Markets gapped down Friday, opening 0.62% lower in the SPY, down 0.60% in the DIA, and down 0.96% in the QQQ.  However, that was the last we saw of the Bears on the day.  The Bulls met the gap down with a slow, steady rally that recrossed the gap and hit the highs of the day at about 3:50 pm.  The last 10 minutes saw modest profit-taking in all three major index ETFs.  This action gave us white-bodied candles with essentially no lower wick and a small upped wick in the SPY, DIA, and QQQ.  None of the index ETFs came close to challenging their T-line and only the DIA came near its 50sma.  This all happened on above-average volume in the QQQ, and a bit below-average volume in the SPY and DIA.

On the day, seven of the 10 sectors were in the green with Energy (+0.84%) out front leading the way higher while Communications Services (-0.42%) lagging behind the other sectors.  At the same time, the SPY gained 0.05%, DIA gained 0.02%, and QQQ lost 0.13%.  VXX fell 2.54% to close at 25.71 and T2122 climbed but remains deep into the oversold area at 8.04.  10-year bond yields recovered during the day but still fell to 4.251% while Oil (WTI) climbed 1.26% to close at $81.40 per barrel.  So, the Bears gapped us down only to be met by all-day buying.  This might have been profit-taking after a strongly bearish week, which saw SPY down 2.05%, DIA down 2.23%, and QQQ down 2.21%.  (The last 10 minutes might also be related to options expiration.)       

There was no major economic news reported Friday.  However, the Fed did publish data indicating that US banks did reduce lending in the week ending August 9.  Overall bank credit fell from $17.25 trillion to $17.23 trillion.  This was the second consecutive weekly drop.  This included a decline in “loans and leases” falling from $12.15 trillion to $12.13 trillion and industrial loans also fell from $2.75 trillion to $2.74 trillion.  At the same time, Reuters released a survey of economists (taken August 14-18) found that a strong majority feel the Fed is done raising rates.  The same poll found a slim majority believing the FOMC will not start cutting rates until at least the end of March.  99 of 110 economists say the Fed will not hike rates in September, which is in line with current Fed Futures that show 89% of traders agree with the economists. 

Related to foreign attempts to unseat the Dollar as the world’s default (and reserve) currency. The BRICS group will hold a meeting in South Africa this week.  Ahead of this, the Fed released research showing that in the 20 years ending in 2019, 95% of all international trade in the Americas region was invoiced in Dollars.  The same goes for 74% of Asian region trade and 79% of trade in the rest of the world (not including the EU, which uses the Euro).  In addition, coming into this week’s BRICS meeting, there’s no obvious competitor to the Dollar yet.  China’s Yuan is not a reliable candidate due to the fact the Chinese will not let their currency freely float with markets.  Other BRICS countries don’t have the economic scale to make their currencies feasible as a Dollar alternative.  In addition, trading US dominance of world markets for the dominance of China or India is something that would take a lot of thinking, convincing, and guts.  The British would love to reclaim global reserve currency status for the pound, but they are too small economically and have massive historical baggage from their colonial past. This leaves the Euro, which is seen as too politically fragmented (especially related to their various economic and fiscal policies) and are unlikely to be supported by China and India.  The last potential substitute is that there has been some talk of a gold-backed digital currency. However, that would take a massive effort and coordination to create a completely new currency, with the problem of managing the various country’s gold reserves (such that participants trust each other) on top of the creation and coordination of an agreed safe cryptocurrency (which many of the BRIC countries have opposed to date). The bottom line is just ahead of the BRICS meeting in Johannesburg, no public progress has been made on others finding a replacement for the US Dollar.

SNAP Case Study | Actual Trade

In stock news, Reuters reported Friday that some of the world’s largest consumer goods companies are already experimenting with using artificial intelligence to develop marketing and advertising content.  UL, NSRGY (Nestle), and MDLZ were among the examples mentioned and the article also said they would be using data from WMT, AMZN, and KR to train their AI models. On Saturday, TSLA began notifying employees whose personal information had been disclosed in a data breach that happened back in May.  (TSLA is only notifying employees because the AG of ME posted that it found two former TSLA employees had misappropriated that data in lawsuits filed Friday.  The breach affected nearly 76,000 employees’ data.)

In stock legal and regulatory news, during the day Friday, US Senator Vance from OH (headquarters location of CLF which made a bid for X) again publicly urged X not to even entertain offers from foreign buyers.  As you will remember, CLF was the first bidder to buy out X, followed by private company Esmark, and then MT (a Luxembourg-based company).  Vance said he would pursue ways to ensure the company “stayed American.”  Then, after the close Friday, the FDA approved a new dosage of REGN’s Eylea eye disease drug.  On Saturday, GM announced it would cut its Cruise Robotaxi fleet in San Francisco by 50% temporarily.  This comes hours after the CA Dept. of Motor Vehicles announced it has opened an investigation into several Cruise-involved crashes within the last week.  After the investigation, GM will need to address the findings prior to resuming full-scale operations.  (This reduced the number down to 50 Cruise robotaxis operating during the day and 150 in the evenings.)

