On Tuesday, markets opened flat in all three major indices.  At that point, we saw a divergence with the SPY meandering slightly lower until 10:45 am and then starting a long, slow, and modest rally.  At the same time, the DIA just started a long, slow, modest rally after the open.  Meanwhile, QQQ sold off until 11 am and bobbed around until noon when it also started a slow, steady rally.  However, a selloff in the last 30 minutes gave back most of the day’s gains. This action gave us small-body, indecisive candles in both the SPY and DIA, as well as a Bearish Harami candle in the QQQ.  Again, this all happened on very low volumes in all the major indices.

On the day, nine of the 10 sectors were in the green with Basic Materials (+1.70%) leading the way higher while Technology (-0.30%) lagged and was the only sector in the red.  At the same time, the SPY gained 0.03%, DIA gained 0.28%, and QQQ lost 0.64%. VXX fell almost 1% again to 42.64 and T2122 climbed into the extreme end of the overbought territory at 96.46.  10-year bond yields climbed to close at 3.43%. Meanwhile, Oil (WTI) was up 2.19% to $81.49 per barrel.  So, on Tuesday we divergence as Technology languished while the rest of the market slowly rallied, only to give back most of the progress during the last half hour of the day.      

In economic news, on Tuesday, NY Fed President Williams (FOMC voter) toed the company line by saying that future the interest rate path will be data-dependent.  However, he also said that one more hike in May and then a pause is a “reasonable starting point.”  He went on to say that as of now, “the banking system has really stabilized” and that, while the Fed will watch for negative shocks, “right now we’re not seeing any of those effects.”  In a separate event, the NY Fed released a report predicting the Fed’s path for shrinking its balance sheet will take several more years.  (And I guess the Fed ought to know what the Fed’s going to do better than anybody.) The report forecasts that the Fed balance sheet will only have shrunk from $8.7 trillion to about $6 trillion by the summer of 2025 and will then hold steady for about a year.  Elsewhere, Chicago Fed President Goolsbee (FOMC voter) urged “prudence and patience” (caution) by his fellow FOMC members so that the Fed doesn’t raise rates too aggressively.  After the close, the API Weekly Crude Stocks Report showed an unexpected inventory build of 0.377 million barrels (compared to a forecasted drawdown of 1.300 million barrels and far different than the prior week’s 4.346-million-barrel drawdown).

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In stock news, BABA demonstrated its generative AI model named Tongyi Qianwen (which means “truth from a thousand questions”) Tuesday and promised the company will integrate the model into all of the company’s apps soon.  This public demo came just hours before the Chinese government published draft rules covering the way that generative AI services should be managed.  Meanwhile, F said it will invest $1.3 billion to retool a Canadian plant to transform the SUV assembly plant into one that produced multiple models of electric vehicle as well as battery packs.  Completion of the plant conversion is scheduled for late 2024.  In other EV news, HMC announced Tuesday that its goal is to become one to the world’s top three EV manufacturers by 2030.  To get there, the company will invest $18 billion and expects to produce more than 3.64 million electric vehicles per year by the end of the decade.  Elsewhere, Reuters reported that multiple sources tell it ERJ will sign a deal to sell 20 jets to a Chinese airline during this week’s trip to China by Brazilian President Lula da Silva.  At the same time, GLNCY revised its unsolicited bid for TECK, adding a cash component.  TECK management responded that the offer was largely unchanged and rejected it as still decreasing the value to TECK shareholders.

In stock legal and regulatory news, the US Dept. of Energy proposed reducing the credit (rating) automakers get for electric vehicles towards meeting government fuel economy requirements (CAFÉ or Corporate Avg. Fuel Economy).  For example, under the new rules, an F-150ev which currently is credited at 237.1 mpg would only be rated at 67.1 mpg.  This would mean F would need to sell a much higher percentage of hybrid and electric vehicles to maintain an average above the standard.  For reference, STLA paid just $152 million for missing the standard in both 2016 and 2017. However, the NHTSA more than doubled the fines for missing CAFE standards in 2022.  Elsewhere, in India, a group of startups asked an Indian court to suspend the new GOOGL “in App billing fee system” (scheduled to go live on April 26) until it can be reviewed by the Indian antitrust body.  Meanwhile, a US appeals court gave MRNA a win by affirming the decision to throw out an ABUS lawsuit over patent infringement related to MRNA’s COVID-19 vaccines.  At the same time, a group of video gamers has filed a new legal challenge to the MSFT acquisition of ATVI.  This came after a US judge rejected an earlier version of the suit last month.  After the close, a US appeals court ruled a lawsuit against HPQ alleging shareholders were defrauded should be revived, overruling a lower court’s dismissal.  (The SEC has already fined HPQ $6 million over the practices in question in September 2020.)

