CPI Today Includes Calculation Change

Markets were essentially dead on Monday.  SPY gapped down 0.33%, DIA gapped down 0.19%, and QQQ gapped down 0.40%.  All three major index ETFs then took an hour to get their footing and then they rallied strongly until noon recrossing the opening gap in the SPY and QQQ and even more in the DIA.  The SPY, DIA, and QQQ all ground sideways in a tight range.  This action gave us white-bodied candles in all three.  The SPY gave us a white-bodied, Spinning Top, Harami.  Meanwhile, QQQ printed a white Doji Harami in the in the QQQ.  Finally, the DIA gave us a white candle with an upper wick.  This all happened on very low volume in all three major index ETFs.

On the day, six of the 10 sectors were in the red with Utilities (-0.76%) leading the way lower while Energy (+0.82%) held up much better than the other sectors. At the same time, the SPY lost 0.10%, DIA gained 0.16%, and QQQ lost 0.31%.  The VXX fell 1.10% to close at 19.71 and T2122 climbed again within its mid-range at 61.18. 10-year bond yields climbed slightly to 4.64% and Oil (WTI) jumped up 1.84% to close at $78.59 per barrel.  So, Monday saw a gap lower, a morning rally, and then a sideways slog the rest of the day. 

The major economic news reported Monday was limited to the October Federal Budget Balance, which came in with a larger deficit than expected at -$67.0 billion (compared to a forecast of $-65.0 billion but vastly better than the September reading of -$171.0 billion). 

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In stock news, MGA announced it had reached a deal with Canadian autoworker union Unifor following a strike last week at one of their plants.   Later, AMP and CMA said they had formed a strategic partnership with CMA financial advisors offering AMP products and services.  Elsewhere, JOBY had the inaugural flight of its electric air taxi on Sunday.  The company is aiming to offer electric air-taxi service to NY City by 2025.  Later, HYMTF (Hyundai) announced they would hike wages at their AL factory by 25% by 2028 after the UAW deal with the Big 3 automakers.  At the same time, ENLC said it has begun operations at its North TX carbon capture and sequestration project. The project is planned to sequester 210,000 metric tons of CO2 annually.  Later, XOM made the announcement that it would begin producing lithium from surface wells by 2027.  (The company plans to build its operations to be the leading lithium producer in the world by 2030, supplying material for 1 million EV batteries per year.)  At the same time, AMZN cut 180 jobs in a second round of layoffs in under a week as it restructured its games division (part of its online streaming operations).  Meanwhile, STLA offered about half (6,400) of its US salaried workers (non-union) voluntary buyouts in an effort to cut costs amid its transformation toward electric vehicles.

In stock government, legal, and regulatory news, BLK said Monday that it was actively talking to the SEC, hoping to get standardized regulatory treatment for cryptocurrency ETFs.  (BLK has advocated for regulations that align with the approach used for Futures ETFs.)  Elsewhere, BA announced it is expanding capacity at its Huntsville, AL plant for production of Patriot missiles following increased orders from and authorized by the US Dept. of Defense.  Later, less than two weeks after a St. Louis Federal Court found the National Assn. of Realtors guilty of overcharging home sellers $1.78 billion in broker fees, a lawsuit was filed in NY against the Real Estate Board of NY.  The suit charges the board, including the two dozen brokerages it represents, have colluded to artificially inflate brokerage fees.  In the afternoon, EU governments and lawmakers reached a deal on targets for domestic supply of critical minerals like nickel, cobalt, magnesium, titanium, and lithium as a means of cutting reliance on China.  Later, a GOOGL expert witness told the company’s antitrust trial that the company’s multi-billion-dollar payments to AAPL and wireless carriers were “normal competitive behavior and not abuse.”  (Interestingly, it also came out that GOOGL also pays AAPL 36% of all ad revenue generated from searches in Safari browsers.  Bloomberg reporters said GOOGL’s chief litigator visibly cringed when that fact was testified to in court.)  At the same time, BA stock rose Monday after a report claimed that China is considering ending its freeze on purchases of the company’s 737 MAX jet.  China refused to comment on the report.  Finally, after the close, a federal judge has allowed a major class-action suit against “hair relaxer” chemical makers like LRLCY (L’Oreal), REVRQ (Revlon), and others to proceed.  The litigation includes more than 8,000 suits, which allege the companies used knowingly cancer-causing chemicals and caused other injuries.

After the close, ACM and SLF reported beats on both the revenue and earnings lines.  At the same time, LU missed on both the top and bottom lines.  It is worth noting that ACM raised its forward guidance.

