On Wednesday, the bulls were in charge from the opening bell, perhaps on upbeat guidance from LULU and MU. SPY gapped 1.05% higher, DIA gapped 0.85% higher, and QQQ gapped 1.23% higher at the open. From that point, SPY and QQQ ground sideways in a tight range until 2:30 pm. Meanwhile, DIA traded down (back into the gap) and then sideways until 2:30 pm. However, then a mild rally all the way into the close took all three major indices out on their highs. This action gave us Morning Star-type signals in the SPY and QQQ with both printing white, larger-body, smaller wick candles. However, the DIA printed a white-bodied, potential Hangman (or Hammer if viewed through bullish glasses). Once again this happened on lower-than-average volume (much lower in the DIA).
On the day, all 10 sectors were in the green with Technology (+2.10%) leading the way higher while Consumer Defensive (+0.64%) lagged behind other sectors. At the same time, the SPY gained 1.43%, the DIA gained 1.01%, and QQQ gained 1.82%. VXX fell 3.28% to 45.11 and T2122 climbed into the overbought territory at 88.12. 10-year bond yields fell slightly to 3.564% while Oil (WTI) fell 0.57% to $72.80 per barrel. So, hump day gave us a strong start to the day, probably on easing concerns over the banking sector. Then traders played the “wait and see” card until the afternoon when the last 90 minutes saw a modest but steady rally into the close. SPY did break its downtrend line (going back to the beginning of February) and crossed just above its 50sma. DIA also crossed just up through its downtrend (also going back to the start of February).
In economic news, February Pending Home Sales came in much better than expected at +0.8% (compared to a forecast of -2.3% but far below January’s blowout reading of +8.1%). Later in the morning, the EIA Weekly Crude Oil Inventories report gave us a significant drawdown versus the expectation. Oil inventories fell 7.489 million barrels (versus a forecasted build of 0.092 million barrels and the prior week’s build of 1.117 million barrels. On the gasoline front, inventories saw a 2.904-million-barrel drawdown (compared to the forecasted drop of 1.625 million barrels and the prior week’s 6.4-million-barrel decline). In terms of distillates (diesel and heating oil), there was a 281,000-barrel inventor build (versus a forecast of a 1.455-million-barrel decline and the prior week’s 3.313-million-barrel drawdown).
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In stock news, Reuters reported that ICUI has teamed up with a private equity firm to bid against the GEHC and CG in an effort to acquire the medical technology business of MDT. Elsewhere, UAL CEO Kirby announced the airline had reached an agreement in principle with 30,000 union ground workers for a new two-year contract. At the same time, WMG announced it will lay off 4% of its workforce (only about 270 people) and will cut discretionary spending in the near future. Meanwhile, the US GSA announced it has awarded BLNK a “Multiple Award Schedule” contract which allows federal agencies to easily purchase BLNK equipment. At mid-afternoon, M announced it has named Tony Spring (of Bloomingdale’s) as its new President and “CEO in waiting” one day after current CEO Gennette said he would retire in February of next year. Later, Reuters reported that BAC’s digital personal finance tool (Life Plan) has attracted more than $55 billion in new accounts since it was launched in late 2020. Meanwhile, DIS announced it has laid off the Chairman of its Marvel Entertainment unit, Ike Perlmutter. (It is worth noting that Perlmutter had supported activist investor Nelson Peltz’s bid to get a DIS board seat and oppose the reinstatement of DIS CEO Iger.) In “taking the negotiations public” news, Ryanair confirmed that it is in negotiations with BA over an order of at least 100 jets with the option for 100 more…but that significant discounts needed to be brought to the table to clinch the order. (Ryanair is one of BA’s largest customers, alongside LUV, and can demand the best pricing.) Finally, after the close, EA announced it will cut approximately 6% of its workforce as part of a restructuring.