In miscellaneous news, BAC reported Tuesday evening that its clients pulled roughly $2.3 billion from equities markets last week.  That was the second consecutive week of overall stock market outflows according to the BAC note.  This week’s equities outflow was led by money leaving real estate sector stocks (-$451 million).  Interestingly, at nearly the same time, BX announced it had raised $30.4 billion for its latest global real estate fund.  Elsewhere, Bitcoin climbed above $30,000 Tuesday, for the first time since June 2022.  This puts Bitcoin up 82% on the year.   This comes as G7 members are discussing cryptocurrency standards and how they should be regulated ahead of the next G7 meeting at the end of June. Meanwhile, the EIA released a forecast saying that US electricity use will fall 1% in 2023 (down from a record high in 2022) mostly due to a warm winter.  In addition, the Dept. of Energy said the use of coal in electric generation is set to fall significantly again this year.  In 2022, 20% of electricity was generated through burning coal, and this year that is on track to be 17%.  Finally, BA took over the top spot (for the first time since mid-2018), delivering slightly more planes in Q1 (3 more jets) than its main competitor EADSY (Airbus).

Overnight, Asian markets were mixed but there was more green on the board than red.  Hong Kong (-0.86%) had by far the biggest losses.  Meanwhile, Japan (+0.57%), India (+0.51%), and Australia (+0.47%) led the majority of the region higher.  In Europe, the bourses are mostly green at midday.  The CAC (+0.45%), DAX (+0.30%), and FTSE (+0.64%) lead nine other exchanges higher in early afternoon trade while only three of the smaller markets are in the red.  In the US, as of 7:00 am, Futures are pointing toward a flat to mildly green start to the day (ahead of major data).  The DIA implies a +0.23% open, the SPY is implying a +0.16% open, and the QQQ implies a +0.03% open at this hour.  At the same time, 10-year bond yields are back up to 3.451% and Oil (WTI) is on the red side of flat at $81.49/barrel in early trading.

The major economic news events scheduled for Wednesday include March CPI (8:30 am), EIA Crude Oil Inventories (10:30 am), March Federal Budget Balance and the FOMC Meeting Minutes release (both at 2 pm).  There are no major reports scheduled for Wednesday.

In economic news later this week, on Thursday, March PPI and Weekly Initial Jobless Claims are reported.  Finally, on Friday, March Retail Sales, March Import/Export Price Indexes, March Industrial Production, Feb. Business Inventories, Michigan Consumer Sentiment, and Feb. Retail Inventories are reported.

In terms of earnings reports later this week, on Thursday, we hear from, DAL, FAST, INFY, and PGR.  Finally, on Friday, BLK, C, JPM, PNC, UNH, and WFC report.

In mortgage news, interest rates fell to a two-month low last week, causing homebuyer mortgage demand to rise.  Specifically, the national average 30-year, fixed-rate, 20% down, mortgage rate fell from 6.40% to 6.30% last week.  (Loan origination points also fell from 0.59 to 0.55.)  As a result, demand for new purchase mortgages jumped 8% on the week.  It is worth noting that demand for refinance loans was flat on the week, and overall mortgage demand was still far lower than it was one year prior.  Also, even though the weekly average was reported, it was a sharp one-day decline mid-week that likely drew the increased application volumes.

With that background, at least in the premarket, once again it looks like the market is in “wait and see” mode. The large-cap indices are both just on the green side of flat while the Tech-heavy QQQ is just on the red side. However, the 3ema is still above the rising T-line (8ema), which is above a rising 17ema, which is above the 50sma and that is above the 200sma in all the major indices. So, any way you slice it, the trend remains bullish and we can best be described as in a pullback or Bull Flag inside that bullish trend. (With that said, we do have to recognize we are sitting on potential support in the QQQ, and up against a potential resistance level in the DIA and SPY.) Over-extension is certainly not a problem in terms of the T-line. However, the T2122 indicator is deep into the overbought territory. It’s absolutely true that new data or news could change the picture in a heartbeat. However, that is what the chart tells us now. So, putting aside fear and prediction, the chart is telling us to maintain a long bias and keep a sharp eye out for trend breaks.

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.

Ed

🎯 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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