markets were mixed but leaned toward the downside. Japan (+0.62%) was, by far, the biggest gainer. Meanwhile, Australia (-0.78%) and South Korea (-0.73%) were by far the biggest losers on the session. In Europe, things are more dicey at midday with only Belgium (+0.09%) hanging onto green territory. On the other side, the CAC (-0.71%), DAX (-0.40%), and FTSE (-0.66%) lead the rest of the region lower in early afternoon trade. In the US, as of 7:30 a.m., Futures are pointing to a modestly red start to the day. The DIA implies a -0.19% open, the SPY is implying a -0.22% open, and the QQQ implies a -0.27% open at this hour. At the same time, 10-year bond yields are back down to 4.244% while Oil (WTI) is off a third of a percent to $86.38 per barrel in early trading.
The major economic news scheduled for Wednesday includes July Imports, July Exports, and July Trade Balance (all at 8:30 a.m.), August S&P Global Composite PMI and August S&P Global Services PMI (both at 9:45 a.m.), August ISM Non-Mfg. Employment, August ISM Non-Mfg. PMI, and August ISM Non-Mfg. Price Index (all at 10 a.m.), Fed Beige Book (2 p.m.), and API Weekly Crude Oil Stock Report (4:30 p.m.). The major earnings reports scheduled for before the open are limited to CNM. However, after the close, AEO, PLAY, and GME report.
In economic news later this week, on Thursday, Weekly Initial Jobless Claims, Q2 Nonfarm Productivity, Q2 Unit Labor Costs, EIA Crude Oil Inventories, and Fed Balance Sheet are reported. We also have 3 Fed speakers (Harker at 10 am, Williams at 3:30 pm, and Bowman at 4:55 pm). Finally, on Friday there are no major economic news reports.
In terms of earnings reports later this week, on Thursday, we hear from ABM, DOOO, DBI, KFY, SAIC, TTC, DOCU, and RH. On Friday, KR reports.
In China news, last week, while US Commerce Sec. Raimondo was visiting, China unveiled the latest Huawei smartphone. A Canadian analyst firm acquired and tore one down. What they found was that China has made a massive leap in capability. The Huawei phone uses a Chinese-made 7nm chip that was created using UEV (extreme ultraviolet lithography). Prior to this, the most advanced chip China was known to create was 14nm and even the top Western companies only began using UEV lithography in 2019. 7nm still only yields 50% (half the chips made are bad), but this all means China is only one generation behind the West (TSM and INTC for example) rather than previous expectations that China was 3-4 generations behind. It also means that the sanctions dating back to 2020, and greatly expanded by President Biden, have either been circumvented or made irrelevant by Chinese internal development. Elsewhere, overnight China announced it will increase its support of the property sector. This caused Chinese property developer stocks to spike higher with Evergrande up 83% and Sunac China Holdings up 68%.
In miscellaneous news, Oil settled at a 10-month high on Tuesday after both Russia and Saudi Arabia announced they are extending their voluntary supply cuts through the end of the year. (Markets had expected another 1-month extension…not the 3-month extension announced.) The continued strength of the US Dollar also helped oil, as bond rates rose again Tuesday (on a post-holiday flood of investment-grade corporate bonds that took away Treasury buyers and thus drove up bond yields). Elsewhere, Turkey’s President Erdogan ended his talks with Russia’s Putin with any public progress on resuming the “Grain deal.” Still, Erdogan said it would soon be possible to revive the deal and get Ukrainian grain to market.
With that background, it looks like the Bears are looking to start the shortened week with a move lower. DIA even retested its T-line (8ema) in the premarket. However, it has the strongest early session candle bouncing up off the level while the other two major indices are giving us indecisive gap-down candles so far. The trend remains bullish with all three major index ETFs above a rising T-line, 17ema, and 50sma. As far as extension goes, none of the major index ETFs are too far extended from their T-line and the T2122 indicator is sitting right at the upper edge of the midrange (or just outside of overbought territory if you prefer). So, both sides have the room to run, if they can muster the momentum.
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
🎯 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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Fed’s Actions
Conflicting jobs data, rising bond yields, and Fed member hawkish speeches have not stopped the market and the talking heads from predicting the Fed’s actions pushed stocks higher last week with high hopes they will be right this time. China and European economies continue to raise uncertainties as does the changing habits of U.S. consumers as energy, food, & housing prices continue to rise. We have a light week of earnings and economic reports this week so expect anything in price action with a sensitivity to the news cycle.
