Chinese Law and Chip Shortage Aid Bears

Despite better-than-expected Initial Jobless Claims, markets gapped down hard at the open Thursday.  This took us to or near the 50sma in all 3 major indices.  However, the bulls stepped in immediately and rallied stocks into the highs just lunch.  From there we saw another down wave and rally as the volatility took us on a final down leg at the close.  This all left us with large-body, white candles with upper wicks amid small overall moves.  On the day, SPY gained 0.17%, DIA lost 0.18%, and QQQ gained 0.48%.  The VXX gained 3.2% to 30.00 and T2122 dropped deeper into the oversold territory at 5.71.  10-year bond yields fell again to 1.242% and Oil (WTI) dropped 2.15% to $64.05/barrel.

Thursday night, TSLA CEO Elon Musk announced plans to build a “Humanoid Robot” he dubbed the “Tesla Bot.”  The stated goal of the robots will be to eliminate the need for humans to do “dangerous, repetitive, and boring tasks.”  As with most of Musk’s “inventions,” robots have been a widely-known concept for centuries and an actual product for decades.  However, I'm sure the TSLA robot will be "world changing." In either case, the news and related tweets are giving TSLA stock a little boost in premarket trading.

China has passed a major “personal information protection law,” somewhat similar to the laws in place in the EU since 2018 and the recent AAPL vs FB “consent changes” for iPhone users.  This set of regulations lays out strict guidelines related to the collection, storage, and use of personal information by companies.  While the law has passed on Friday and goes into effect on November 1, the final draft has not been made public yet.  This is all part of the recent sweeping regulation of the technology sector, in particular, focused on phone apps and websites.

Japan’s massive auto companies were all down sharply following the Thursday evening announcement by Toyota that it is slashing global production for September by 40%.  The reason for the cuts is a lack of chips and no more room to store partially completed vehicles. Toyota did stress that it still believes it can hit its annuals production and sales targets.  Toyota was down 4.09%, Nissan dropped 7.25%, and Honda fell 4.84% on the day.  This news may have hurt US automakers Thursday and is not likely to give them any help today. So, keep an eye on F, GM, STLA, and major parts suppliers.

Overnight, Asian markets were mostly in the red again.  Hong Kong (-1.84%), Shenzhen (-1.61%), and Shanghai (-1.10%) led the region lower.  In fact, the Hong Kong Hang Seng moved into the Bear territory, down more than 20% from the February highs.  In Europe, markets are red nearly across the board in the early afternoon.  The FTSE (-0.24%), DAX (-0.48%), and CAC (-0.52%) are typical of the continent mid-day.  As of 7:30 am, US Futures are pointing to another gap lower.  The DIA is implying a -0.47% open, the SPY implying a -0.47% open, and the QQQ implying a -0.30% open at this hour.  10-year bond yields are also lower to 1.233% and Oil (WTI) off eight-tenths of a percent in early trading with the dollar showing a little early strength.

The only major economic news scheduled for release on Friday is a Fed speaker (Kaplan at 11 am) and Options Expiration (after the close).  The major earnings reports scheduled for the day include DE and FL before the open.  There are no earnings reports scheduled for after the close.

With markets looking at the first appreciable weekly loss in a month, the bears are continuing to draw strength from the fear of Fed bond tapering and the Covid-19 resurgence. As mentioned above, today is also options expiration Friday. So, expect a little volatility and perhaps some pinning in the afternoon. Just remember that we are sitting at or near the 50sma (potential support) and are only 2% off the all-time highs. So, don't go all-in either direction just yet, especially in front of the weekend news cycle. Trade carefully.

As always, manage your existing trades before you go chasing any new ones. Focus on the process and on managing what you can control. It is good trading rules and discipline that separates long-term success from failure in trading. So, trade with the trend. If you miss a move, just admit it and move on to the next chart. Never chase price on an entry and remember to keep your losses small by using stops or hedges. And always consistently take profits when you have them. Lastly, remember it's Friday...and Friday is payday.

Ed

Swing Trade Ideas for your consideration and watchlist: GTBC, EBAY, CHRS, HUT, X, NUE. 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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