Bulls To Gap Higher With April Data Ahead

Monday started with a small gap lower as we got bad Chinese economic data and the NY Empire State Mfg. Index missed estimates.  After that, we saw a roller-coaster ride with a slightly bullish trend until 3 pm.  From that point, stocks slid the rest of the day.  This action allowed all 3 major indices to retest their T-Line and fail again.  However, DIA held out to barely print a second straight green day as markets fight with their downtrends.  This left us with indecisive, Doji or Spinning Top candles in all 3 major indices.  On the day, SPY lost 0.37%, DIA gained 0.18%, and QQQ lost 1.16%.  The VXX fell almost 5% to 24.69 and T2122 climbed again, but remains below the mid-point at 35.11.  10-year bond yields fell on the day to 2.886% and Oil (WTI) rose 3.3% to $114.16/barrel.

Monday, Bloomberg reported Elon Musk has floated the idea of buying TWTR at a lower price than approved by the board.  This came the same day that he and TWTR CEO Agrawal went back and forth on whether or not there are many fake accounts on the platform.  The stock took an 8.18% loss on the day and in the process gave back more than all the gains made since Musk’s position purchase was made public.  Then early this morning Musk said that TWTR must prove its claims of 5% or fewer “bot accounts” for the purchase to proceed at all. TWTR was down as much as another 4% in after-hours trading.

Cryptocurrencies continue to have massive issues as another “stablecoin” (DEI) lost its peg to the US Dollar, falling below 70 cents.  The algorithm selling Bitcoin and NFTs in an attempt to maintain the peg simply could not keep up.  As with Luna (which is now of no value), this puts pressure on Bitcoin and cryptocurrencies in general on a reputation basis as well as direct selling to maintain the peg.  However, Bitcoin, rallied late in the day to regain the $30,000 level after falling to $29,000 during the day.  In related news, COIN reported that people holding their crypto wallets at COIN are to be treated as “unsecured creditors” in the event of bankruptcy.  This means if the COIN exchange files for bankruptcy, people holding accounts will be paid last in the disbursement of assets.  COIN plummeted another 9% on the day and is down 53% since May 4th.

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After the close, TME missed on revenue while beating on earnings.  On the other side, TTWO and AE both beat on revenue while missing on earnings.  In other stock news, after-hours, INTC announced that shareholders have rejected the company’s top executive pay packages by almost a two-to-one margin.  The vote is not binding on the board, but is a clear sign that shareholders are watching company performance.  In other compensation news, MSFT announced it will nearly double its employee compensation budget as well as increase the stock options given to some classes of employees by 25%.  This was all a major effort to retain staff in a very competitive job market.

On the baby formula story, ABT reached a deal with the FDA to restart their Sturgis MI plant (which the FDA shut down in February).  This increases the largest baby formula maker’s capacity by at least one-third.  Elsewhere, Nestle (a global baby formula maker with smaller US presence) is flying large supplies of formula to the US today while Reckitt Benckiser (UK formula maker) is also boosting production by 30% and shipping more to the US in order to capture market share and alleviate the US shortage.

Economic news later this week includes April Building Permits, April Housing Starts, and Crude Oil Inventories on Wednesday.  Then Thursday we see Weekly Jobless Claims, Philly Fed Mfg. Index, and April Existing Home Sales.  There is no major news scheduled for Friday.

Overnight, Asian markets leaned heavily to the green side on encouraging Covid news out of China.  Hong Kong (+3.27%) and India (+2.63%) were outliers, but Shenzhen (+1.23%), Taiwan (+0.98%), and South Korea (+0.92%) led the way higher.  In Europe, we see green across the board at mid-day with Tech stocks leading the way.  The FTSE (+0.96%), DAX (+1.53%), and CAC (+1.38%) lead the way as usual in early afternoon trading.  As of 7:30 am, US Futures are pointing to a large gap higher at the start of the day.  The DIA implies a +1.43% open, the SPY is implying a +1.67% open, and the QQQ implies a +2.01% open at this hour.  10-year bond yields are back up to 2.919% and Oil (WTI) is up another 0.67% to $114.95/barrel in early trading.

The major economic news scheduled for release on Tuesday includes April Retail Sales (8:30 am), April Industrial Production (9:15 am), Mar. Business Inventories and Mar. Retail Inventories (both at 10 am), and a few Fed speakers (Bullard at 8 am, Harker at 9:15 am, Chair Powell at 2 pm, and Mester at 2:30 pm).  Major earnings reports scheduled for the day include AER, HD, JD, SE, and WMT before the open.  Then, after the close, KEYS reports.

So far this morning HD, JD, SE, AER, HUYA, and IMBBY all reported beats on both lines.  At the same time, WMT and VOD reported beating the estimates on revenue but missing on the bottom line.  Finally, MARUY has reported misses on both lines.  It is worth noting that HD raised guidance for the rest of the year after record Q1 sales.  HD was up 3% in premarket trading. The WMT miss was unusual and attributed higher costs which included “overstaffing,” which raises the fear of layoffs in a job market where just yesterday the company announced a new incentive program to increase hiring among college graduates. WMT is down 5% in premarket trading.

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Coming off weeks of losses, the bulls seem to be latching on to good Covid news from China (implying some improvement of supply chain issues and increasing Chinese demand) as well as the strong HD earnings and forecast. The fact that WMT also beat on revenue (despite a bad earnings miss) may also give hope that the consumer is not tapped out yet. However, inflation, geopolitical risk, and the cryptocurrency meltdown still also weigh on Mr. Market’s mind. So, be damn careful about chasing into the gap higher. Caution remains the smart play. Remember the trend is still to the downside, despite the last couple of candles. Also bear in mind that those bullish candles failed a test of the T-line twice now. This does not mean they will always fail, it just suggests there remains a lot of resistance overhead. Remain nimble and hedged. Above all, don’t give in to FOMO -OR- feel the need to predict a reversal.

Trading is a job, not a lottery ticket. So, work the process. Stick with your trading rules and manage the things that you can control while trying not to worry about the things you have no control over at all. Trade with the trend, don’t chase, keep consistently taking profits when you have them, and move your stops in your favor. Also, remember that the first rule of making big money in the market is to not lose big money in the market. So, don’t be stubborn, and protect yourself from yourself. Keep in mind that nobody is right all the time. When you’re wrong, just admit it and take your loss. As they say, the best time to have taken a $500 loss is when you are now staring at a $1,500 loss.


Swing Trade Ideas for your consideration and watchlist: MMAT, EPAM, WDC, GILD, IBM, MMM, HAL, XLE, DOW. You can find Rick’s review of tickers on his YouTube Channel here. Trade your plan, take profits along the way, and smart. Also, remember to check for impending earnings reports. Finally, remember that any tickers we mention and talk about in the trading room are not recommendations to buy or sell.

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🎯 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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