On Friday, markets opened very modestly higher (up 0.29% in the SPY, up 0.35% in the DIA, and up 0.17% in the QQQ). However, then the Bears took over for most of the day as all three major indices sold off slowly and reached the lows of the day at about 2:30 pm. At that point, the Bulls stepped in to lead a steady rally up off the lows for the last 90 minutes of the day. This action gave us black-bodied, Hammer-like candles in the SPY, DIA, and QQQ. With that said, the QQQ bounced up off its T-line (8ema) while printing a Bearish Engulfing signal (that engulfed a white Spinning Top) on what was the largest-bodied Hammer of the three. At the same time, the SPY retested and managed to hold its T-line. Meanwhile, the DIA lagged and did not manage to even retest its T-line during the day.
On the day, six of the 10 sectors were in the green (although only two of them were more than just marginally green). Utilities (+0.59%) and Energy (+0.46%) led the way higher while Consumer Cyclical (-0.77%) lagged behind the other sectors. At the same time, the SPY lost 0.13%, DIA lost 0.04%, and QQQ lost 0.36%. VXX was flat at 37.51 and T2122 fell but remains in the mid-range at 27.46. 10-year bond yields spent the day climbing back to end up just positive at 3.453% while Oil (WTI)fell 1.20% on the day to end at $70.09 per barrel. So, Friday consisted of 5 hours of slow, steady, bearish action followed by 90 minutes of bullish relief. This all happened on well less-than-average volume across all three major indices.
In economic news, April Export Price Index came in just as anticipated at +0.2% (right on the forecast but well above the March value of -0.6%). However, the April Import Price Index came in above expectation at +0.4% (compared to a forecast of +0.3% and also far above the March reading of -0.8%). Later, Michigan Consumer Sentiment was reported well below expectation at 57.7 (versus a forecast of 63.0 and the April reading of 63.5). Elsewhere, Fed uber-hawk Bullard told a Hoover Institution conference that “Monetary policy is now at the low end of what is arguably sufficiently restrictive given current macroeconomic conditions.” He went on to say “the prospects for continued disinflation are good but not guaranteed.” Finally, President Biden nominated sitting Fed Board member Philip Jefferson to become Fed Vice Chair and current World Bank representative from the US Adriana Kugler to take Jefferson’s seat on the Fed if, in fact, Jefferson is confirmed by the Senate.
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In stock news, on Friday, Twitter announced that Elon Musk will be stepping down as CEO in six weeks, to be replaced by a former NBC (owned by CMCSA) Advertising Executive, while Musk remains as Chairman and “Chief Technology Officer.” This move is aimed at easing the fears of advertisers who have taken away business and expressed serious concerns since Musk took over the company. In other big tech news, NFLX told the Wall Street Journal on Friday that it’s planning to reduce spending by $300 million in 2023. However, the company also said it won’t implement a hiring freeze or additional layoffs. In the afternoon, TSLA announced it had received an endorsement for its “Full Self Driving” program in China by the Shanghai Municipal Commission. Elsewhere in electric auto news, FSR announced that it is postponing the release of its “Pear” model until 2025. Meanwhile, solar stocks soared Friday after new guidance from the Treasury Dept. clarified the clean energy tax incentives that are available to customers installing solar panels. This included FSLR (+26.48%), ARRY (+16.00%), and ENPH (+4.20%) among others. After the close, the CEO of PFE told Reuters that negotiating with Medicare over drug prices is like “negotiating with a gun to your head.” While he said he was unaware of plans Friday, he told the outlet that he expects drug companies to sue in order to block the requirement that drug companies must negotiate the prices they charge. (This might just be relying on a conservative court system and Supreme Court to lean in favor of business since drug companies already negotiate prices with insurance plans as well as other countries.)