Asian markets mostly declined overnight as Australia held interest rates with health care and real estate dragged markets down. European markets trade mixed this morning as the eurozone PMI figures were revised lower changing investor early sentiment. U.S. futures chop around the flatline facing a light week of data as worldwide economic uncertainty mutes last week’s relief rally follow-through.
Economic Calendar
Earnings Calendar
Notable reports for Tuesday include AVAV, CRMT, BRC, GTLB, & ZS.
News & Technicals’
Baidu, the Chinese tech giant and the leader in artificial intelligence (AI), has announced some of its latest achievements and products based on generative AI at an event on Tuesday. Generative AI is a type of AI that can create new content or data from existing ones, such as images, text, audio, or video. One of the products that Baidu showcased was an AI-powered tool that is integrated with its cloud service, which is similar to Google Drive. This tool can help users generate various types of documents, such as resumes, contracts, reports, and summaries, based on their needs and preferences. Baidu said that more than 6 million users have used this tool so far. Another product that Baidu demonstrated was a generative AI-based system that can assist with different scenarios, such as traffic management, financial research, and coal mine logistics. For example, the system can generate optimal traffic plans, financial reports, and coal transportation schedules based on the input data and the objectives. Baidu also mentioned that ChatGPT, a generative AI-powered chatbot developed by OpenAI, a research organization backed by Microsoft, is not officially available in China, where Google and Facebook are banned. ChatGPT is a chatbot that can produce humanlike responses to any input and has gained popularity and controversy around the world.
Mercedes and BMW, two of the most renowned German automakers, have unveiled their new electric vehicle (EV) concepts at the IAA auto show in Munich. The Mercedes-Benz Concept CLA Class and the BMW Vision Neue Klasse are the latest models that showcase the future of EV design and technology from the two brands. These cars are built on entirely new platforms that will support both their EV offerings for the coming years. This is a sign of the most aggressive push into the EV market from Mercedes and BMW, as they aim to compete with Tesla, the current leader in the EV industry. The Mercedes-Benz Concept CLA Class is a sleek and sporty four-door coupe that features a minimalist interior, a large touchscreen, and a high-performance battery. The BMW Vision Neue Klasse is a compact and elegant sedan that combines a spacious cabin, a digital dashboard, and an efficient drivetrain. Both cars are expected to go into production by 2025.
North Korea and Russia are strengthening their military and political ties, as Moscow seeks to acquire more weapons amid the ongoing war in Ukraine. According to the data I found, North Korea and Russia have recently held several meetings and joint exercises, signaling their closer cooperation and mutual support. For example, in August 2023, North Korea’s leader Kim Jong-un met with Russia’s President Vladimir Putin in Vladivostok, where they discussed regional security issues and economic cooperation. In September 2023, North Korea and Russia conducted a joint naval drill in the Sea of Japan, where they practiced anti-submarine warfare and missile defense. These moves indicate that North Korea and Russia are trying to counter the influence and pressure of the United States and its allies in the region, as well as to boost their defense capabilities. North Korea is also hoping to get more economic and humanitarian aid from Russia, as it faces severe sanctions and food shortages. Russia, on the other hand, is looking to expand its arms market and access to North Korea’s natural resources. The growing alliance between North Korea and Russia poses a challenge and a threat to the stability and security of Northeast Asia and beyond.
Stock markets ended slightly higher on Friday, continuing the positive mood of the week that was driven by optimism about the economy and the Fed’s actions. Interest rates also went up, with the 10-year Treasury yield near 4.2%. However, the bond market this week saw a decline in rates from last week’s 2023 highs, as the market expected fewer rate hikes from the Fed. Oil and gold prices rose, while sectors, such as energy, materials, financials, and industrials, led gains. To kick off a short trading week light day of earnings and economic reports with bond yields rising as economic uncertainty weighs on investors. Expect price volatility to continue as traders and investors continue trying to guess the Fed’s next actions despite their year-long poor track record in doing so.
