Coasting into the Holiday Break?

On Monday, stocks opened basically flat (SPY and QQQ down modestly and DIA flat).  All 3 major indices then sold off modestly until 11 am.  We then saw a sideways grind in a very tight range un 12:30 pm.  We then saw a rally in all 3 major indices that died out at 1:45 pm and fell into a very modest and slow pullback, again in a tight range, all the way into the close.  This action is giving us very indecisive, black-bodied Spinning Top type candles in the 3 major indices.  The two large-cap indices held up after their retests of their T-lines, while the QQQ closed slightly back below its own 8ema.

On the day, six of the ten sectors are in the red, with Consumer Defensive sector (+0.67%) leading the four gainers and the Technology sector (-1.41%) lagging behind.  At the same time, the SPY fell 0.36%, the DIA fell 0.09%, and the QQQ fell 1.03%. The VXX was down 2.68% to 15.97 and T2122 fell back out of overbought territory to 75.57.  10-year bond yields have climbed back up to 3.833% and Oil (WTI) was down 0.42% to $79.74 per barrel.  So, overall Monday was an indecisive session as we wait on more earnings on Tuesday and then the holiday break.

In stock news, the G20 Financial Stability Board issued its report on the world’s most “systematically important banks,” which concluded that JPM remains the world’s most important bank to financial systems which means it remains the most in need of tight scrutiny to ensure it has a capital buffer.  BAC was on the list and moved into the bucket needing lesser scrutiny (due to improved capital reporting) where it joined C in that tier of scrutiny requirement.  Elsewhere, British Competition Regulator announced it is looking into the $61 billion acquisition of VMW by AVGO. In other M&A news, MRK announced it will acquire IMGO for $1.35 billion (at 107% premium on Friday’s closing price).  Meanwhile, DKNG shares plummeted Monday on news that the company was hacked and user accounts had been cashed out as part of the hack.  Elsewhere, TSLA shareholders have created an online petition urging the CEO (Elon Musk) to initiate a share buyback program to support the share price.  Among those leading this call are the third largest TSLA shareholder, Leo KoGuan.  Finally, Bloomberg reported that BYND has serious food safety issues, including noticeable listeria, mold, and other food safety red flags at its PA plant.  This was witnessed by 11 different occasions where the facility tested positive for Listeria within the 6 months ending Dec. 2021.

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In legal news and government news, a US Appeals Court has decertified a class action lawsuit that had found BA and LUV liable for covering up a fatal flaw in the BA 737 Max 8 plane design.  The court ruled that because the risk did not materialize (i.e. there was no crash) the risk never really existed, so plaintiffs lacked standing.  Elsewhere, the FAA proposed new rules to regulate vertical takeoff/landing Air Taxis in coming years.  At the moment, only DAL has invested significantly in that niche and the company is expecting significant urban demand in coming years and specifically the 2028 Olympics in Los Angeles.  Finally, the US Supreme Court has decided to hear a case brought by BF.A against a dog toy maker for their parody of the Jack Daniel’s “Old No. 7” trademark (the dog toy box had been labeled as “Old No. 2 on your Tennessee Carpet” and included alcohol descriptions of “43% Poo By Vol.”  (So, take heart, life can’t be all that bad if our highest court has time to hear and rule on this kind of thing.)

In Supply Chain news, the largest rail union has voted to reject the latest contract offer by railroads.  The sticking issue is paid sick time.  As a result, a potential national rail strike is back on the table for as soon as December 9.  A full strike would shutdown roughly 40% of US freight long-haul shipments (which exclude “last mile” deliveries).  The expected impact would be roughly $2 billion per day and the US would need an extra 460,000 semi-trucks to offset the tonnage this would stop.

After the close, DELL, SNEX, A, MMS, and ZM all reported beats on both the revenue and earnings lines.  Meanwhile, ZTO missed on revenue while beating on earnings. On the other side, URBN beat on revenue while missing on earnings.  Unfortunately, CENT and CENTA missed on both the top and bottom lines.  It is worth noting that ZM and CENT/CENTA lowered their forward guidance.