In stock legal and regulatory news, EU antitrust regulators postponed the deadline for their decision on the AVGO proposed $61 billion acquisition of VMW until June 26. At the same time, HSBC agreed to pay $75 million to settle CFTC (US Commodity and Futures Trading Commission) charges of manipulative and deceptive trading as well as record-keeping failures by the firm. Meanwhile, China announced their equivalent of a recall, saying TSLA had agreed to fix the software on 1.1 million Model S, Model X, and Model 3 TSLA vehicles (nearly every car the company has ever sold in China). This is intended to fix a brake failure issue and will be done via over-the-air software updates starting May 29. (The US NHTSA said it is aware of the problem and is still gathering information related to TSLA vehicles in the US.) Elsewhere, the business lobby Chamber of Commerce has sued the SEC in an effort to get a new rule forcing corporations to disclose more information about their share buyback programs. Later, GOOGL agreed to pay the state of TX $8 million to settle claims of deceptive advertising related to the Pixel 4 smartphone. Toward the end of the day, TSLA Model S and Model X owners sued TSLA over software updates that decreased driving range or caused battery failures in their cars. The case claims TSLA violated both state and federal laws and has been proposed as a class action suit. In other auto news, after the close Friday, the NHTSA announced that GM is recalling 1 million SUVs in the US due to the possibility of the airbag inflator exploding during deployment. This includes the 2014-2017 model years of many different GM brands. This was part of 67 million airbag inflators that were made by Delphi (which is now owned by ALV) that the company is refusing to recall
In miscellaneous news, the Fed reported Friday that the amount of money parked in money-market funds rose to an all-time high for the second straight week. Despite this, the Fed also reported that US bank deposits rose in early May, ticking up from the lowest level in two years while bank lending did not change appreciably and remains at that low level. Elsewhere, in potentially ominous news for the tech industry, China’s largest smartphone manufacturer (Oppo) announced that it is closing its chip design business unit as the global smartphone market continues to decline. Finally, the Wall Street Journal reported Saturday that AMZN has “optimized” its delivery network. The redesign results in products having 12% fewer touchpoints prior to being delivered. At the same time, AMZN is offering US customers $10 to pick up a purchase rather than have it delivered to a home address.
Overnight, Asian markets leaned to the green side. Hong Kong (+1.75%), Shenzhen (+1.57%), and Shanghai (+1.17%) led the region higher while Thailand (-1.28%) was the main loser. In Europe, the bourses are green across the board at midday. The CAC (+0.48%), DAX (+0.25%), and FTSE (+0.47%) lead the region with Russia (+1.54%) oddly being the largest gainer in mid-afternoon trade. In the US, as of 7:30 am, Futures are pointing toward a modest gap higher to start the day. The DIA implies a +0.36% open, the SPY is implying a +0.36% open, and the QQQ implies a +0.26% open at this hour. At the same time, 10-year bond yields are up to 3.487% and Oil (WTI) is up 0.57% to $70.44/barrel in early trading.
The major economic news events scheduled for Monday is limited to NY Empire State Mfg. Index (8:30 am) and a Fed speaker (Kashkari at 9:15 am). The major earnings reports scheduled for the day include CTLT, AZUL, CGAU, and GOGL before the open. Then, after the close, JHX, NU, and XP report.
In economic news later this week, on Tuesday, we get April Retail Sales, April Industrial Production, March Business Inventories, March Retail Inventories, API Weekly Crude Oil Stocks report and a Fed speaker (Williams). Then Wednesday, April Building Permits, April Housing Starts, and EIA Crude Oil Inventories are reported. On Thursday we get Weekly Initial Jobless Claims, Philly Fed Mfg. Index, April Existing Home Sales, Fed Balance Sheet, and Bank Balances with the Fed. Finally, on Friday, we hear from two Fed speakers (Chair Powell and Williams).
In terms of earnings reports later this week, on Tuesday, BIDU, HD, IQ, SE, TME, CPRT, KEYS, KD, and PTC report. Then Wednesday, we hear from ARCO, TGT, TJX, SQM, CSCO, STNE, SNPS, TTWO, VSAT, and ZTO. On Thursday, WMS, BABA, BBWI, CSIQ, DOLE, GRAB, BEKE, MSGE, WMT, AMAT, CVCO, DXC, FTCH, FLO, GLOB, and ROST report. Finally, on Friday, we hear from DE and FL.
So far this morning, TIO reported beats on both the top and bottom lines. (Including a surprise 121% revenue beat.) Meanwhile, TGP beat on revenue (a 117% surprise) while missing on the earnings line.
With that background, it looks like the bulls are looking to make a modest push to start the week. The DIA is poised to retest its T-line from below, while the SPY and QQQ seem to be making modest gains further above their own 8emas. With that said, both of the large-cap indices remain inside their recent sideways chop range of the last week and a half with only the QQQ trending (higher) over that period. None of the major indices are fighting a resistance level right this moment, but all of them have a resistance level not too far above. Over-extension is not a problem yet, either in terms of distance from the T-lines or in terms of the T2122 indicator.
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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