Trade Wisely,
Doug
Short Week Starts With Modest Bear Push
On Friday, markets opened higher, gapping up 0.62% in the SPY, up 0.62% in the DIA, and up 0.67% in the QQQ. However, that was the last we saw of the Bulls with all three major index ETFs selling off until about noon. (QQQ had faded its morning gap by 10:35 am while SPY and DIA faded their own gaps by 11:50 am.) From that low of the day at noon, the SPY and DIA drifted slowly and slightly higher the rest of the day (closing back inside the opening gap area) as QQQ rode waves sideways and did not quite reach the Thursday close level at the end of the day. This action gave us a gap-up, inside day, black-body Spinning Top in the DIA. At the same time, we got a gap-up, black-bodied candle in the SPY. Meanwhile, the QQQ printed a gap-up, Dark Cloud Cover signal. All three remain above their T-line (8ema) and did not even retest those levels. The same goes for the DIA not retesting its 50sma, but to be fair, DIA is not far above either average.
On the day, seven of the 10 sectors were in the green with Energy (+1.96%) far out front leading the way higher while Communications Services (-0.88%) lagged behind the other sectors. At the same time, the SPY gained 0.19%, DIA gained 0.34%, and QQQ lost 0.11%. VXX dropped 1.35% to 21.21 and T2122 climbed back up to the edge of the overbought territory at 76.92. 10-year bond yields pulled back slightly to close at 4.18% while Oil (WTI) gained 2.89% to close at $86.05 per barrel. This happened on modestly below-average volume in all three of the major index ETFs. So, the bullish trend of the week continued but it felt tepid with a strong gap in one direction and then trading the rest of the day that went back the other way.
The major economic news reported Friday included August Average Hourly Earnings which rose a bit less than expected at +4.3% (year-on-year), compared to a forecast of +4.4% and the July reading of +4.4%. It is worth noting that the month-on-month Avg. Hourly Earnings also came in a bit below forecast at +0.2% versus both a forecast of +0.3% and the July value of +0.3%. At the same time, August Nonfarm Payrolls grew more than predicted at +187k (compared to a forecast of +170k and the July reading of +157k). Meanwhile, August Private Nonfarm Payrolls were reported much stronger than anticipated at +179k (versus a forecast of +150k and a July value of +155k). The August Participation Rate increased to 62.8% (compared to the forecast and July numbers which were both 62.6%). This drove a jump in the August Unemployment Rate to 3.8% (from the forecast and July readings which were both 3.5%). Later the August S&P US Mfg. PMI came in at 47.9 (better than the 47.0 forecasted but lower than the July 49.0 value). Then the August ISM Mfg. PMI was better than expected at 47.6 (versus a forecast of 47.0 and a July reading of 46.4). At the same time, the August ISM Mfg. Price Index was reported well above predicted at 48.4 (compared to a 43.9 forecast and a 42.6 July reading). So, to summarize, wages grew by slightly less than expected and jobs were also up much more than expected. However, a pop in participation led to a pop in the unemployment rate. Bloomberg characterized this as a “controlled cooling.” Meanwhile, manufacturing was better than anticipated but still contracting both in the US and globally.
SNAP Case Study | Actual Trade
In stock news, on Friday, the Wall Street Journal reported that Saudi Aramco is now strongly considering issuing a $50 billion secondary before the end of the year. If done, this would essentially double the world’s largest oil company’s outstanding shares. This seems a bit odd since the company just increased dividend payouts by $10 billion in August. However, the $50 billion will be used to bolster the Saudi sovereign wealth fund (which is a major investor in US markets). Later, HOOD announced it would buy a block of stock formerly owned by Sam Banman-Fried (disgraced “wunderkind” indicted on crypto fraud and conspiracy charges). The block was seized by the US government in November and is now held by the US Marshal Service. The sale will be for $605.7 million or $10.96/share. Elsewhere, entertainment stocks took a hit Friday as a major contract dispute between DIS and CHTR (second-largest cable TV provider) over the television distribution fees of their deal. Later, TSLA announced a new, restyled Model 3 in China with a higher price. At the same time, TSLA slashed the price of its premium vehicles, which include the “Full Self-Driving” software, by 14%-21%. After the close, the New York Times reported that META may allow Facebook and Instagram users in Europe to pay in order to avoid getting advertisements on its platform.
