Bulls Kept Control As Retailer Week Starts

The Bulls said “not so fast” to the Bears Friday.  The SPY gapped up 0.46%, DIA gapped up 0.49%, and QQQ gapped up 0.45%.  At that point, all three major index ETFs followed through for 30 minutes, retraced for another 30 minutes, and then the Bulls were in charge the rest of the day.  All three major index ETFs closed very close to their highs for the day.  This action gave us large gap-up, white-bodied candles in the SPY, DIA, and QQQ, breaking out of the recent range with strength.  This took place on slightly lower-than-average volume in all three.

On the day, all 10 sectors were in the green with Technology (+2.30%) way out front (by more than 1%) leading the way higher while Consumer Defensive (+0.11%) lagged behind the other sectors. At the same time, the SPY gained 1.56%, DIA gained 1.16%, and QQQ gained 2.25%.  The VXX plummeted 4.04% to close at 19.93 and T2122 shot back up but remained in the center of the mid-range at 57.80. 10-year bond yields fell slightly to 4.622% and Oil (WTI) jumped up 1.98% to close at $77.25 per barrel. So, Friday was the Bulls’ Day from start to finish.  This gave us the second straight week of gains in quite a while.

The major economic news reported Friday included Michigan Consumer Sentiment, which came in lower than expected at 60.4 (compared to a forecast of 63.7 and a previous reading of 63.8).  At the same time, Michigan Consumer Expectations also came in below what was anticipated at 56.9 (versus the 59.5 forecast and a prior value of 59.3).  However, Michigan 1-year Inflation Expectations were higher than predicted at 4.4% (compared to a forecast of 4.0% and a previous reading of 4.2%).  Finally, the Michigan 5-year Inflation Expectation also came in hot at 3.2% (versus a forecast of 3.0% and a prior value of 3.0%).

In Fed speak news, San Francisco Fed President Daly said Friday that it is still too early to say whether the Fed has done enough hiking.  Daly told CNBC, “(Fed policy) is in a very good place” and “the news on inflation has been fairly good.”  She continued, “all of that said, it is far too early to declare victory.”

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In stock news, the US Air Force’s B-21 “Raider” bomber built by NOC took its first flight Friday.  The $750 million per flying wing plane achieved its first unscripted step toward production.  (The USAF plans to buy 100 of the jets.)   Elsewhere, Reuters reported that the US cattle herd is at the lowest level in decades, following years of drought that had burnt off pasture land.  This is causing the need for the US to import a record amount of beef.  The article claimed this shift is causing significant margin pressure on companies like TSN. Later, WYNN reached a tentative deal with the hospitality workers union just hours ahead of the union’s scheduled strike.  (CZR and MGM reached deals with the same union earlier in the week.)  The deal covers 5,000 WYNN employees at Las Vegas properties. At the same time, Reuters reported that Chinese electric vehicle maker NIO is still debating whether it will enter the North American market in 2025.  The company is a leading force in the Chinese EV market, but building cars in China for import into the US amid trade tensions has given the company pause.  HMC raised worker pay by 11% after the UAW deal with the “Big 3” automakers.  Despite this, the UAW has targeted HMC, TM, and TSLA workforces as targets for union organizing.  Meanwhile, MULN announced it has secured a former KHC food manufacturing plant and warehouse for the production of its electric vehicles.  Later, a GM assembly plant in Flint MI, narrowly voted AGAINST ratifying the tentative deal between the UAW and GM.  (51.8% of workers at that plant voted against the deal.)

In stock government, legal, and regulatory news, PXMD announced that it had given the FDA new study data indicating their drug had made significant progress against African Sleeping Sickness.  Later, Reuters reported that three sources tell them that EU countries and the EU Parliament are set to agree on “light touch” rules for ABNB next week.  This less aggressive approach to regulation is a stark contrast to the EU approach to other tech firms.  Elsewhere, BKNG has agreed to pay $100.25 million to settle a tax dispute with Italy.  Later, Reuters reported that LUV now expects FAA certification of BA’s 737 MAX 7 plane by April 2024, which will allow the airline to start flying the planes in October or November of that year.

After the close, STNE reported beats on both the revenue and earnings lines. So far this morning, FTRE reported beats on both the revenue and earnings lines.  At the same time, TSN missed on revenue while beating on earnings.  However, HSIC missed on both the top and bottom lines. It is worth noting that FTRE raised its forward guidance while TSN lowered its guidance.

Overnight, Asian markets were mixed but leaned to the red side.  Hong Kong (+1.30%) and Taiwan (+0.94%) were far out front leading the gainers while Singapore (-0.91%) was by far the biggest of the more plentiful losers.  However, in Europe, with the single exception of Athens (-0.07%), we find green across the board at midday.  The CAC (+0.36%), DAX (+0.25%), and FTSE (+0.63%) lead that region higher in early afternoon trade.  In the US, as of 7:30 a.m., Futures are pointing toward a modest red start to the day.  The DIA implies a -0.10% open, the SPY is implying a -0.20% open, and the QQQ implies a -0.24% open at this hour.  At the same time, 10-year bond yields are up slightly to 4.632% and Oil (WTI) is just on the green side of flat at $77.27 per barrel in early trading.

The major economic news scheduled for Monday is limited to the Federal Budget Balance (2 p.m.).  The major earnings reports scheduled for before the open include FTRE, HSIC, and TSN.  Then, after the close, ACM, LU, and SLF report. 