Overnight, Asian markets were mixed but leaned toward the green side with only four of the 12 exchanges in the red.  South Korea (+1.23%) and Australia (+0.83%) led the gainers while India (-0.42%) was by far the biggest loser.  In Europe, we see a similar picture taking shape at midday with only 5 of the 15 bourses in the red.  Russia (-1.65%) is by far the biggest loser while Athens (+1.84%) is by far the biggest gainer.  However, the CAC (+0.15%), DAX (+0.46%), and FTSE (-0.34%) lead the region as usual on volume. In the US, as of 7:30 a.m., Futures are pointing toward a green start to the day.  The DIA implies a +0.01% open, the SPY is implying a +0.08% open, and the QQQ implies a +0.25% open at this hour.  At the same time, 10-year bond yields are down a bit to 4.622% and Oil (WTI) is jus t on the red side of flat at $78.19 per barrel in early trade.

In a note related to CPI, the Government has changed the way it estimates health insurance costs.  This change is expected to slightly increase the CPI numbers this time and in the future.  (Or, if you prefer, the previous methodology was underestimating health insurance costs, thus artificially suppressing CPI.)

The major economic news scheduled for Tuesday includes October Core CPI and October CPI (both at 8:30 a.m.), and API Weekly Crude Oil Stocks (4:30 p.m.).  The major earnings reports scheduled for before the open include ARMK, AZUL, CAE, CSIQ, ENR, HD, IHS, SBH, SE, TME, and VIPS.  Then, after the close, NU reports. 

In economic news later this week, on Wednesday we get Oct. Core PPI, Oct. PPI, Oct. Retail Sales, Sept. Business Inventories, Sept. Retail Inventories, and Weekly EIA Crude Oil Inventories.  On Thursday, Oct. Export Priced Index, Oct. Import Price Index, Weekly Initial Jobless Claims, Philly Fed Mfg. Index, Oct. Industrial Production, and the Fed’s Balance Sheet are reported.  Finally, on Friday we get Oct. Building Permits and Oct. Housing Starts.  Friday is also options expiration day.

In terms of earnings reports later this week, on Wednesday, AAP, CTLT, FI, GFF, JD, TGT, TCEHY, TJX, XPEV, ZIM, SQM, CPA, MMS, PANW, and TTEK report.  On Thursday, we hear from BABA, ARCO, BBWI, BERY, BV, DDL, DOLE, M, NICE, WMT, WSM, QFIN, AMAT, BZH, CPRT, GPS, GLOB, HI, MATW, POST, ROST, UGI, WWD, and ATO. Finally, on Friday we hear from ATKR, BJ, and SPB.

In miscellaneous news, the gang that attacked China’s biggest lender (causing trouble for a US bond auction) released a statement Monday saying that ICBC bank had paid a ransom after last week’s hack.  Reuters was unable to confirm that claim.  Elsewhere, the US Supreme Court took on the nature of the politicians that chose and approved them and announced its first-ever “code of ethics.” The code has no standards, no enforcement mechanism (beyond self-compliance by each justice), no penalties, and no increase in third-party reporting.  In short, it was intended purely as a political ploy to reduce public pressure and political interest in regulating their behavior.  However, it is big on platitudes and all nine justices voted in favor of the nothingburger.  Meanwhile, after the close, Reuters reported that JPM is telling its private clients to sell bonds and stocks, moving that money into commodities (oil in particular).  Finally, in an odd twist, Senate Majority Leader Schumer (Democrat) said he was encouraged by House Speaker Johnson’s two-cliff approach to a new CR.  Schumer’s rationale seems to be that “at least it doesn’t call for cuts yet.”  On the other side, the most extreme Republicans (such as Rep. Buck of TX) came out as hating the approach, telling reporters “We got nothing – nothing!”  He went on to say, “I certainly hope that this bill is not going to proceed as it’s currently structured.”

So far this morning, ARMK, ENR, HD, ONON, TME, and VIPS all reported beats to both the revenue and earnings lines.  Meanwhile, IHS beat on revenue while missing on earnings.  However, CSIQ and SBH missed on both the top and bottom lines.

With that background, it looks like all three major index ETFs are now looking to open just on the green side of flat. So far, all three are also giving us small, white-bodied, indecisive candles (more wick than body). That would seem to indicate Mr. Market is waiting on more information (probably the CPI). The SPY, DIA, and QQQ all remain above their T-line (8ema) and 50smas. So, the Bulls still have control of the short-term trend and the bullish breakout of consolidation is still in play. However, keep in mind that all three also remain 3%-4% below their summer highs. So, the Bears remain in control of the longer-term trend. However, those downtrend lines will be tested soon in the large-cap indices and have already been broken in the QQQ. In terms of extension, QQQ is the only major index ETF stretched above its T-line. At the same time, the T2122 indicator is in the top half of its mid-range. So, there is some room to run in either direction.

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.


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