In stock legal and regulatory news, on Friday, the NHTSA announced that F will recall 169k vehicles to replace rearview cameras, update software on some cameras left in place, and will take a $270 million charge as a result. Later, the FTC approved the AMGN $27.8 billion acquisition of HZNP. This comes after the FTC ended its lawsuit to block the deal. To obtain the agreement, AMGN agreed not to bundle its own drugs with those from HZNP. Elsewhere, HUM joined the list of big pharma companies who are suing the US government. In this case, HUM does not want Medicare to claw back billions of dollars of overcharges after audits found prescriptions for medications for conditions that are not even listed in the patient’s medical records. HUM claims the rule allowing the clawbacks is “arbitrary and capricious.” The Biden Administration says the clawbacks will save $4.7 billion over 10 years. At the end of the day, NVS also sued the Dept. of Health and Human Services, hoping to prevent Medicare from negotiating drug prices for its 66 million enrollees. One of NVS’s top-selling drugs (Enestro) was on the list of 10 drugs Medicare announced it would be negotiating prices on (as opposed to just accepting whatever the drug maker wants as it is now). After the close, the US government sued EIX for negligence that led to a 2020 fire near Los Angeles, which burned 180 square miles.
In major IPO news, ARM revised its filing and is now pricing the much-anticipated chip stock between $47 and $51 per share. Although this IPO is expected to raise around $5 billion, with SoftBank retaining 90.6% of the stock. (The IPO underwriters do have the option to up to an additional $735 million of the stock, which would reduce SoftBank’s stake to 89.9%.) FWIW, ARM is the architecture AAPL chose when it replace INTC chips with so-called AAPL-designed chips and ARM is the only real competitor to the x86 chip architecture used by the industry leaders INTC and AMD.
Overnight, Asian markets were mostly in the red. Japan (+0.30%), India (+0.24%), and Taiwan (+0.01%) managed to hold onto green while Hong Kong (-2.06%), Shanghai (-0.71%), and Shenzhen (-0.67%) led the region lower. In Europe, we see a similar picture taking shape with only four of the 15 bourses in the green at midday. The CAC (-0.39%), DAX (-0.24%), and FTSE (+0.09%) are typical of the region in early afternoon trade. In the US, as of 7:30 a.m., Futures are pointing toward a red start to the day. The DIA implies a -0.09% open, the SPY is implying a -0.22% open, and the QQQ implies a -0.42% open at this hour. At the same time, 10-year bond yields are up briskly to 4.23% and Oil (WTI) is off by a third of a percent to $85.27 per barrel.
The only major economic news scheduled for Tuesday is July Factory Orders (10 a.m.). There are no major earnings reports scheduled for before the open. Then, after the close, the only earnings report that might be considered major is ZS.
In economic news later this week, on Wednesday we get July Imports, July Exports, July Trade Balance, August S&P Global Composite PMI, August S&P Global Services PMI, August ISM Non-Mfg. Employment, August ISM Non-Mfg. PMI, August ISM Non-Mfg. Price Index, Fed Beige Book, and API Weekly Crude Oil Stock Report. Then Thursday, Weekly Initial Jobless Claims, Q2 Nonfarm Productivity, Q2 Unit Labor Costs, EIA Crude Oil Inventories, and Fed Balance Sheet are reported. We also have 3 Fed speakers (Harker at 10 am, Williams at 3:30 pm, and Bowman at 4:55 pm). Finally, on Friday there are no major economic news reports.
In terms of earnings reports later this week, on Wednesday, CNM, AEO, PLAY, and GME report. Then Thursday, we hear from ABM, DOOO, DBI, KFY, SAIC, TTC, DOCU, and RH. On Friday, KR reports.
In miscellaneous news, the National Federation of Retailers said that their surveys lead them to predict there will be record back-to-school spending of $135 billion this year. That is up $24 billion (a 21.8% increase over 2022). Elsewhere, the industry group that represents large private hedge funds filed suit against the SEC on Friday, claiming the agency went too far in requiring them to disclose their expenses and preventing them from giving different investors different deals (sweetheart deals). Oddly, the group filed suit in New Orleans, so there was probably some judge shopping going on there. Finally, a reminder that we have 9 days until the current UAW contracts with F, GM, and STLA expire. Given the nature of brinksmanship, expect a lot of stories on this topic and the possibility of a major strike over those 9 days.
