Markets gapped higher on Tuesday (1.35% in the QQQ, 1% in the SPY and 0.7% in the DIA).  However, that was a bull trap because after meandering sideways for an hour and 45 minutes, all 3 major indices sold off extremely hard for a little over an hour.  During this selloff, DIA lost 1.90%, SPY lost 2% and QQQ lost 2.2%.  After that, all 3 indices ground sideways in a tight range until 2:30 pm.  Then volatility kicked back in as the bulls rallied all 3 major indices for half an hour before pulling back again a bit for the last hour of the day. This action is left us with large black candles that had some significant wicks on both ends (especially the upper wick), which Engulfed the prior candle.  (However, these are not truly “Bearish Engulfing” candles because the prior candle bodies were also black.)

On the day, 5 of the 10 sectors are in the red with Energy (+1.49%) by far the largest gainer and Utilities (-1.66%) by far the largest loser on the day.  At the same time, SPY was down 0.26%, DIA was down 0.49%, and QQQ managed to gain 0.04%.  The VXX gained 1.9% to 20.95 and T2122 was up to a whopping 4.04 (still deeply oversold).  10-year bond yields rebounded from early losses to new highs at 3.976% and Oil (WTI) was up 2.25% to $78.44/barrel.  So, while the day started off looking like it would provide some over-extension relief, it ended up with about the same extension as we had on Monday (which is to say a lot of extension).

In economic news, August Durable Goods Orders came in slightly better than expected at -0.2% (versus a forecast of -0.4%).  However, Conf. Board Consumer Sentiment came in hotter than expected at 108.0 (vs. 104.5 forecast and July’s 103.6 reading).  The big surprise of the day was August New Home Sales, which came in MUCH hotter than expected at 685k (versus a forecast of 500k and July’s number of 532k).  Then after the close API reported that Weekly Crude Oil Inventories unexpectedly rose by 4.150 million barrels (versus a forecast build of only 0.333 million and last week’s build of 1.035 million barrels).

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In Fed news, before the open Tuesday, Fed Chair Powell emphasized the risks and unregulated markets of “DeFi systems.” He called for the Fed (and other Central Banks) to play a major role in the oversight and regulation of cryptocurrencies, in particular speaking to stablecoins and unhosted crypto wallets.  Later in the morning, St. Louis Fed President Bullard said that rapid interest rate increases have raised the risk of a recession.  However, he maintained that the US economy remains resilient and said the recession is likely to be caused by an external shock rather than Fed policy.  He went on to call for more hikes and said not only are the hikes needed to tame inflation but also to defend Fed credibility.

In stock news, Tuesday afternoon, the DOJ asked a Federal Judge to force AAL and JBLU to scrap their “US Northeast” partnership as being anti-competitive.  The move also implies the JBLU acquisition of SAVE will face regulatory hurdles.  Elsewhere, CS announced the loss of two senior executives, one of which is going to rival C.  Then, after the close, the SEC announced it has fined 16 major Wall Street firms a total of more than $1.1 billion for failing to maintain and preserve electronic communications from Whatsapp usage (which their traders used to secretly communicate).  This secret communication is a major fear given the recent market-fixing convictions of traders in various asset classes. The fined firms include BARC, BAC, C, CS, GS, MS, and UBS.  Also, after the close, F said they are implementing a $700 million plant expansion in KY that will create 500 new hourly jobs.  Finally, Bloomberg reports that APO is seriously exploring a takeover of R.  Shares of R spiked 15% as the news broke late in the day.

In Energy news, as mentioned above, Oil (WTI) rose 2.25% on Tuesday due to cuts in production in the Gulf of Mexico and fear that Hurricane Ian could potentially temporarily take Florida oil storage and refining capacity offline.  A modest pullback in a historically strong Dollar also helped buoy oil prices.  Elsewhere, India and China have temporarily halted the purchase of Russian oil in the last week.  The reason appears to be demand-related as recession fears are facing both those economies. However, the pause also allows those countries to put more pressure on Russia for price concessions in the face of recent global oil price reductions.  Finally, in an odd turn, Senate Minority Leader McConnell (Republican) urged fellow Republicans to vote down a stopgap government funding bill…due to it containing riders intended to appease WV Democrat Manchin.  What makes this odd, is that the riders are massively pro-business and anti-environment as they would reduce environmental regulation and shorten project permitting review timelines.  This is odd because McConnell is from KY where there is a large coal mining industry that would benefit greatly from the bill.  So, this appears to be a just political ploy, calculating that a government shutdown shortly before midterm elections can be blamed on Democrats.

