Markets were indecisive Tuesday with DIA again being the laggard as it has been for months. Essentially, things started the day flat as the SPY opened down 0.08%, DIA opened down 0.01%, and QQQ gapped down 0.17%. From there, the SPY and QQQ immediately rallied until 10:55 am while DIA followed starting at about 10:10 am. From that point, all three rode a low-magnitude rollercoaster the rest of the day with DIA at the lows at 2 pm before rallying back to flat at day end. Meanwhile, SPY stayed more Bullish (closing near the highs) and QQQ ended up at the flat line as well after having seen more pronounced swings all day. This action gave us indecisive candles in all three major indices. The DIA printed a Doji, the QQQ printed a white-bodied Spinning Top, and the SPY printed a larger-body, white Spinning Top. All three major indices remain above their T-line (8ema). So, overall it was just another consolidation day as markets rested while traders make up their minds.
On the day, nine of the 10 sectors were in the green as Consumer Cyclical (+1.40%) and Financial Services (+1.31%) led the way higher and Consumer Defensive (-0.33%) was the laggard and only red sector. At the same time, SPY gained 0.22%, DIA gained 0.01%, and QQQ lost 0.02%. The VXX plummeted nearly 6% to end at 28.78 and T2122 jumped back up deep inside the overbought territory to 95.92. 10-year bond yields fell to end at 3.672% while Oil (WTI) also pulled back nearly 1% to end the day at $71.50 per barrel. So, Tuesday was an indecisive day where the DIA was dragging markets down while SPY was dragging markets up most of the day while QQQ was the most volatile of the three. However, at day end, only SPY managed to get past flat, and even that was less than a quarter-percent gain. All this took place on below-average volume across the board with DIA coming closest to average (but coming up just a bit short).
In major economic news, the EIA Short-Term Energy Outlook stated that it expects US oil production to accelerate faster than previously anticipated while US oil demand will cool versus the prior outlooks. Specifically, EIA expects US petroleum consumption to only rise 100k barrels to 20.4-million barrels per day (down from a 200k increase that was expected in the May forecast). However, EIA also expects US oil production to increase 720k barrels per day to 12.61 million barrels per day. The agency also expects that OPEC+ will continue their current production limits for each of the next five quarters. Over that time, EIA predicts WTI Oil will average $74.60/barrel (a 1.3% increase over their forecast in May). Elsewhere, the NY Fed released a study Tuesday that tells us that US supply chain pressures eased again in May. The report notes that supply chain pressure is below average in all regions of the world. Later, after the close, the API Weekly Crude Oil Stock report showed an unexpected 1.710-million-barrel drawdown (compared to an expected 1.500-million-barrel inventory build and far lower than the previous week’s 5.202-million-barrel inventory build)..
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In stock news, the Biden Administration confirmed Tuesday that after adjusting its supply chain, TSLA Model 3 cars now qualify for the full $7,500 tax credit. At the same time, less than a day after announcing it will launch its own AR Headset in 2024, AAPL announced it has acquired an AR headset startup named Mira. (Mira has AR contracts with the US Air Force and Navy.) STLA has begun considering a new offer from the Canadian federal and Ontario province governments. The governments are trying to get STLA and Korean firm LG Energy Solutions to resume construction on the $3.7 billion battery factory, which was halted on May 15 when STLA decide it had not been treated fairly compared to a similar project (deal) that had been put in place after the original STLA deal was inked. After the close, Beneficient (an alternative asset liquidity provider) is completing a SPAC merger with Avalon Acquisition Company and will begin trading under the BENF ticker sometime this week. At the same time, BA announced that it will delay deliveries of 787 aircraft again due to the discovery of “flawed parts.” The problem will impact 90 already-built 787 planes. No estimate was offered for the resumption of deliveries. Finally, TRP (Canadian) announced it will be cutting an unspecified number of jobs.
In stock legal and regulatory news, the NHTSA announced that F is recalling 125,000 2020-2023 SUVs related to engine failures that can cause fires. Elsewhere, the DE Supreme Court ruled that a lower court had properly found that TSLA had not been unduly influenced to buy SolarCity (another Elon Musk company) at an inflated price. Late the Fed, FDIC, and Office of the Comptroller of the Currency issued a joint statement that banks have now been provided final guidance on how to manage risks associated with third-party relationships (such as with fintech and cloud-computing firms). Meanwhile, Reuters reported that the EPA will scrap a previously proposed plan to include the EV industry in the US biofuel blending program. The agency will also rescind billions of dollars in tradable credits that had been associated with the plan. This plan had been backed by companies like TSLA but was opposed by the biofuel producers like DINO, MPC, and ADM. After the close, MRK sued the US government, seeking to halt Medicare drug price negotiations, despite the US paying more for the drugs in question than any other country. (Multiple legal analysts told Reuters that the MRK case on constitutional claims is weak and unlikely to succeed.)