In world economic news, Bloomberg reported Friday that US corporate profits are on the rise again for the second straight quarter. Profits rose 4.5% in Q2 according to data from the Bureau of Economic Analysis. Their report showed US corporate profits grew from 13.8 percent to 14.3 percent of GDP in the second quarter. So, in the US we are seeing what may be a “controlled cooling” with an extremely strong job market, and corporate profits on the rise. (It is worth noting that GS has now lowered the probability of a US recession to 15%, down from 20% and far below the cycle-high probability of 60%.) However, in Europe, things are not as rosy. Inflation there is much worse than in the US and is remaining higher (stickier) due primarily to energy prices. At the same time, EU economic growth continues to be very weak leading many to start talking about potnetial “stagflation” in Europe. Meanwhile, in China, the picture is grim. The Chinese are now experiencing a banking sector that is under siege from a real estate crisis, and is also seeing widespread unemployment (especially among youth).
With that background, it looks like the Bears are looking to start the shortened week with a move lower. DIA even retested its T-line (8ema) in the premarket. However, it has the strongest early session candle bouncing up off the level while the other two major indices are giving us indecisive gap-down candles so far. The trend remains bullish with all three major index ETFs above a rising T-line, 17ema, and 50sma. As far as extension goes, none of the major index ETFs are too far extended from their T-line and the T2122 indicator is sitting right at the upper edge of the midrange (or just outside of overbought territory if you prefer). So, both sides have the room to run, if they can muster the momentum.
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
🎯 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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Public e-Learning 8-29-23 – John
Building on the Gains
Indexes advanced slightly on Wednesday building on the gains as the relief rally continued on a low-volume day. The hesitation likely has a lot to do with the wait on the Core PCE numbers coming out before the bell this morning and what that might mean for future Fed decisions. Along with several notable earnings reports we also have Jobless Claims, Chicago PMI, and Natural Gas numbers to provide buy or sell inspiration. Keep in mind we have the Employment Situation number Friday morning as we slide into a busy travel 3-day weekend.
While we slept Asian markets closed mixed as China’s factory activity contracts for the 5th month in a row. European markets also trade mixed this morning as they try to celebrate the UBS earnings while dealing with higher inflation data. The U.S. futures also trade mixed this morning as we wait on potential market-moving jobs and inflation data.
Economic Calendar
Earnings Calendar
Notable reports for Thursday include ASO, AVGO, DELL, DOOO, CAL, CPB, DG, GCO, LULU, MOMO, HRL, MDB, NTNX, OLLI, GIS, TITN, VMW, UBS.
News & Technicals’
China’s manufacturing sector continued to shrink in August, indicating that the world’s second-largest economy is facing persistent headwinds from both domestic and external factors. According to the official data released by the National Bureau of Statistics (NBS), the manufacturing purchasing managers’ index (PMI) rose slightly to 49.7 in August, from 49.3 in July, but remained below the 50-point threshold that separates expansion from contraction. This was the fifth consecutive month that the index showed a contraction, and worse than the median forecast of 49.2 by economists surveyed by Bloomberg. The NBS attributed the weak performance to the impact of floods, typhoons, and COVID-19 outbreaks in some regions, as well as the slowdown in global demand and supply chain disruptions. The sub-indexes for production, new orders, and new export orders all improved slightly from July but still stayed in the contraction zone. The sub-index for employment also fell further to 48.1, suggesting that manufacturers were cutting jobs amid the downturn. The NBS said that the manufacturing sector faced “increased difficulties and pressures” and called for more policy support to stabilize production and market expectations.
The euro zone’s inflation rate remained at a 10-year high in August, exceeding the analysts’ expectations and posing a challenge for the European Central Bank (ECB). According to the preliminary data released by Eurostat on Thursday, the annual inflation rate was 5.3% in August, the same as in July. This was higher than the 5.1% forecast by a Dow Jones poll of economists. The inflation rate was also far above the ECB’s target of below but close to 2%. The main drivers of inflation were energy, food, and services prices, which rose by 15.4%, 2.7%, and 3.1% respectively. The core inflation rate, which excludes energy, food, alcohol, and tobacco, was 2.6% in August, up from 2.5% in July. The high inflation rate puts pressure on the ECB to consider tapering its massive stimulus program, which has been supporting the euro zone’s economic recovery from the pandemic. However, the ECB has repeatedly said that it expects the inflation spike to be temporary and that it will look through it until the medium-term outlook improves. The ECB will hold its next monetary policy meeting on September 9, where it will update its economic projections and discuss its policy stance.