In China market news, the country’s securities regulators announced a package of measures aimed at propping up their stock markets.  These include cutting trading costs, changing rules to encourage share buybacks, extending trading hours, and increasing financial standards (which would, over time, increase the attractiveness and health of listed companies).  The regulator spokesman answered a question by saying they did not know yet whether a reduction in stamp duties (fees for loans, leases, and securities trades) would take place as had been discussed recently.  Most analysts applauded the moves but said it would not be anywhere near enough to overcome major concerns over the Chinese economy. Then to top this off, Monday the Chinese Central Bank cut its one-year loan rate by less than expected (down 10 basis points instead of the 15 basis-point cut that was expected (down to 3.45%). It also made no changes to the 5-year loan rate and the analyst consensus was that they would reduce that rate by 15 basis points. Most importantly, the PBOC did nothing at all to the long-term mortgage rates (which is what the property sector and public felt needed relief). As a result, the Chinese stock markets were not impressed with these actions and are still hoping for more and bigger government stimulus.

After the close Friday, PANW missed on revenue while beating on earnings.  That beat was a surprise since the market had been very worried since the company said they would announce earnings after the market close on a Friday.  (That was announced August 2 and the stock was down almost 16% since that timing was released.)  PANW was up as much as 10% in after-hours trading following the report.

Overnight, Asian markets were mixed.  Hong Kong (-1.82%), Shenzhen (-1.32%), and Shanghai (-1.24%) led the region lower.  Meanwhile, Thailand (+0.44%), India (+0.43%), and Japan (+0.37%) paced the gainers.  However, in Europe, we see green across the board at midday.  The CAC (+1.18%), DAX (+0.74%), and FTSE (+0.53%) are leading the region higher in early afternoon trade.  In the US, as of 7:30 am, Futures are pointing toward a gap higher to start the day.  The DIA implies a +0.34% open, the SPY is implying a +0.49% open, and the QQQ implies a +0.63% open at this hour.  At the same time, 10-year bond yields are spiking back up to 4.298% and Oil (WTI) is jumping up 1.32% to $82.32 in early trading.

There is no major economics news scheduled for Monday.  There are also no major earnings reports scheduled for before the opening bell.  However, after the close, FN, LU, NDSN, and ZM report.

In economic news later this week, on Tuesday we get July Existing Home Sales and API Weekly Crude Oil Stocks Report.  We also hear from Fed members (Goolsbee twice and Bowman).  Then Wednesday, Building Permits, Preliminary August S&P US Mfg. PMI, Preliminary August S&P Global Composite PMI, July New Home Sales, and EIA Crude Oil Inventories are reported.  On Thursday, we get July Durable Goods Orders, Weekly Initial Jobless Claims, Fed Balance Sheet, and Bank Reserve Balance with the Fed.  The Central Bankers Jackson Hole Conference also starts.  Finally, on Friday, Michigan Consumer Sentiment, Michigan Consumer Expectations, Michigan Consumer Inflation Expectation, and Michigan Consumer 5-year Inflation Expectations.  Fed Chair Powell also speaks and the Jackson Hole Conference continues.

In terms of earnings reports, on Tuesday, BIDU, BJ, CSIQ, CTRN, COTY, DKS, IQ, LOW, M MDT, SCSC, LZB, TOL, and URBN report.  Then Wednesday, we hear from ANF, AAP, ADI, BBWI, DY, FL, GRAB, KSS, LANC, PTON, WSM, ADSK, GES, NTAP, NVDA, SNOW, and SPLK report.  On Thursday, BURL, DLTR, NTES, WOOF, RY, TD, WB, GPS, INTU, MRVL, JWN, ULTA, and WDAY report.  Finally, on Friday, there are no earnings reports scheduled.

In miscellaneous news, US Treasury Bond yields were on a massive roller-coaster last week. Not only did the 10-year bond yield close at its highest level since 2007, but they also then crashed by the largest amount in history.  Bloomberg quoted a bond market analyst as saying the reason is pretty simple.  He said, “Given rising real yields and ambitious valuation levels in particular for US stocks, the risk-reward looks better for bonds.”  Elsewhere, the US Dollar booked its fifth straight week of gains (its longest winning streak in 15 months).  Finally, the drought in Panama is causing more supply chain problems.  Previously, the draft depths of ships had been reduced.  Now, the number of ships allowed to transit the Panama Canal has been reduced from 36 to 32 per day.  The wait time, prior to transit, for the largest ships has risen to 17 days as ships stack up (and partially unload to reduce their draft). 

In late-breaking news, Bloomberg released investor survey data (from 602 professional and retail traders they surveyed). The data shows that two-thirds believe it is still unclear that the Fed has done enough to fight inflation. However, more than half also say traditional Fed indicators (like the job market and price index data) will not be the driver when the Fed moves to cut. Instead, they feel the driver will be financial market turmoil that will prompt a Fed rate cut. At the same time, about 80% of respondents say they expect a recession in the EU within the next 12 months. I am not sure how this survey squares with the current Fedwatch Futures data that shows 89% of traders see no rate hike in September and only about a third even expect another hike at all in 2023.

With that background, it looks like the Bulls are in control so far in the premarket. All three major index ETFs show a premarket gap up and then are giving us white-bodied candles so far in the early session. However, none of them are close to retesting their T-line (8ema) yet. The short-term trend remains bearish with all three well below their T-line. Of course, the long-term trend is still hanging on to a bullish course but it has been pushed by the Bears over the last three weeks. As far as extension goes, the premarket move gets rid of any concern about overextension below the T-line (8ema). Meanwhile, the T2122 indicator remains quite oversold, but it is not pegged to the bottom of its range. So, we have room to move either direction, but are still due for a pause or bounce soon. Just remember the market can remain too extended a lot longer than we can remain solvent betting on a reversal that has not happened yet.

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.

Ed

🎯 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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