China Protests Ease and Fed Talks Tough

Markets gapped down Monday with the SPY opening down 0.80%, DIA opening down 0.50%, and QQQ opening down 0.72%.  At that point, we saw a momentary rally (that managed to close the gap in the QQQ) before the bears stepped back in to sell us off steadily to new lows on the day by the time the first hour was over. That downtrend has stayed in place all day until a rally in the last 15 minutes.  On the daily chart, the QQQ and SPY both failed to hold their T-lines (8ema) while the DIA is just barely fell through that level and may retest tomorrow. This action gave us black candles with upper wicks and small lower wicks in all 3 major indices.  You could also argue that the SPY printed something like an Evening Star signal.

On the day, all ten sectors were in the red.  The Consumer Defensive sector (-0.34%) lagged while the Basic Materials sector (-2.34%) led the way lower.  At the same time, the SPY was down 1.58%, the DIA was down 1.46%, and the QQQ was down 1.47%.  The VXX gained 3.69% to 15.72 and T2122 has dropped out of overbought territory to 45.79.  10-year bond yields have climbed a bit to 3.683% and Oil (WTI) is back up 0.49% to $76.65 per barrel.  So, overall, Monday was a pullback day on very low volume that did not break the trend and is coming into a potential support area in the DIA and QQQ.

In economic news, Fed uber-hawk Bullard (St. Louis Fed President) told an interview that the Fed will likely need to keep its benchmark rate above 5% into 2024 in order to tame inflation.  This was in answer to a question (which he did not correct or narrow) that asked how long he expects the Fed Funds Rate to remain in the 5%-7% range that one of his slides showed in past presentations.  For reference, the current rate is 4%, a full percent below the bottom of his previously implied range.  Bullard did not answer when asked if he would support a 75-basis-point hike in December, instead saying he would leave the “exact tactics” of reaching a high enough level to Fed Chair Powell.  At the same time (but different venue), NY Fed President Williams (a moderate hawk) told a crown that he thinks there is a path for unemployment to go to 4.5% (it was 3.7% in October).  He also said he expects the Fed to keep raising rates and keep them there for all of 2023.  However, Williams said his baseline case is that (outside of an outside shock) the US economy will not tip into a recession…but that global risk is certainly out there.

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In stock news, Reuters reported Monday that TSLA is developing a revised version of its “Model 3” in an attempt to reduce production costs while also boosting the appeal of that 5-year-old sedan.  TBLA surged Monday, closing up 43.48% (on a range greater than 36% after the gap) after the company announced it had signed an exclusive 30-year advertising deal with Yahoo, generating approximately $1 billion/year in revenue and with Yahoo taking a 25% stake in the company.  Elsewhere, USFD named Dave Fitman as its new CEO.  Meanwhile, Reuters reports that sources tell them that MSFT is willing to offer more concessions to the EU in a bid to save its $69 billion purchase of ATVI.  In the late afternoon, ADBE Analytics announced they expect “Cyber Monday” online sales to have reached $11.6 billion, which is an 8.5% increase over 2021.  After the close, GOOGL and IHRT agreed to pay a modest $9.4 million fine to settle deceptive advertising charges from the FTC related to 29,000 false radio endorsements used to promote the GOOGL Pixel 4 smartphone on IHRT airwaves.

In miscellaneous news, the CFTC reported Monday that the market’s “net short” position on the US Dollar as of the 7 days ended November 22 reached its largest level ($1.82 billion) since July 2021.  This was a massive increase over the paltry $10.5 million net short position the week prior. In possibly related news, the Dollar fell sharply in the afternoon Monday after a huge morning spike (forming an Eiffel Tower pattern) that was the result of a flight to safety over China protest concerns.  Elsewhere, late in the day Monday, the Fed released remarks made by Vice Chair Brainard in which she said the War in Ukraine and global supply chain shocks (covid) could herald a shift to a more volatile inflation era…which would force central banks to tighten monetary policy, even more than currently, to guard against explosive inflation events.

