Existing Home Sales and Final Fed Speak
On Thursday, markets gapped lower at the open (down 0.58% in the SPY and DIA, and down 0.67% in QQQ). The bears then led a modest follow-through selloff until noon. At that point, the bulls stepped in to lead an equally tepid rally back to the level of the open at 1:30 pm. The bulls kept going, reaching the highs of the day at about 2:45 pm. From there we saw another selloff that took us to the close. All three major indices also fell through and remain below their 50sma again and the QQQ fell through its T-line. This action gave us a gap-down, black-bodied, Spinning Top, indecisive candles for the day. This all happened on less than average volume.
On the day, nine of the 10 sectors were in the red as Industrials (-1.65%) led the way lower and Energy (+1.16%) held up best among the sectors. Meanwhile, the SPY was down 0.69%, the DIA was down 0.67%, and QQQ was down 0.98%. At the same time, the VXX was up a half of a percent to 12.62 and T2122 fell but remains in the midrange at 38.06. 10-year bond yields rose slightly to 3.399% and Oil (WTI) was up 1.13% to $80.38 per barrel. So, on the day we saw a gap-down follow-through on Wednesday’s big black candle, but much indecision after the open. None of the three major averages put in a new lower-low. That means at this point, it’s still just a pullback in a bull trend.
In economic news, December Building Permits came in slightly lower than expected at 1.330 million (compared to a forecast of 1.370 million and the November reading of 1.351 million). However, December Housing Starts came in a bit above expectation at 1.382 million (versus a forecast of 1.359 million but still less than the Nov. reading of 1.401 million). At the same time, Weekly Initial Jobless Claims came in well lower than expected at 190k (compared to the forecast of 214k and the prior week’s reading of 205k). And, again at 8:30 am, the Philly Fed Mfg. Index also came in better than was forecast at -8.9 (versus an average expectation of -11.0 and the November reading of -13.7). Finally, later in the day, the EIA Crude Oil Inventories came in much higher than expected, showing an inventory build of 8.408-million-barrels (compared to a forecast of a drawdown of 0.593-million-barrels but still lower than the previous week’s value of +18.962-million-barrels).
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In stock news, WE announced that is planning a small (300 jobs) cut in its workforce. On the same front, COF announced that it has cut 1,100 technology positions. In other news, KKR has blocked investors from cashing out of one of its untraded REITs after withdrawal requests exceeded their own pre-set limits. This follows the same move made by BX recently as the REIT industry is under pressure. Meanwhile, NCLH announced it will sell $500 million in bonds in order to repay existing outstanding debt. Meanwhile, a state office of the National Labor Relations Board is seeking an order to force SBUX to collectively bargain with workers at a Florida store, even though the store employees voted against unionizing. The order, which must be approved at a regional level, was sought after the Florida NRLB office determined that complaints of SBUX management threatening and surveilling store employees were valid and so prejudicial that even a new election would be futile. Elsewhere, after hours, JWN slashed its forward guidance citing the company’s need to do heavy holiday promotions which will hurt earnings. Finally, a Texas judge has ruled BA will be arraigned on Jan. 26 on charges of felony fraud related to the deaths resulting from the 2021 crashes of 737 Max jets. This came after families of those killed objected to a 2021 plea deal, that would have given BA immunity from criminal prosecution.
In Fed news, Vice Chair Brainard (voter) said Thursday that evidence in support of a “soft landing” is growing. She cited falling inflation and a lack of “major job losses” (with unemployment still at 3.5%). She did not address what she felt might be the right size of hike on Feb. 1, but did say that the full impact of the FOMC’s earlier hikes have not yet been fully felt. Note that Friday will be the last day for “jawboning” before the Fed’s blackout period ahead of the Jan. 31 meeting starts on Saturday.
In energy news, on Thursday, Natural Gas closed at its lowest level since June 2021 at a price of $3.275/mmBtu. This is part of a stunning selloff from the late-November price of $7.31/mmBtu. Earlier in the day, the EIA reported that the Biden Administration has stopped withdrawing crude from the US Strategic Oil Reserve after 14 months of taking oil out of that storage to tamp down fuel prices. The US is already negotiating with oil companies on purchases to refill the reserve.
After the close, PPG reported a beat on both the revenue and earnings lines. At the same time, NFLX and SIVB both reported beats on revenue while missing on earnings. However, CNXC missed on both the top and bottom lines. It is worth noting that PPG also lowered its forward guidance. So far this morning, ERIC, SLB, SDVKY, ALLY, HBAN, and RF have all reported beats on both the revenue and earnings lines. (STT reports closer to the opening bell.)
Overnight, Asian markets leaned heavily to the green side on mostly modest moves. Hong Kong (+1.82%) was an outlier to the upside while New Zealand (+0.77%), Shanghai (+0.76%), and South Korea (+0.63%) led the pack higher. Only Thailand (-0.67%) and India (-0.44%) were in the red. Meanwhile, in Europe, we see a very similar picture at midday. The FTSE (+0.13%) lags, while the DAX (+0.42%) and CAC (+0.56%) lead the region higher in early afternoon trading. Only Russia (-0.26%) and Denmark (-0.15%) are showing red at this time. As of 7:30 am US Futures are pointing toward a mixed open. The DIA implies a -013% open, the SPY is implying a +0.12% open, and the QQQ implies a +0.51% open at this hour. At the same time, 10-year bond yields are back up to 3.437% and Oil (WTI) is up fractionally to $80.49/barrel in early trading.
The major economic news events scheduled for Friday are limited to Dec. Existing Home Sales (10 am) and two Fed speakers (Harker at 9 am and Waller at 1 pm). The major earnings reports scheduled for the day include ALLY, ERIC, HBAN, RF, SLB, and STT before the opening bell. There are no reports scheduled for after the close.
In late-breaking news, GOOGL joined the chorus of tech giants doing layoffs by announcing 12,000 workers will be laid off globally. This amounts to 6% of the GOOGL workforce. Elsewhere, NFLX founder Reed Hastings stepped down as CEO but will remain Chairman of the board. Two existing executives were named Co-CEO in his place. In other news, crypto lender Genesis filed for bankruptcy after months of speculation that it would do so. Finally, the Frech economy was slowed by strikes and protests today after President Macron announced his plan to raise the French retirement age from 62 to 64 yesterday. French unions are supporting the protesters and have announced a second day of general strikes on January 31. However, Macron argued that the move is needed (due to an aging population) in order to avoid emptying the country’s pension fund.
With that background, it looks like premarkets are undecided this morning, but not making major moves either direction. The QQQ is retesting its T-line (8ema) again (and maybe its 50sma from below a bit later), while SPY is retesting a resistance level above. Extension is no problem with T2122 in its midrange and only the DIA being any real distance from its T-line. So, the bears do have a little room to run if they can muster the sellers. It still looks like DIA may be headed down to retest its 200sma sometime soon. Remember that it’s Friday (payday) and time to take some profits off the board and prepare your account for the weekend news cycle. Finally, it is the last day of Fed speak before the quiet period leading to the FOMC meeting starting Jan 31. So, we have two scheduled Fed speakers, but don’t be surprised if a few others pop their heads out to take a last whack at preparing markets. The Fed Futures are now extremely confident the Feb. 1 hike will be 0.25% (showing a 94.3% probability compared to just a 5.7% probability of a 0.50% hike). However, the hawks (like Bullard) have been talking about wanting a 0.75% hike. So, the risk is bearish for the market as a higher rate hike would hammer markets and give the bears energy to roar.
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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