After the close, PLAY missed on revenue while beating on earnings. Unfortunately, CASY missed on both the top and bottom lines. Neither company posted a guidance change or a major report surprise.
Overnight, Asian markets were mixed. Japan (-1.82%), New Zealand (-0.88%), and Shenzhen (-0.60%) paced the losses. Meanwhile, Taiwan (+0.96%), Hong Kong (+0.80%), and India (+0.68%) led the gainers. In Europe, a similar story is taking shape at midday. The CAC (-0.04%), DAX (-0.02%), and FTSE (+0.12%) are the smallest movers but lead on volume as always. Norway (+1.18%) is the biggest gainer and the FTSE MIB (-0.45%) the biggest loser in early afternoon trade. In the US, as of 7:30 am, Futures are looking for another flat start to the day. The DIA implies a -0.05% open, the SPY is implying a +0.05% open, and the QQQ implies a -0.01% open at this hour. At the same time, 10-year bond yields are up slightly to 3.681% and Oil (WTI) is up just more than 1% to $72.52 per barrel in early trading.
The major economic news events scheduled for Wednesday is limited to April Imports, April Exports, and April Trade Balance (all three at 8:30 am), and EIA Crude Oil Inventories (10:30 am). The major earnings reports scheduled for the day are limited to BF.A, CPB, OLLI, and UNFI before the open. The after the close, GME, GEF, and TCOM report.
In economic news later this week, on Thursday, we get Weekly Initial Jobless Claims, Fed Balance Sheet, and Bank Balances with the Fed. Finally, on Friday, the WASDE Ag Report comes out.
In terms of earnings reports later this week, on Thursday, we hear from DBI, REVG, SIG, TTC, DOCU, and MTN. Finally, on Friday, NIO reports.
In miscellaneous news, after a House conservative defection yesterday (protesting the deal did not cut enough) several Senators (including multiple GOP) called for supplemental spending bills for military and Ukrainian aid. However, despite his frustration with his party’s conservatives, House Speaker McCarthy said that he has “no immediate plans” (to take up legislation to boost defense spending beyond last week’s deal). As a side note, US funding for Ukraine will expire on September 30 (fiscal year end). In a somewhat related story, more evidence of the Russians blowing the hydroelectric dam yesterday was found in the fact that they dramatically increased the volume of the lake behind the dam (by closing the spillways) in the 30 days prior to yesterday’s explosion. And, of course, they had mined the dam as a threat to prevent a Ukrainian counter-attack across the dam after invading the location a year ago. This morning, the Mortgage Bankers Assn. reported that loan applications fell last week. New purchase mortgage applications fell 1.4% and refinance applications fell 1%. This comes with a background of mortgage rates for a 30-year, conforming (20% down), fixed-rate loan falling from 6.91% to 6.81%. (It is worth noting that this is still the second-highest weekly average rate so far in 2023.)
So far this morning, OLLI beat on both the revenue and earnings lines. Meanwhile, CPB missed on revenue while beating on earnings. Unfortunately, UNFI missed on both the top and bottom lines. (BF.A reports later before the open.) Of those, only UNFI has changed guidance, lowering its outlook. There were also no major surprises from this group.
With that background, it looks like the SPY and QQQ are at their premarket highs at the moment while DIA is near its premarket lows. However, overall, the three major index ETFs are little moved from Tuesday’s close. None of them are trying to retest their T-line (8ema) at least yet this morning. The Bullish trend remains in place. In terms of over-extension, the T-line has made up ground on all three of the indices. So, only the QQQ could be said to be extended above the T-line (and you need to squint a bit to say even that this morning). Yet, the T2122 does say we are well into the overbought territory (meaning we need more rest or pullback). Since this is the case, more consolidation or pullback may be in order, but we also have a little room left to run for the bulls and plenty of room for the bears if one group gets some energy. As mentioned above, even on small-body indecisive days like Monday, intraday volatility and chop have been the norm. So, again, remain alert.
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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