So far this morning, BNS and BILI reported beats on both the revenue and earnings lines.  Meanwhile, ESLT and HIBB reported misses on both the top and bottom lines.

Overnight, Asian markets leaned heavily to the green as Chinese protests eased.  Hong Kong (+5.24%), Shenzhen (+2.40%), and Shanghai (+2.31%) led the region higher while only Malaysia (-0.64%) and Japan (-0.48%) were in the red.  Meanwhile, in Europe, we see a similar, but more muted situation taking shape at midday.  The FTSE (+0.71%), DAX (+0.19%), and CAC (+0.26%) are leading the region higher with only 3 very modest red exchanges in early afternoon trade.  As of 7:30 am, US Futures are pointing toward a modest green start to the day.  The DIA implies a +0.09% open, the SPY is implying a +0.31% open, and the QQQ implies a +0.50% open at this hour.  10-year bond yields have dropped again to 3.664% and Oil is up 2.4% to $79.11/barrel in early trading.

The major economic news events scheduled for Tuesday is limited to the Conf. Board Consumer Confidence report (10 am) and API Weekly Crude Oil Stocks report (4:30 pm).  On the major earnings reports front, reports scheduled for the day include BNS, BILI, CG, ESLT, and SJR before the open.  Then, after the close, CRWD, HPE, INTU, NTAP, and WDAY report. 

In economic news later this week, on Wednesday, Nov. ADP Nonfarm Employment Change, Q3 GDP, Q3 GSP Price Index, Oct. Trade Goods Balance, Retail Inventories, Chicago PMI, Oct. JOLTs Job Openings, Oct. Pending Home Sales, EIA Crude Oil Inventories, Fed Beige Book, and Fed Chair Powell speaks.  On Thursday, Weekly Initial Jobless Claims, Oct. PCE Price Index, Oct. Personal Spending, Mfg. PMI, ISM Mfg. PMI, and a Fed speaker (Bowman) report.  Finally, on Friday, we get Avg. Hourly Earnings, Nov. Nonfarm Payrolls, Nov. Unemployment Rate, and Nov. Participation Rate.

In earnings reports later this week, on Wednesday, we hear from DOOO, DCI, HRL, BEKE, WOOF, RY, TITN, XPEV, FIVE, LZB, PSTG, PVH, CRM, SNOW, SPLK, SNPS, and VSCO.  On Thursday, BMO, BIG, CM, DBI, DG, KR, PDCO, TD, MRVL, ULTA, and VEEV report.  Finally, on Friday, we hear from CRBL and GCO.

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As mentioned above, Chinese stocks are leading a global rally after Beijing gave a muted and conciliatory reply to the mass “Zero Covid” policy protests. China said it will bolster vaccinations among senior citizens and that may allow some localized and non-public easing of restrictions. So, today may be setting up to be another “Turnaround Tuesday.” However, remember the data dump this week is back-weighted. So, there is likely to be some more “waiting on the next shoe to drop” as traders pause until we see the big reports from Wednesday to Friday. The Dollar continues its recent weakness again this morning and that should help commodity prices. So, overall we have some cautiously bullish conditions trying to take hold.

In the short term, markets are still just seeing a normal pullback in the uptrend. All three major indices seem to be retesting their T-lines (8ema) in the premarket. So, there is no problem with extension, either in terms of that T-line or the T2122 indicator, which sits in the midrange. Be wary of any unscheduled Fed speakers, but it would not be surprising to see another blah day (at least on volumes) as markets wait on the Wednesday GDP print or Friday morning’s Payrolls data.

As always, be deliberate and disciplined…but don’t be stubborn. Remember it’s 100 times more important to avoid big mistakes than it is to pick big winners. 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.

Ed

Swing Trade Ideas for your consideration and watchlist: BIDU, MPC, X, KSS, CMCSA, and KHC. 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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