In stock legal and regulatory news, it was announced that FNF will pay the State of NY $3.5 million for anti-competitive agreements that the company had entered into with its competitors in order to avoid competition. FNF also agreed to end all such “no poach” agreements. (NY had already reached similar agreements with FNF competitors STC and ORI since late 2021.) Elsewhere, Britain announced it will “investigate in depth” the $61 billion acquisition of VMW by AVGO. The announcement said this was after AVGO failed to engage with the UK government after the Brits had published its concerns. The investigation can take up to six months. Meanwhile, Bloomberg reports that the FDIC is considering passing a greater share of the $23 billion bank failure costs onto the largest US banks. While the final decision will not be made until May, this could have significant impacts on BAC, C, JPM, and WFC (each of which may face a multi-billion charge). At the same time, the state of CA began regulating how much profit oil refiners in the state can make as of Wednesday. CVX is the largest refiner in that state and PBF has the largest exposure to CA refining with 32% of its refineries located in CA. After the close, a federal judge ruled that RMAX (as well as other real estate brokerages and the National Assn. of Realtors) must face a class action lawsuit over allegations of conspiring to inflate commission rates in Texas, Florida, New Jersey, Ohio, Pennsylvania, Virginia, North Carolina, and Colorado.
After the close, CNXC beat on revenue while missing on earnings. Unfortunately, RH and FUL missed on both the revenue and earnings lines. It is worth noting that RH also lowered its forward guidance.
Overnight, Asian markets leaned heavily to the green side. Japan (-0.36%), Thailand (-0.32%) and Singapore (-0.26%) were the only red in the region. Meanwhile, New Zealand (+1.67%), Australia (+1.02%) and Shanghai (+0.65%) led most of Asia higher. In Europe, we find green across the board at midday. The CAC (+1.37%), DAX (+1.27%), and FTSE (+0.94%) are leading the region higher in early afternoon trade. On this side of the pond, as of 7:30 am, US Futures are pointing toward another gap higher to start the day. The DIA implies a +0.64% open, the SPY is implying a +0.60% open, and the QQQ implies a +0.54% open at this hour. At the same time, 10-year bond yields are down a bit to 3.556% and Oil (WTI) is up 0.93% to $73.64/barrel in early trading.
The major economic news events scheduled for Thursday include Q4 GDP, Q4 GDP Price Index, and Weekly Initial Jobless Claims (all at 8:30 am) as well as Bank Reserve Balances with Fed (4:30 pm). However, Treasury Sec. Yellen also speaks at 3:45 pm. There are no major earnings reports scheduled for the day.
In economic news later this week, on Friday, Feb. PCE Price Index, Feb. Personal Spending, Chicago PMI, and Michigan Consumer Sentiment are reported as well as Fed Member Williams speaking. In terms of earnings, there are no major earnings reports scheduled for Friday.
In late-breaking news, Russia has detained a journalist from the Wall Street Journal, alleging suspicion of espionage. This is undoubtedly just another Russian negotiating tactic as with the American women’s basketball player (Griner) arrested last year. Still, the move will ratchet up tensions between the US and the former superpower Russia. Elsewhere, AAPL announced its Worldwide Developer’s Conference (where it usually unveils new products) is set for June 5-9. This year, in addition to new phones, etc. the tech giant is expected to also unveil a new augmented reality headset. In oil news, Bloomberg reports that slowly disappearing supplies of Brent has forced S&P to make a huge change. As of June, the world benchmark oil price will be a combination of oil contracts that will include West Texas Intermediate at Midland TX (Permian Basin oil). Finally, various sources report that, after another failed test, the $1.1 billion LMT hypersonic missile program will be shut down in favor of a program from RTX.
With that background, it looks like the bulls will be gapping markets higher again at the open. (At least it does ahead of the morning data dump.) We should also look out for potential window dressing as we come into the end of the quarter Friday. In fact, some would explain Wednesday’s rally as just part of that dressing. The SPY is looking to gap open above its 50sma after ending yesterday just above following an all-day retest from below. QQQ will be retesting a potential that can be seen dating back to at least late April ’22. DIA is not there yet but is getting closer to its 50sma from below. All three major indices are in an uptrend now having broken the mid-term downtrend lines and working on higher highs and higher lows. However, be careful insofar as price has not put in a higher low or successful retest above those broken lines. Overextension is not an issue in any of the big indices in terms of the T-line (8ema), but T2122 indicates we are a bit stretched according to that indicator. Treasury Sec. Yellen speaks late in the day, but if her remarks are released early, they could impact markets (especially the banking sector). However, it is more likely that if markets are news-driven today it will come from the GDSP, GDP Price Index, and Jobless Claims data at 8:30 am. Be careful not to chase, don’t expect immediate follow-through, and make sure your stops and exits are planned before you enter.
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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