So far this morning, BBY, ADI, DY, CAL, and AMWD all reported beats on both the top and bottom lines.  In the meantime, MDT, VIPS, and CSIQ all missed on the revenue line while beating on earnings.  On the other side, BIDU and IQ beat on revenue while missing on the earnings line.  However, BURL missed on both the revenue and the earnings lines.  (DLTR and DKS reports come out later in premarket.)

Overnight, Asian markets were mixed.  Taiwan (+0.64%), Japan (+0.61%), and Australia (+0.59%) led the gainers while Hong Kong (-1.31%), Shenzhen (-1.18%), and South Korea (-0.59%) paced the losses.  Meanwhile, in Europe, stocks are mixed but lean toward the green side at midday.  The FTSE (+0.55%), DAX (-0.02%), and CAC (-0.17%) lead the region with a strong majority of the smaller exchanges in the green in early afternoon trade.  As of 7:30 am, US Futures are pointing toward a start to the day modestly on the green side of flat. The DIA implies a +0.18% open, the SPY is implying a +0.16% open, and the QQQ implies a +0.03% open at this hour.  10-year bond yields are back down to 3.791% and Oil (WTI) is up 1.3% to $81.08/barrel in early trading.

The major economic news events scheduled for Tuesday include the API Weekly Oil Stock report (4:30 pm) as well as 3 Fed speakers (Mester at 11 am, George at 2:15 pm, and Bullard 2:45 pm).  Meanwhile, the major earnings reports scheduled for the day are ANF, AEO, AMWD, ADI, BIDU, BBY, BURL, CAL, CSIQ, CHS, DKS, DLTR, DY, IQ, MDT, VIPS, and WMG before the open.  Then, after the close, ADSK, GES, HPQ, and JWN report.

As you would expect on a holiday week, this week will be light on economic news.  On Wednesday, October Building Permits, October Durable Goods, Weekly Initial Jobless Claims, Mfg. PMI, Services PMI, Michigan Consumer Sentiment, October New Home Sales, EIA Weekly Crude Oil Inventories, and FOMC Meeting Minutes are reported.  Thursday and Friday have no economic news due to the holiday.

In earnings reports later this week, on Wednesday, DE and LU report.  There are no reports on Thursday or Friday due to the holiday.

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As the holiday-shortened week grinds forward, the focus today will be trying to read through on the state of the consumer from the handful of retail reports that come out today. BBY beat on both lines and held its outlook as it was before. This comes after DELL beat on both lines last night. So, if that gives you some clue of electronics buyers’ mood, it seems things are as expected and not getting appreciably better or worse yet as we head into the holiday sales season. One thing that should be noted is that the US Dollar is down today, pulling back for the first time in four sessions and down against all major trading pairs. This will give a tailwind to commodities on at least a very short-term basis. Also bear in mind that we have several Fed speakers today. It is likely they will continue to spread the message that things are improving…but we should not expect a Fed pivot any time in the near future. (In other words, there will be a hike in December, it may be less than 0.75%, but it will be a hike and it won’t be the last one as the Fed continues to tighten toward its terminal rate goal that is still 1-3% higher, depending on whether you believe perma-hawk Bullard or others.)

In the short term, all 3 major indices can be seen to be in a Bullish Pennant pattern of one sort or another. The trend remains bullish, the T-line has held after multiple retests in the large-caps, and although it fell through the T-line yesterday, the QQQ looks ready to try to get back above that level this morning. So, over-extension is not a problem for the market today either. The probabilities are in the Bull’s favor in the near term as we grind toward the holiday break. Do not be surprised if volume and moves on strength die out as we get close to the Wednesday close. (Look to yesterday’s “dead market” periods as a guide.) In short, this may be time better spent “sharpening your axe” than trying to chop up too many trees.

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: BP, TSLA, AMC, CLF, BIDU, PSX, ETSY, and XOM. 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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