On Friday, markets gapped up a half of a percent.  After an hour of finding their footing, the bulls began a slow, steady, all-day rally that ran right into the close.  This left all 3 major indices printing large white candles with small lower wicks.  On the day, SPY gained 1.69%, DIA gained 1.23%, and QQQ gained 1.95%.  All 10 sectors were in the green with Technology leading the charge again.  The VXX also gained 1.66% to 22.05 and T2122 drove even higher into overbought territory at 97.41.  10-year bond yields fell to 2.842% and Oil (WTI) dropped back to $91.88/barrel.  Clearly it was a risk on day. 

This all capped the fourth straight week of gains, with SPY gaining 3.30%, DIA gaining 3.01%, and QQQ gaining 2.69% for the week.  It also cut the losses of the longer-term pullback in half, which may be a key indicator.  (No bear market rally since 1950 has halved its losses from the highs and then returned to new lows.  In other words, if the past is a good indicator, the bottom is now in and the bulls have history on their side.)  With that said, the Fed is still expected to continue raising rates (in smaller increments) for at least another six months.  This means it may still be too early for the broader market to pivot into a “Fed Bull” mode of chasing growth again (at least according to GS as reported by CNBC).

In economic news, both Imports and Exports were down more than expected in July (possibly indicating a global economic slowdown).  However, it was Exports that were much lower than expected (-3.3% vs -1.1% forecast).  The market took this to mean the Fed will have less reason to continue big rate hikes as we move forward.  On the plus side, Michigan Consumer Sentiment and Expectations both came in well above the consensus estimate as well as the June numbers.  This indicates that the public is now more comfortable with the economy and that policies are working as inflation falls and no huge recessionary impacts (mass layoffs) have started in this cycle.  And, as always, a relatively happy consumer is good for corporate profits.

SNAP Case Study | Actual Trade

In stock news, on Friday, PTON announced it will cut 800 jobs, shut stores, and raise prices as the “High-End Bike/Treadmill as a subscription” business struggles to remake its business.  After the close Friday, BA announced it has patched a vulnerability that could have allowed hackers to take control of on-board flight system (air speed, gauge readings, etc.) of some BA manufactured aircraft.  On Saturday, activist hedge fund Starboard Value announced it has slashed its KSS holdings by 80% in Q2 after the fund’s proposed acquisition of KSS was rejected.

In Energy news, Germany has taken measure to cut natural gas consumption by at least 2%.  The new law requires strict cutbacks by both public and private entities.  These include only heating public buildings to 66 degrees, not allowing pools to be heated, as well as building and monument illumination turned off.  Illuminated advertising will also be prohibited between 10 pm and 6 am.  Elsewhere, in a surprise move, Mexico (which now imports 100% of the natural gas it uses) announced plans to become the world’s largest exporter of nat. gas.  This includes 8 new exploration projects not far South of the US border that are expected to have a combined output of more than 50 million tons annually and are expected to come online as soon as 2023.  (Those 8 projects alone would make Mexico the #3 global producer of LNG and produce 55% of the US total production.)  Notable current LNG producers include CQP, LNG, SHEL, and TTE.

President Biden will sign the Inflation Reduction Act this week.  Among the provisions is giving the HHS Dept. the authority to negotiate drug prices for the first time.  (This was a huge loss for big pharma, which spent over $144 million lobbying and made more than $16 million in campaign contributions to defeat this measure.)  Among the companies potentially impacted by negotiations are BMY ($11.5 billion in drugs now likely negotiated), MRK ($7.3 billion in drug sales impacted), JNJ ($5 billion in drug sales now to be negotiated), and ABBV ($3 billion in drug sales impacted) among others.  **Note that these are not the sales amounts to be lost, but which are likely to be reduced by actual negotiated prices.

