Markets gapped on the last day of 2022 (opening down 0.70% in the SPY, down 0.45% in the DIA, and down 1.09% in the QQQ). All three major indices then ground sideways in a tight range near that opening level. However, at 1 pm there was a 30-minute selloff across the board taking us to the lows of the day at 1:30 pm. Another 90-minute sideways grind ensued before a strong, year-ending rally kicked in at 3 pm. This rally took stocks out on their highs for the day. None of the three indices was able to get back to its T-line (8ema) and all three still remain below their 50sma. However, the SPY was able to stay over the support level that has held it up for the last two-plus weeks. This action gave us white-bodied Hammer candles in the SPY and DIA and a larger white-bodied candle with a lower wick in the QQQ.
On the day, eight of the ten sectors were in the red with the Utilities sector (-0.96%) leading the way lower as the Energy sector (+0.45%) held up best. Meanwhile, the SPY was down 0.26%, the DIA was down 0.22%, and the QQQ was down just 0.06%. This took place on lower-than-average volume, with the QQQ notably lower than the two large-cap indices. At the same time, the VXX was flat at 14.12 and T2122 climbed but remains in the mid-range at 55.56. 10-year bond yields climbed to 3.879% and Oil (WTI) was up 2.69% to end the year at $80.51 per barrel. So, overall, it was a gap-down, dead-market day with a late-day rally on light volume, all within a downtrend consolidation.
For the month of December, SPY closed down 6.19%, the QQQ closed down 9.23% and both printed Bearish Engulfing candles. However, the DIA held up best, closing down 4.28% and just printing a black candle that managed to stay above its Monthly T-line. On the year, SPY fell 19.48%, DIA was down just 8.80%, but QQQ led the way by falling a whopping 33.07%. That included the big dos (market movers) TSLA (down more than 65% on the year), AAPL (down almost 27% on the year), AMZN (down almost 50%), MSFT (down almost 29%), NVDA (down more than 50%), AMD (down 55%), META (down more than 64% on the year), GOOG (down almost 39%), NFLX (down more than 51%), and INTC (down almost 49% on the year).
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In economic news, on Friday, the Chicago PMI came in considerably stronger than was expected at 44.9 (versus a forecast of 40.0 and a November reading of 37.2). Yet it is important to note that any reading below 50.0 indicates a contraction. Then on Saturday, China released its own PMI. The reading showed that the PMI fell to 47.0 from the November reading of 48.0 (economists had forecast a value of 48.0). This was the third straight lower reading and the largest fall since the beginning of the pandemic in 2020.
In stock news, on Friday, Canada’s Antitrust Tribunal finally (after months of turmoil) approved the ROG acquisition of SJR for $14.77 billion. This ruling dismissed the Canadian government’s opposition to the deal. However, the Canadian Commissioner of Competition indicated the government will appeal the decision, but this was a major hurdle that was overcome. Meanwhile, in the pharmaceutical space, Reuters reports that PFE, GSK, BMY, AZN, and SNY raised the list price of 350 drugs as of January 1. The increases were 6.4% on average and follows 1,400 drug price increases during 2022. The drug industry says this is in preparation for the Inflation Reduction Act that was passed in 2022 and that allows the government to begin negotiating drug prices, but not until 2026. After the close Friday, ACTG announced it is conducting an internal investigation into the apparent misconduct of its former CEO over the misuse (personal use) of funds and for making charitable contributions in his own name. Also, after the close, a US District Judge ordered NCLH to pay the government of Cuba $110 million in damages and another $3 million in legal fees for use of a port.
In miscellaneous news, TSLA reported record Q4 vehicle deliveries of 405,278 (which was a 40% increase over Q4 2021). However, the number was still 15,500 below the consensus analyst estimate. Elsewhere, Eurozone Mfg. PMI rose in December to 47.8 (up from 47.1 in November). The number still does not indicate expansion, but the trend is positive. In particular, both Germany and France showed gains for the month. Meanwhile, a new variant of the Omicron strain of Covid is quickly becoming the most prevalent in the US. The XBB.1.5 variant is deemed “highly immune evasive” meaning existing vaccines and treatments are less effective against this strain. The number of cases of this variant are doubling each week at the moment and currently account for 41% of all US cases according to the CDC. Finally, it flew under the radar, but there was yet another terror attack on New Year’s Eve. This time it was “only” a single Islamic extremist with a machete in NYC, but this will make headlines and is worth watching for potential additional attacks or news.
Overnight, Asian markets were mixed. Malaysia (-1.44%) and Australia (-1.31%) paced the losses. Meanwhile, Hong Kong (+1.84%), Shenzhen (+0.92%), and Shanghai (+0.88%) led the gainers. In Europe, the exchanges lean heavily to the green side with only Norway (-0.26%) in the red at midday. The FTSE (+1.49%), DAX (+0.74%), and CAC (+0.59%) are leading the region higher in early afternoon trade. As of 7:30 am, US Futures are pointing toward a green start to the day. The DIA implies a +0.28% open, the SPY is implying a +0.25% open, and the QQQ implies a +0.37% open at this hour. At the same time, 10-year bond yields are down to 3.771% and Oil (WTI) is off 1.27% to $79.23 per barrel in early trading.
The major economic news events scheduled for Tuesday are limited to December Mfg. PMI (9:45 am). There are no earnings reports scheduled for the day.
In economic news later in the week, on Wednesday, we get Dec. ISM Mfg. PMI and Nov. JOLTs Job Openings. Then, Thursday, Dec. ADP Nonfarm Employment Change, Weekly Initial Jobless Claims, Nov. Trade Balance, Dec. Global Composite PMI, Dec. Services PMI, and EIA Weekly Crude Oil Inventories are reported. Finally, Friday, we get Dec. Avg. Hourly Earnings, Dec. Nonfarm Payrolls, Dec. Participation Rate, Dec, Unemployment Rate, Nov. Factory Orders, and Dec. ISM Non-Mfg. PMI.
This is another very light week for earnings as on Wednesday we hear from UNF. On Thursday we get reports from CAG, STZ, HELE, LW, MSM, RPM, SCHN, and WBA. Finally, on Friday, GBX reports.
In government news, the 118th Congress will convene today with the GOP in control of the House. However, there is division among the GOP caucus as it appears that Republican Leader (and presumptive Speaker of the House) McCarthy does not yet have the votes to be confirmed as Speaker. Even after promising to give away a ton of power, dollars, and control (among his giveaways was allowing any 5 Republicans to be able to force a vote of “no confidence” causing a new election for Speaker) this vote will be a close-run thing. Some analysts think the holdouts will force a second or third ballot to extract more concessions. However, there is no public contender or alternative for the job. Regardless of the outcome, it looks like the process will take a little more time and will therefore delay the swearing-in of the House (which only follows the election of the Speaker).
With that background, it looks like all three major indices are trying to gap up through their T-line (8ema) this morning. However, at least at the open, they look like they will still be in that consolidation that has been holding as we have chopped around the last two weeks. So, be careful about getting too bullish too soon. A morning pop can be (and regularly has been) faded as well as one up day being followed by a down day the next. So, either be very nimble or prepared to wait out any short-term pressure your position might face. The volumes are likely to pick up this week after the holidays but don’t be surprised if the big money eases back into the market. Remember, they like to do bracket-price buying.
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.
Swing Trade Ideas for your consideration and watchlist: No Trade Ideas Today. 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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