In economic news later this week, on Tuesday, Oct. Core CPI, Oct. CPI, and API Weekly Crude Oil Stocks are reported.  Then Wednesday we get, Oct. Core PPI, Oct. PPI, Oct. Retail Sales, Sept. Business Inventories, Sept. Retail Inventories, and Weekly EIA Crude Oil Inventories.  On Thursday, Oct. Export Priced Index, Oct. Import Price Index, Weekly Initial Jobless Claims, Philly Fed Mfg. Index, Oct. Industrial Production, and the Fed’s Balance Sheet are reported.  Finally, on Friday we get Oct. Building Permits and Oct. Housing Starts.

In terms of earnings reports later this week, on Tuesday, we hear from ARMK, AZUL, CAE, CSIQ, ENR, HD, IHS, SBH, SE, TME, VIPS, and NU.  Then Wednesday, AAP, CTLT, FI, GFF, JD, TGT, TCEHY, TJX, XPEV, ZIM, SQM, CPA, MMS, PANW, and TTEK report.  On Thursday, we hear from BABA, ARCO, BBWI, BERY, BV, DDL, DOLE, M, NICE, WMT, WSM, QFIN, AMAT, BZH, CPRT, GPS, GLOB, HI, MATW, POST, ROST, UGI, WWD, and ATO. Finally, on Friday we hear from ATKR, BJ, and SPB.

In Chinese economic news, that country’s “Singles Day” holiday (invented by BABA) ended at midnight Saturday night.  BABA reported that it made year-over-year growth in sales for the event. Meanwhile, rival platform JD reported record sales volume for that holiday.  Reuters reports that industry analysts found sales increased by 2.08% compared to 2022 up to $156.40 billion.  (For reference, event sales grew 2.9% between 2021 and 2022.)  In other China economic news, Reuters reported Sunday that the most recent data (through September) showed a 38.2% year-on-year increase in loans given to the country’s manufacturing sector.  This compares to a slight -0.2% decrease in loans to the Chinese property sector.  While the slight decline in loans to Real Estate developers might track (given the widely-known troubled nature of that sector), the nearly 40% increase in loans to manufacturing was very surprising. Analysts seem to think this is a strategic top-down decision made by Beijing (building the country’s high-tech manufacturing capacity instead of driving domestic consumption).  For example, forecasts say China will soon be able to meet the entire world’s demand for lithium-ion batteries by itself.  However, this is all complicated by the fact that the demand of the rest of the world cannot absorb this added capacity.  As a result, this Chinese investment choice is (to the extent tariffs and trade agreements allow) likely to be disinflationary for the entire world…at least among high-end manufactured goods.

In miscellaneous news, on Friday, MCO changed its outlook on the US credit rating to “negative” from “stable” while maintaining its credit rating at “Aaa.”  The agency cited deficits, rising interest rates (cost to service debt), a lack of measures to reduce spending or increase revenues, and political brinksmanship as contributing factors to their change in outlook.  (The current budget continuing resolution expires on Friday.)  In a related story, on Saturday, Speaker of the House Johnson unveiled the House GOP plan for a partial CR aimed at making the MAGA extremists happy.  The approach calls for splitting the budget for political purposes.  Johnson’s idea kicks the can on some portions of the budget until Jan. 19, while the rest is kicked down the road until Feb 2.  Paired with this is a “poison pill” that calls for dramatic cuts if either of the deadlines are missed, which is what MAGA extremist wanted in the first place.  (The idea behind this is that it puts the pressure on non-extremist portions of the House, Senate, and the President to agree to MAGA budget demands by the deadlines or the default is that MAGA gets the cuts it wants.)  Obviously, that idea is dead on arrival in the Senate and at the Whitehouse. Then on Sunday, some of the MAGA types decided even that was not enough, telling the political shows they would vote against this plan because it does not give them the up-front budget cuts they want.  For what it is worth, neither the House nor Senate versions of a CR will request funding for Israel, Ukraine, or for increased border protection funding.  So, all sides seem to have agreed those issues will be considered as extraordinary funding and not part of the budget. (Although, I am not sure how you can explain expansions on border patrol manpower and facilities as a one-off rather than a part of normal government operations.) 

With that background, it looks like all three major index ETFs are now looking to open inside the top of Friday’s large white candle. So far, all three are giving us small, white-bodied, indecisive candles (more wick than body) inside of those big Friday candles. The SPY, DIA, and QQQ all remain above their T-line (8ema) and 50smas (although it is also worth noting that DIA printed a “death cross” of the 50sma and 200sma Friday). So, the Bulls still have control of the short-term trend and the bullish breakout of consolidation is still in play. However, keep in mind that all three also remain 3%-4% below their summer highs. So, the Bears remain in control of the longer-term trend. However, those downtrend lines will be tested soon in the large-cap indices and has already been broken in the QQQ. In terms of extension, QQQ is the only major index ETF stretched above its T-line. At the same time, the T2122 indicator is in its mid-range. So, there is some room to run in either direction.

As always, be deliberate and disciplined…but don’t be stubborn. If you have a loss, admit you were wrong and take that loss before it gets out of hand. And when the price does move in your direction, always move your stops in your favor and take a little profit off the table. You have to keep the “Legend of the man in the green bathrobe” in mind. In a winning situation, it is NOT HOUSE MONEY you’re betting, it’s YOUR MONEY! There is absolutely no reason to keep raising your bet (risk) size just because you’ve had a win. Finally, remember that trading is not a hobby. It’s a job. The money is real and so is the risk. So, treat it that way. Do the work and follow the process. Stick to your trading rules, trade with the trend, and take those profits when you have them. Do the work!

See you in the trading room.


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