Bulls Happy on Ukraine, Inflation Hopes

Markets gapped modestly higher (0.6% – 0.9%) at the open Friday.  From there the bulls followed through with a rally the was stronger the first 30 minutes, but continued at a slow steady pace all day in all 3 major indices until profit-taking the last 15 minutes of the day.  This took all 3 up through their T-lines (8ema) and are now at or close to a test of their downtrend lines.  The SPY, DIA, and QQQ are all printed a strong, white-body candles.  This resulted in the first weekly gain (and a strong one at that) in all 3 major indices.

On the day, all 10 sectors are in the green.  However, Energy (+2.89%) and Basic Materials (+2.63%), Energy (+2.58%), and Technology (+2.53%) led the market higher.  However, the safety play Utilities (+0.54%) lagged.  The SPY was up 1.55%, DIA up 1.27%, and QQQ up 2.19%.  The VXX was up 1.4% to 18.47 and T2122 is right at the edge of the overbought territory at 79.22.  10-year bond yields are back up to 3.315% and Oil (WTI) has surged 3% to $86.10/barrel.  Overall, it was been a risk-on, “we ain’t afraid of no Fed hikes” day across the markets.

In business news, on Friday, the US International Trade Commission announced it will launch an investigation into SONO possibly violating the patents held by GOOGL.  Then, on Sunday, JPM acquired its 6th “Fintech” firm (Renovite). JPM was already the world’s largest merchant services bank (card processor), but this acquisition is aimed at allowing it to expand even more quickly into global small-business markets as Renovite supposedly will easily to integrate into JPM existing systems. In more economically important news coming later this week, the largest US Trucking Industry Group urged Congress to prepare legislation to prevent a rail strike on September 16. It seems that after President Biden stepped in to prevent the same strike in August, negotiations between UNP, CSX, and the unions representing 115,000 rail workers are making little progress.  Current legislation prohibits the workers from striking for 30 days (which expires 9/16).  If a strike does take place, the trucking industry group claims it will cost the US $2 billion per day in GDP output. The rail companies and their users are currently scrambling to ensure buffer inventories of supplies in case the stroke hits on Friday.

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In Russian invasion news, the Russian statistics Bureau (RossStat) revised the Russian Q2 GDP downward.  The release said that the Russian economy shrank 4.1% (down from the prior -4.0%) in Q2.  The World Bank also released a report saying that it will cost $350 billion to rebuild Ukraine after the Russian invasion (far above that country’s GDP of $200 billion in 2021).  On the ground, the Ukrainian offensive has caused a full-scale retreat by the Russians around Kharkiv and specifically the cities of Kupiansk and Izium (the major Russian logistics hub in Eastern Ukraine). In addition to the cities, the Russians fled from about 40 towns and villages, leaving heavy weapons, ammunition, and other supplies as they ran.  During this offensive, Ukraine liberated over 1,100 sq. miles and driven the Russians back to the Russian border in that Northeastern region the 5 days ended Sunday.  (This Ukrainian success will likely impact energy markets as well as overall market sentiment, at least in Europe.)

In Energy news, on Sunday, Treasury Sec. Yellen told CNN that Americans could see a spike in gas prices again this coming Winter.  Her reasoning is that by year-end, EU countries will have significantly cut or stopped buying oil from Russia.  This will mean additional buyers for Middle Eastern and American oil, which will naturally drive prices higher.  Meanwhile, the IAEA reports that the final reactor at the Zaporizhzhia nuclear plant (largest in Europe) has now been shut down.  This eliminates the source of 20% of Ukrainian electricity, but also dramatically reduces the likelihood of an accident from continual Russian shelling in that area.

In technical analysis news, more than 46% of stocks are trading above their 40sma and almost 31% of stocks are trading above their 200sma at this point.  In the SPY, 451 (of 502) tickers had green days on Friday while 470 (or 502) were green for the week.  The biggest gainers on the week were REGN, SEDG, ALB, RCL, FCX, DISH, CZR, DXCM, SYK, MTCH, NCLH, UAL, PVH, CCL, TSLA, FTNT, LNC, HCA, NUE, EW, CTLT, and ENPH (all of this gained 10% or more for the week).  In the QQQ, 90 of 99 tickers were green for the week.  Of those, 11 (ZS, REGN, DOCU, MELI, DXCM, MTCH, TEAM, LULU, TSLA, CRWD, and FTNT) gained 10% or more for the week.

Overnight, Asian markets were green across the board.  Hong Kong (+2.69%), Taiwan (+1.54%), and Japan (+1.16%) led the region higher as Chinese inflation data came in better than expected (+2.5% vs. +2.7% forecast).  In Europe, stocks are also green across the board as traders are in a good mood on the Ukraine war news at mid-day.  The FTSE (+1.27%), DAX (+1.49%), and CAC (+1.21%) are typical and leading the region higher in early afternoon trade.  As of 7:30 am, US Futures are pointing toward a modestly green start to the week.  The DIA implies a +0.25% open, the SPY is implying a +0.43% open, and the QQQ implies a +0.49% open at this hour.  10-year bond yields are down a bit to 3.296% and Oil (WTI) is up three-quarters of a percent to $87.39/barrel in early trading.

The major economic news events scheduled for Monday is limited to the WASDE global Agriculture Report (noon) and a 10-year Bond Auction (1 pm).  There are no major earnings reports scheduled before the open.  However, ORCL reports earnings after the close.

In economic news later this week, on Tuesday we get August CPI (last major inflation data point prior to the Fed 9/20 meeting) and August Federal Budget Balance.  Then Wednesday, August PPI and EIA Weekly Oil Inventory are reported.  Thursday, we get August Import/Exports, Weekly Jobless Claims, NY Empire State Mfg. Index, Philly Fed Mfg. Index, August Retail Sales, August Industrial Production, July Business Inventories, and July Retail Inventories.  Finally, on Friday, we get Michigan Consumer Sentiment.

In terms of earnings, this is a very light week. Tuesday we hear from CNM.  On Wednesday, DOOO reports.  Then on Thursday ADBE reports.  Finally, on Friday, there are no earnings reports scheduled.

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We start the week with markets in a good mood. The Russian losses (men, material, and most importantly land) in Ukraine have investors more hopeful. There is also a growing expectation that inflation data Tuesday will show that inflation has started to come down. (This expectation is largely on the back of strong and steady drops in fuel prices, but other commodities have joined the trend to a lesser extent.) However, these things may be fleeting. Russia has massive resources available, should it continue to stubbornly stick to Putin’s goal of capturing all of Ukraine. More directly, regardless of whether the CPI (Tuesday) and PPI (Wednesday) show an improvement, not many traders are betting that this will change the Fed’s mind about a 0.75% rate hike next week. So, don’t believe the zig will last forever. There is a zag coming sometime in the not-too-distant future.

With that backdrop, we should note that all 3 major indices are retesting their downtrend lines in the premarket. The DIA seems to be having the least luck at a breakthrough at this point. However, the broader SPY and QQQ seem to be gapping through that line. Above that, we have a potential resistance level from the 8/22-8/24 lows that will soon come into play. So, while the bulls have control in the premarket, be prepared for a “gap and fail.” In addition, intraday reversal and some volatility have been common or late.

Remember that trading is our job, not a pastime or 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: ADT, CPNG, RIVN, SNAP, DISH, META, AAPL. 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.

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