Markets opened little changed Wednesday and then chopped sideways in a fairly small range.  The only exception to this was the SPY which plunged the last 15 minutes of the day to get back near the lows.  The DIA did retest its T-line (8ema), but failed, while the other 2 major indices didn’t even come close.  This action is giving us Indecisive, Inside Day candles in all 3 of the major indices.  The Spy printed more of an Inverted Hammer candle while the DIA gave us a Doji and the QQQ printed a Spinning Top. Overall, just a volatile, sideways day that seems to be coiling up as we wait for another shoe to fall.

On the day, seven of the 10 sectors are in the red with Utilities (-2.99%) being by far the biggest losing group.  On the other side, Consumer Cyclical (+0.27%), Consumer Defensive (+0.24%), and Energy (+0.20%) were the gaining sectors.  Meanwhile, SPY was down 0.32%, DIA was down 0.04%, and QQQ was down 0.03%. The VXX was off 1.01% to 21.54 and T2122 remains oversold at 15.81. 10-year bond yields backed off to 3.898% and Oil (WTI) was down 2.5% to $87.12/barrel.

In economic news, September PPI came in twice as hot as expected at +0.4% (versus +0.2% forecasted and actual in August).  For what it is worth, the September Core PPI (with food and energy prices stripped out) came in as expected at +0.3%, which was also the same as August.  In the afternoon, the September FOMC Meeting Minutes did not give us any new information.  Just as Fed speakers have been telling us since the meeting, the FOMC expects rate hikes to continue at a higher pace and a higher final interest rate level for a longer period than originally expected since inflation is showing little sign of abating yet.  After the close the API reported a 7.054-million-barrel crude oil inventory increase this week, dramatically reversing last week’s 1.770-million-barrel drawdown.  Finally, Treasury Sec. Yellen expressed concerns about liquidity in the bond market as many of the largest buyers have gone away.  Sovereigns, Japanese and European insurance and pension funds, etc. all have their own financial problems and are not looking to add US bonds.  As a result, as the supply of Treasuries has climbed, a lack of liquidity has driven average yields higher and caused outsized volatility.  (I’m not sure that is news, because that is how I was taught that free markets work…when supply goes up and demand goes down, the price falls, meaning in this case the yield rises. Nonetheless, she said it, and the financial media all thought it was newsworthy enough to report.)

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In stock news, Wednesday afternoon, it was announced that CCJ (a uranium supplier) and BEP (a utility) are teaming up to acquire Westinghouse from BBU (a holding company affiliated with BEP).  The $7.9 billion deal will give CCJ a 49% ownership interest in the Westinghouse venture as nuclear power becomes more popular again.  Across the pond, the EU approved the deal where CE will buy DD’s “Mobility and Materials” business unit for $11 billion.  After the close, CLF announced the USW union had ratified a new 4-year labor contract covering 12,000 of its employees.  At the same time, AMAT announced it was cutting its Q4 revenue estimate, citing new export regulations as a headwind.  Meanwhile, the NRLB cited SBUX for having called the police to disperse employees that were pro-union at a Kansas store.  Finally, AMZN announced that it is switching rockets for the upcoming launch of its prototype satellites (intended to compete with Elon Musk’s Starlink of satellite-based high-speed internet system).  The new rocket is from UAL (a joint venture by BA and LMT).

In Energy news, Oil was down in great part to a very strong dollar.  (The Euro fell further below parity to $0.97 while the Dollar rose to a 24-year high of 146.91 Yen.)  In company-related news, XOM announced that its new carbon emissions reduction business, called Low Carbon Solutions unit, had signed CF (the world’s largest ammonia manufacturer) as its first client.  At the same time, they signed a second deal with ENLC (an oil pipeline network).  After he close the EIA (US Energy Information Administration) said that consumers can expect to pay 28% more (compared to last year) to heat their homes this coming winter.  This is based on Natural Gas (half of all homes) prices up 28% year-over-year, Electricity (40% of homes) up 10% over last year, and Heating Oil (9% of homes) up 27% on the year.

So far this morning, WBA, TSM, and FAST all beat on both the revenue and earnings lines.  (As mentioned above, even though TSM beat, it also drastically cut new capital spending for the rest of the year…even while raising guidance.)  Meanwhile, BLK and CMC missed on revenue while beating on earnings.  On the other side, DAL beat on revenue while missing on earnings.  However, DAL did raise guidance after reporting a major surge in summer travel.  Finally, DPZ missed on both lines.

Overnight, Asian markets were red across the board.  Taiwan (-2.07%), Hong Kong (-1.87%), and South Korea (-1.80%) led the red tide, perhaps aided by TSM (the world’s largest chipmaker) cutting 2022 capital spending by 10% in a major warning shot fired across the bow of tech companies.  Meanwhile, in Europe, stock exchanges are mixed but lean to the green side at midday.  The FTSE (+0.04%), DAX (+0.87%), and CAC (+0.40%) are leading the move with four of the smaller exchanges lagging and still red in early afternoon trade.  As of 7:30 am, US Futures are pointing toward a modestly green open ahead of consumer inflation data.  The DIA implies a +0.58% open, the SPY is implying a +0.55% open, and the QQQ implies a +0.30% open at this hour.  10-year bond yields remain at 3.89% and Oil (WTI) is also little moved at $87.40/barrel in early trading.

The major economic news events scheduled for Thursday include September CPI and Weekly Initial Jobless Claims (both at 8:30 am), EIA Weekly Crude Oil Inventories (11 am), and the Federal Budget Balance (2 pm tentative).  The major earnings reports scheduled for the day include BLK, CMC, DAL, DPZ, FAST, INFY, PGR, TSM, and WBA before the open.  There are no major reports scheduled for after the close.

In economic news later this week, on Friday we get September Retail Sales, September Import/Exports, August Business Inventories, Mich. Consumer Sentiment, and August Retail Inventories.

In earnings reports later this week, on Friday, the big banks really kick off earnings season as C, FRC, JPM, MS, PNC, USB, UNH, and WFC all report.

Markets will be focused on CPI data in at least the pre-market this morning, even though we have had some generally good earnings reports. For what it is worth, Moody’s Chief Economist said overnight that his analysis leads him to expect a significant inflation reduction within 6 months. However, just from a read-through of the PPI data, we should expect a very hot inflation number today. Don’t be surprised if we see more whiplash as markets overreact early, rethink and whip back in the other direction. However, at the moment we appear stuck between this week’s low and the T-line.

With this backdrop, the premarket action seems to show some optimism ahead of the CPI data. The market remains a bit extended in terms of T2122, but not extremely so. Watch the T-line levels for resistance if we bounce on the CPI data. Once again, the one thing we know is that the strong bear trend is still in place and markets have been indecisive the last two days…as if waiting. So, don’t predict a bottom, but keep a watchful eye on market price action.

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!). Also, keep in mind that trading is a job. It’s not a hobby. 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. Demonstrate patience and wait for confirmation. 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: WBA, APA, HALO, BA, RCL, MO, UPST. 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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