The trade relationship between China and the U.S. deteriorated in the first half of the year, as the U.S. imposed tariffs and export controls on Chinese goods and technology. According to Xie Feng, China’s ambassador to the U.S., the bilateral trade volume dropped by 14.5% year on year in the first six months of 2021. He said that the U.S. measures were harmful to both countries and the global economy, and urged for a path to expand mutually beneficial economic cooperation and trade. He also criticized Biden’s executive order that restricts U.S. investments in Chinese companies that are involved in semiconductor and AI industries, calling it “a violation of the principle of free trade”. He said that China and the U.S. should respect each other’s core interests and avoid confrontation and conflict.
Stock markets ended slightly higher on Wednesday, building on the gains made earlier this week as volume weakened. The focus on job numbers and the implications of the data for the next Fed decision continues today. However, the Personal Income and Outlays data including the Core PCE which is the favorite number of the Fed for reading inflation can move the market substantially this morning. On the last trading day of August, plan for just about anything as investors deal with China, European, and Fed uncertainty contributing to the challenging price volatility while the so-called magnificent seven dominate the indexes.
Trade Wisely,
Doug
Bullish Follow-Through
The relief rally expanded with a big bullish follow-through after seeing a sharp decline in the JOLTS report hoping that will ease the hawkish Fed. However, we also ignored the sharp decline in consumer confidence suggesting that consumers are likely changing spending habits due to their weariness of high prices. This morning expect price volatility with ADP, GDP, International Trade, and inventories data before the bell. We also have Pending Home Sales and Petroleum numbers and several notable earnings reports to inspire the bulls or bears.
Asian market closed mostly higher drawing on the bullish energy of the U.S. rally with only Hong Kong closing flat on the day. European markets gave up some early gains after Germany and Spain released data that brought out the bears. U.S. futures gave back overnight gains suggesting a flat to slightly bearish lean as the GDP data looms.
Economic Calendar
Earnings Calendar
Notable reports for Wednesday include BF.B, CHWY, CONN, COO, CRM, CRWD, FIVE, MCFT, OKTA, PDCO, VEEV, & VSCO.
News & Technicals’
The Bank of England (BoE) is facing a significant increase in losses on its bond-buying program, which is aimed at supporting the U.K. economy during the pandemic. According to Deutsche Bank, a leading financial institution, the BoE’s losses on its asset purchase facility (APF) will be “materially higher than projected” by the BoE itself. The APF is a scheme that allows the BoE to buy government and corporate bonds from the market, injecting money into the economy and lowering borrowing costs. However, as interest rates rise, the value of these bonds falls, resulting in losses for the BoE. The BoE estimated in late July that it would need the U.K. Treasury to cover £150 billion ($189 billion) of losses on its APF. However, Deutsche Bank Senior Economist Sanjay Raja said that this figure is too low and that the actual cost to the Treasury will be around £173 billion ($218 billion) over the next two fiscal years. This is £23 billion higher than the forecast made by the Office for Budget Responsibility (OBR) in March. This means that the Treasury will have to borrow more money or raise more taxes to compensate for the BoE’s losses, which could have implications for the U.K.’s fiscal policy and public debt.
Spain and Germany, two of the largest economies in the eurozone, have reported contrasting inflation and trade data for August and July respectively. Spain’s inflation rate rose to 2.6% year on year in August, matching the analysts’ expectations, according to the flash estimate released by the National Statistics Institute (INE). This was the highest inflation rate since October 2012, driven by higher energy and food prices. The inflation rate was also above the European Central Bank’s (ECB) target of close to but below 2%. Meanwhile, Germany’s imports fell by 13.2% year on year in July, the biggest decline since January 1987, according to the data published by the Federal Statistical Office (Destatis). This was much worse than the analysts’ forecast of a 4.5% drop, reflecting the impact of supply chain disruptions and labor shortages on the German economy. The trade surplus also narrowed to 12.3 billion euros ($14.5 billion) in July, from 15.6 billion euros ($18.4 billion) in June.