Overnight, Asian markets were mixed but leaned to the green side on mostly modest moves. Japan (+1.14%) and Taiwan (+0.84%) led the gains while Hong Kong (-0.67%) and Singapore (-0.38%) paced the losses.  In Europe, a similar picture is taking shape at mid-day.  The FTSE (-018%), DAX (-0.01%), and CAC (+0.01%) show a mixed, modest-move atmosphere while smaller exchanges show slightly stronger moves.  For example, Denmark (+1.36%) leads the gains and Norway (-1.00%) paces the losses in early afternoon trade.  As of 7:30 am, US Futures are pointing toward a down start to the day.  The DIA implies a -0.45% open, the SPY is implying a -0.46% open, and the QQQ implies a -0.26% open at this hour.  However, 10-year bond yields are down to 2.828% and Oil (WTI) is off over 5% to $87.48/barrel in early trading.

The major economic news events scheduled for Monday include NY Empire State Mfg. Index (8:30 am) and June TIC Net Long-Term Transactions (4 pm).  The major earnings reports scheduled for the day include LI, NUI, WEBR, and WES before the open.  Then, after the close, COMP, FN, GSM, NU, and TME report.

In economic news later this week, on Tuesday we get July Building Permits, July Housing Starts, July Industrial Production, and API Weekly Crude Oil Stock.  Then Wednesday we get July Retail Sales, June Business Inventories, June Retail Inventories, EIA Crude Oil Inventories, a 20-year Bond Auction, and Fed Member Bowman speaks twice.  Thursday Weekly Initial Jobless Claims, Philly Fed Mfg. Index, and July Existing Home Sales are announced and Fed Member George speaks.  Finally, on Friday there is no major economic news.

In earnings later this week, on Tuesday we hear from ESLT, HD, SE, WMT, A, and JKHY.  On Wednesday, ADI, LOW, PFGC, TGT, TJX, ZIM, AMCR, BBWI, SQM, CSCO, KEYS, SNPS, and ZTO report.  Then Thursday, we get reports from BJ, CSIQ, EL, KSS, NICE, SPTN, TPR, AMAT, and ROST.  Finally, on Friday we hear from DE, FL, and VIPS.

After the last 4 strong weeks and Friday’s strong move by the bulls, major indices look extended from their T-lines and according to T2122. In addition, China’s Central Bank surprised markets overnight with a rate cut last night. However, it was a small cut of 10 basis points on the 7 and 10-year lending rates. (Indicating they are concerned the Chinese and global markets are cooling too fast.) With that backdrop, we can expect another low volume, yet volatile, day. So, either look for longer horizons (loose stops and ability to ride fluctuations) or tighten up on the bat and take smaller, faster swings. Overall the trend remains bullish, but remember those stocks are extended/overbought…do not chase.

Remember that trading is our job. So, do the work and follow the process. Stick with your trading rules, trade with the trend, and take those profits when you have them. Demonstrate patience and wait for confirmation. Don’t be stubborn. If you have a loss, just admit you were wrong, respect your stop, and take the loss before it grows. When price does move in your direction, always move your stops in your favor (remember the “Legend of the man in the green bathrobe“…it is NOT HOUSE MONEY, it’s all OUR MONEY!). Lastly, remember that you get rich slowly and steadily in Trading…not by striking it rich on one or two trades. So, give up that lottery ticket mentality.

See you in the trading room.

Ed

Swing Trade Ideas for your consideration and watchlist: TWTR, MCD, ARKK, AMD, GRWG, NVDA, X 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.

🎯 Mike Probst: Rick, Got CTL off the scanner today. Already up 30%. Love it.

🎯 Dick Carp: the scanner paid for the year with HES-thank you

🎯 Arnoldo Bolanos: LTA scanner really works $$, thanks Ed.

🎯 Bob S: LTA is incredible…. I use it … would not trade without it

🎯 Malcolm .: Posted in room 2, @Rick… I used the LTA Scanner to go through hundreds of stocks this weekend and picked out three to trade:  PYPL, TGT, and ZS.   Quality patterns and with my trading, up 24%, 7% and 12%…. this program is gold.

🎯 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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Disclosure: We do not act on all trades we mention, and not all mentions acted on the day of the mention. All trades we mention are for your consideration only.

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