After the close, CALM and BB both reported beating on both the revenue and earnings lines.  (However, the BB number was still a loss.)  So far this morning, THO also reported beating on the top and bottom lines.  However, CTAS and PAYX report closer to the opening bell.

Overnight, Asian markets were red across the board.  Hong Kong (-3.41%), Taiwan (-2.61%), Shenzhen (-2.46%), and South Korea (-2.45%) led the region lower.  In Europe, stocks are also almost exclusively red at mid-day.  The FTSE (-0.45%), DAX (-0.77%), and CAC (-1.15%) are leading the region lower with only Russia (+0.22%) and Switzerland (+0.41%) managing to hang on to green numbers in early afternoon trade.  As of 7:30 am, US Futures are pointing to a gap lower to start the day.  The DIA implies a -0.45% open, the SPY is implying a -0.69% open, and the QQQ implies a -1.13% open at this hour.  10-year bond yields have backed down slightly to 3.941%  and Oil (WTI) is up a third of a percent to $78.76/barrel in early trading.

The major economic news events scheduled for Wednesday include August Goods Trade Balance and August Retail Inventories (both at 8:30 am), August Pending Home Sales (10 am), EIA Weekly Crude Oil Inventories (10:30 am), and many Fed speakers (Bostic at 8:35 am, Bullard at 10:10 am, Chair Powell at 10:15 am, and Bowman at 11 am).  The major earnings reports scheduled for the day include CTAS, HEPS, PAYX, and THO before the open.  Then after the close, CNXC, JEF, and MLKN report. 

In economic news later this week, on Thursday, we see Q2 GDP, Weekly Jobless Claims, and a Fed Speaker (Mester).  Finally, on Friday, we get August PCE Price Index, August Personal Spending, Chicago PMI, Michigan Consumer Sentiment, and 3 Fed Speeches (Mester, Williams, Mester).

In earnings reports later this week, on Thursday, BBBY, KMX, RAD, WOR, MU, and NKE report.  Finally, on Friday, BKR and CCL report.

In late-breaking news, the Bank of England has decided to scrap plans to sell UK bonds (reduce its balance sheet) and has temporarily begun buying long-date UK bonds instead. This was an emergency move to try to stop the massive surge bond prices (the inverse of yields), which was at their highest price since 1957. AAPL also gave an ominous signal as it canceled planned increases in iPhone production. This came as the company has not seen the surge in new iPhone sales that it had expected. (Who knew you didn’t need a new $1,000 phone every year?) AAPL stocks was down almost 4% in premarket on the news.

With this backdrop, again, don’t be fooled by a gap lower. The recent pattern has been for price to fade the gap (regardless of its direction) as volatility remains high. So, while the strong bear trend remains in place in all 3 major indices, don’t expect a gap lower to just keep running. Instead, expect more volatility and even though everything looks bearish early, do not forget that the market needs some extension relief. Markets always move in a zig-zag motion and we are definitely in need of a zag to offset the recent strong zig.

Keep in mind that trading is our job. It’s not a hobby. So, treat it that way. Do the work and follow the process. Stick with your trading rules, trade with the trend, and take those profits when you have them. Demonstrate patience and wait for confirmation. Don’t be stubborn. If you have a loss, just admit you were wrong, respect your stop, and take the loss before it grows. When price does move in your direction, always move your stops in your favor (remember the “Legend of the man in the green bathrobe“…it is NOT HOUSE MONEY, it’s all OUR MONEY!). Lastly, remember that you get rich slowly and steadily in Trading…not by striking it rich on one or two trades. So, give up that lottery ticket mentality.

See you in the trading room.

Ed

Swing Trade Ideas for your consideration and watchlist: No Trade Ideas today. You can find Rick’s review of tickers on his YouTube Channel here. Trade your plan, take profits along the way, and smart. Also, remember to check for impending earnings reports. Finally, remember that any tickers we mention and talk about in the trading room are not recommendations to buy or sell.

🎯 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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