Indexes logged a big day of bullish follow-through after seeing a sharp decline in the JOLTS report but unfortunately, we also recorded a substantial miss in Consumer Confidence that the market chose to ignore. The bullish surge broke back above the daily 50-moving averages on the DIA, SPY, and QQQ while the IWM lagged. The big test for today, Can we follow through and prove to hold these key technical support levels? The answer will likely come down to the data we receive in the GDP. We will also deal with ADP, International Trade, Pending Home Sales, and a Petroleum number as well as some notable earnings reports to find inspiration. Plan for price volatility to remain challenging with a focus on job numbers for the rest of the week.
Trade Wisely,
Doug
Relief Rally
Markets around the world enjoyed a relief rally with choppy price action in the U.S. with overhead resistance levels holding with bond yields adding worries to future rate increases. Today traders will have much more earnings and economic data to inspire with Case-Shiller, Consumer Confidence, and JOLTS figures pending. Light choppy price action could be possible as we wait for the Wednesday release of the GDP providing the uncertainty.
Overnight Asian markets continued their relief rally led by Hong Kong up 1.95% at the close as Japan reported higher than expected unemployment. European markets also advance building on the bullish momentum. Ahead of earnings and economic data, U.S. futures point to a bullish open with the uncertainty of the GDP report looming Wednesday.
Economic Calendar
Earnings Calendar
Notable reports for Tuesday include AMBA, AMWD, BBY, BIG, BOX, CTLT, DCI, HPE, HPQ, SJM, MBUU, NIO, PDD, PVH, & ZTO.
News & Technicals’
Lithium is a metal that is used in various applications, such as batteries, electric vehicles, aerospace, and medicine. It is considered a critical mineral for the transition to a low-carbon economy. However, the supply of lithium may not be able to keep up with the growing demand, as a research unit of Fitch Solutions warned. According to BMI, “Global lithium supply is expected to enter a deficit relative to demand by 2025”. This means that there could be a worldwide shortage of lithium soon, which could affect the prices and availability of lithium products. The main factors that contribute to the supply-demand imbalance are the limited production capacity, the environmental and social challenges, and the geopolitical risks of lithium mining and processing. Therefore, it is important to find alternative sources of lithium, such as recycling, seawater extraction, and geothermal brines.
Toyota Motor, the world’s largest automaker by sales, has faced a major disruption in its production system due to a technical glitch. The company announced on Tuesday that it has halted operations at all 14 of its assembly plants in Japan, affecting its domestic output of about 30,000 vehicles per day. The company said that the malfunction occurred in its information system that connects the production lines and the parts suppliers, causing delays and errors in the delivery of components. The company apologized for the inconvenience and said that it is working to restore the system as soon as possible. The suspension of operations could have a significant impact on Toyota’s sales and profits, as well as on its global supply chain and customers.
Artificial intelligence (AI) is a powerful technology that can have both positive and negative impacts on humanity. Brad Smith, president and vice-chairman of Microsoft, one of the leading companies in AI development, said that AI has “the potential to become both a tool and a weapon”. He stressed the need for human control over AI to “slow things down or turn things off” in case of any harmful or unethical outcomes. His statement came amid the growing popularity and controversy of ChatGPT, a generative AI-powered chatbot that can produce humanlike responses to any input. ChatGPT has been praised for its creativity and versatility, but also criticized for its potential risks of spreading misinformation, manipulation, and violence. Some tech leaders have warned that AI poses a human extinction risk on par with nuclear war if it becomes too intelligent and autonomous. Therefore, it is important to establish ethical principles and regulations for AI to ensure its safe and beneficial use for humanity.
Indeses enjoyed a relief rally in the U.S. on light choppy price action with bond yields rising during government auctions. Today investors have more data on the earnings and economic calendars for the bulls or bears to find inspiration. Asian and European relief rallies are helping to lift premarket bullish spirits despite their weakening economic figures. Keep a close on overhead resistance levels in price and technicals such as the 50-moving averages that could harbor entrenched bears. Don’t be too surprised by light volumes and choppy price action with the uncertainty of the GDP report coming Wednesday morning.
Trade Wisely,
Doug
