Bulls Look to Keep Rally Going Early

Markets opened higher on Monday as SPY gapped up 0.33%, DIA gapped up 0.20%, and QQQ actually opened just on the red side of flat at -0.03%.  At that point, SPY and QQQ traded sideways the rest of the day with a very modest bullish trend to the action.  Meanwhile, DIA wobbled sideways along the open level with a very slight bearish trend after 11 a.m. to end up in the gap.  This action gave us three different candles among the three major index ETFs.  DIA printed a gap-up black-bodied Doji. At the same time, SPY printed a gap-up small, white-bodied candle with a significant upper wick.  And to round things out, QQQ opened just shy of flat and printed a larger-body white candle with a small upper wick.  This happened on well-below-average volume in the SPY and QQQ as well as modestly-below-average volume in DIA.

On the day, nine of the 10 sectors were in the green with Energy (+1.13%) way out front leading the way higher while Utilities (-0.24%) lagged behind the other sectors and was the only sector in the red.  At the same time, the SPY gained 0.56%, DIA gained 0.09%, and QQQ gained 0.43%. The VXX gained slightly to close at 16.18 and T2122 climbed back up out of the mid-range and into its overbought territory to close at 86.13.  10-year bond yields rose to 3.945% and Oil (WTI) gained 1.68% to close at $72.63 per barrel.  So, QQQ kept up the rally, closing at another all-time-high-close again.  DIA did the same but in a much more indecisive way.  Meanwhile, SPY made up all the ground it lost last Friday, closing at exactly the same price as Thursday. 

There was no major economic news reported Monday.  Elsewhere, Chicago Fed President Goolsbee said Monday he was confused by the stock market’s reaction after last week’s FOMC meeting.  Goolsbee told CNBC, “It’s not what you say or what the (Fed) Chair says, it’s what do they hear and what do they want to hear?”  He continued saying, “I was confused a bit … was the market just imputing ‘Here’s what we want them to be saying.’ I thought there seemed to be some confusion about how the FOMC even works. We don’t debate specific policies speculatively about the future.”  Earlier in the day, Cleveland Fed President Mester told the Financial Times, “The next phase is not when to reduce rates, even though that’s where the markets are at. It’s about how long do we need monetary policy to remain restrictive in order to be assured that inflation is on that sustainable and timely path back to 2%.”   Later, San Francisco Fed President Daly told the Wall Street Journal that the FOMC must make sure “we don’t give people price stability but take away jobs.”  She went on to say that rate cuts are likely to be appropriate in 2024.  (She did not get more specific on timing.)

After the close, HEI reported beats on both the revenue and earnings lines.  This included 54% earnings growth quarter over quarter.

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In stock news, Reuters reported Monday that GS is facing a painful and costly exit from its credit card partnership with AAPL.  Other lenders find the program too risky and expensive, which is driving down what GS can get from selling the partnership.  In fact, key potential buyers of GS’s position include SYF, whose CEO said “You’ve got to have a really good risk-return (for credit card deals)” at a conference early this month. At the same time, UL announced it will sell its Elida Beauty (which includes the Q-top brand) to private equity firm Yellow Wood.  Terms of the deal were not disclosed, but the unit generated $1.02 billion in 2022.  Later, Reuters reported that JPM, YUM, AAL, LOW, KTB, and BLK had all changed their Diversity, Equity, and Inclusion policies after intimidation from right-wing groups who threatened lawsuits to stop any affirmative action.  Elsewhere, IBM announced the purchase of SWDAF’s integration platform for $2.33 billion.  The deal will increase IBM’s capabilities in cloud and AI markets.  Later the Wall Street Journal reported that AMZN is in talks to invest in Diamond Sports Group (a broadcasting network owned by SBGI).  At the same time, WH asked its shareholders to reject a hostile acquisition bid from CHH.  WH management cited that the deal would tie the company up for up to 24 months in regulatory review of the deal, which they claimed would hurt the company’s valuation.  Late in the day, ENPH said it would cut 10% of its workforce (total including employees and contractors).  After the close, CMCSA announced it had found a four-day unauthorized access to its internal systems in October.  The breach likely exposed usernames, passwords, contact details, and partial social security numbers of customers among other data.  Also after the close, ADM announced it had agreed to buy Revela Foods for an undisclosed sum.  Finally, late Monday evening TSLA announced it will increase the pay of workers at its NV plant by 10% starting in early January.  The company did not say so but this was likely a bid to hold off a bid by the UAW union to organize the plant.

In stock government, legal, and regulatory news, the FDA approved the use of ARTQ’s treatment for a skin condition Monday (for patients 9 years and older).  The disease impacts 10 million Americans and this is the first approved treatment.  Later, ADBE announced formally that it is scrapping its $20 billion deal to buy cloud-based designer platform Figma after receiving pushback from EU and UK antitrust regulators.  ADBE will pay a $1 billion termination fee to end the deal. At the same time, AAPL announced it is halting the sale of some (higher end) of its Apple Watches in the US after the ITC ruled against the company in a patent dispute over included medical sensors.  Later, SPWR made an SEC filing that raised doubts about the company’s ability to stay in business.  The filing said lenders made a demand for immediate repayment of $65.3 million in debt after the company failed to report Q3 earnings on time.  (SPWR stock fell 31% on the day of this revelation.)  At the same time, the SEC launched a major lawsuit against TIO, alleging the fintech company fabricated billions of dollars worth of transactions through Nigerian subsidiaries and falsely reported hundreds of millions of fake revenues and assets.  Later, COIN petitioned a federal appeals court to review and overturn the SEC’s denial of the company’s request for new rules covering the digital asset sector.  (The SEC contends no new rules are needed.)  Elsewhere, 21 members of the US House (including at least one Democrat) wrote a letter to President Biden, urging him to launch an investigation of the EU, alleging that the EU Digital Markets Act harms the competitive ability of GOOGL, AMZN, AAPL, META, and MSFT.  Separately, another bipartisan group of lawmakers asked the Dept. of Justice to launch an investigation into whether AAPL violated antitrust laws when it disabled third-party Apps that allowed Android devices to message with the AAPL iMessage application. Later, the state of TN (GOP-run) sued BLK alleging the company breached consumer protection laws by making “misleading” statements about its environmental, social, and corporate governance investment strategies.  A utility subsidiary of BRKB has agreed to pay a $250 million settlement to timber companies in Oregon over wildfires.  After the close, a WA state jury ordered BAYRY (Bayer) to pay $857 million to seven former students and volunteers of a Seattle school district after the company’s PCB chemicals leaked from light fixtures making the plaintiffs sick.

Overnight, Asian markets leaned heavily to the green side with only two exchanges in the red.  Japan (+1.41%) and Australia (+0.84%) led the gainers with most other stock exchanges close to flat.  In Europe, only four of 15 bourses are in the red as the Bulls lead the way at midday.  The CAC (-0.06%), DAX (+0.38%), and FTSE (-0.11%) lead the region on volume as Scandinavian exchanges lead the price moves in early afternoon trade.  In the US, as of 7:30 a.m., Futures point toward a modestly green start to the day.  The DIA implies a +0.16% open, the SPY is implying a +0.13% open, and the QQQ implies a +0.12% open at this hour.  At the same time, 10-year bond yields are down a touch to 3.905% and Oil (WTI) is off by three-tenths of a percent to $72.26 per barrel in early trading.

The major economic news scheduled for Tuesday is limited to Nov. Building Permits and Nov. Housing Starts (both at 8:30 a.m.), TIC Net Long-Term Transactions (4 p.m.), and the API Weekly Crude Oil Stocks (4:30 p.m.).  The major earnings reports scheduled for before the open include ACN and FDS.  Then, after the close, FDX, SCS, and WOR report.

In economic news later this week, on Wednesday, Q3 Current Account, Conf. Board Consumer Confidence, Nov. Existing Home Sales, and EIA Crude Oil Inventories are reported.  On Thursday, we get Weekly Initial Jobless Claims, Weekly Continuing Jobless Claims, Q3 GDP, Q3 GDP Price Index, Philly Fed Mfg. Index, and the Fed Balance Sheet.  Finally, on Friday, Nov. PCE Price Index, Nov. Core PCE Price Index, Nov. Durable Goods, Nov. Personal Spending, Michigan Consumer Sentiment, Michigan Consumer Expectations, Michigan 1-year Inflation Expectations, Michigan 5-year Inflation Expectations, and Nov. New Home Sales are reported.

In terms of earnings reports later this week, on Wednesday we hear from GIS, TTC, WGO, MU, and MLKN.  On Thursday, KMX, CCL, CTAS, PAYX, AIR, NKE and WS report.  There are no earnings reports on Friday.

In miscellaneous news, US antitrust regulators (US Dept. of Justice and FTC) released their finalized new guidelines for tougher merger and acquisition scrutiny.  The 51-page set of guidelines expanded the definition of “highly concentrated markets” (which had last been updated in 2010).  The new standards lay the groundwork for challenging big tech mergers by companies like AMZN, GOOGL, AAPL, MSFT, NVDA, etc. among other industries and companies.  Elsewhere, BAC said Monday that they expect the Fed to cut rates four times in 2024 (March, June, September, and December).  As a result, BAC now predicts faster growth and lower inflation in the economy next year.  In supply chain news, the US Dept. of Defense launched an operation to safeguard the Red Sea for commercial traffic in conjunction with the UK Navy and eight other minor contributing countries.

In oil news, Reuters reports that US oil exports hit another record last week and will continue that way the rest of the year.  The driving reason for this increase is oil companies trying to drive down inventories to avoid year-end tax liability.  (This is especially true for storage in the state of TX.)  So far in 2023, US oil exports have averaged 4 million barrels per day (about 500k barrels per day more than 2022’s record exports).  However, exports from the Gulf Coast have averaged more than 5 million barrels per day in the last two weeks.

In late-breaking news, GOOGL agreed to pay $700 million and allow more competition in its Google Play app store.  $630 million will go into a settlement fund for consumers and $70 million to be used by states.  The settlement still requires approval of the court.  (Eligible consumers would get at least $2 and may get more depending on their spending in the GOOGL app store between August 2016 and September 2023.)  All 50 states, Washington DC, Puerto Rico, and the Virgin Islands are part of the settlement.

With that background, it looks like all three major index ETFs are looking to move modestly higher again this morning in premarket action. All three opened the early session higher and are giving us small white-bodied candles so far. All three remain well above their T-line (8ema) this morning. So, overall, the Bulls remain well in control of both the longer-term trend and the short-term trends. In terms of extension, none of the three major index ETFs are too far extended above their T-lines. However, QQQ is starting to get close to extended once again and the T2122 indicator is now in the lower half of its overbought range. So, strictly speaking, both the Bulls and Bears have some room to run if they gather the momentum to do it. The Bears obviously have much more slack to work with if they get going.

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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