CPI Whipsaw Fizzled in Afternoon

Markets gapped down modestly after the CPI report.  The SPY gapped 0.31% lower, DIA gapped down 0.29%, and QQQ gapped down 0.51%.  However, that was just the start of the all-day whipsaw as the bulls immediately stepped in and rallied all three up to more than fade the gap, reaching the highs of the day at 10:15 am.  Then the bears reversed the process driving prices back to new lows by noon.  At that point, the bulls took us back up in a slower rally until 1:20 pm when we started a sideways grind.  This action gave us indecisive candles (Doji or Spinning Top candles) in both of the large-cap indices and a larger body, but still very indecisive candle in the QQQ.

On the day, five of the 10 sectors were in the green as Technology (+0.84%) led the way higher and Consumer Defensive (-0.59%) lagged behind the other sectors.  At the same time, the SPY was down 0.05%, the DIA was down 0.41%, and QQQ was up 0.74%.  The VXX lost 3.34% to 11.30 and T2122 fell just a bit and remains just outside of the overbought territory at 77.05.  10-year bond yields spiked to 3.751% and Oil (WTI) is down 1.27% to $79.12 per barrel.  So, on the day, we’ve seen a massive whipsaw that fizzled into indecision in the market. All 3 major indices held above their T-lines (8ema) and the overall trend is bullish on just under average volume.

In economic news, the big news of the day was the January CPI which came in higher than expected (but also lower than December) at 5.6% (compared to the forecast of 5.5% and the December value of 5.7%).  This resulted in a knee-jerk gap lower in the market that was immediately faded and devolved into a volatile and indecisive day.  After the close, the API Weekly Crude Oil Stocks report showed a huge, unexpected build in oil inventories.  The report showed a 10.507-million-barrel build (versus the forecast of a 0.321-million-barrel build and last week’s 2.184-million-barrel drawdown).  In Fed news, Lael Brainard resigned as the Vice-Chair of the Fed after President Biden named her to head his Economic Advisors.  Meanwhile, NY Fed President Williams told reporters that ending 2023 with the benchmark rate between 5.00% and 5.50% “seems to be the right kind of framing.”  At the same time, Dallas Fed President Logan told a university audience, “We must be prepared to continue rate increases for a longer period than previously anticipated (if warranted).”  However, Richmond Fed President Barkin told Bloomberg “It’s about as expected” (referring to the CPI data) and that “Inflation is normalizing but it’s coming down slowly”.  Finally, Philly Fed President Harker said the CPI data did not change his view that the policy rate will have to rise over 5%, but that the Fed was “likely close” (to reaching a sufficiently high enough level to pause).

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In stock news, KO said Tuesday that it will push ahead with price hikes in 2023 despite the price-increase halt called by poorer-performing arch-rival PEP.  Elsewhere, QSR (owner of Burger King among other chains) named current COO Kuboza to take over as CEO on March 1.  Later in the morning, F announced that it had halted production and shipping of its electric F-150 Lightning over what the company called “a potential battery issue.”  Meanwhile, Air India announced a massive (record) order for 470 new jets (plus another 25 Airbus jets to be leased).  The deal includes 220 planes from BA and 250 planes from EADSY (Airbus).  The BA portion of the order includes 190 737 MAX, 20 787 Dreamliners, and 10 777X (mini-jumbos).  Meanwhile, TSLA employees in upstate NY announced in a letter to management their intention to form a union.  After the close, an SEC 13F filing disclosed that BRKA had increased its holdings of AAPL by over $3 billion in Q4 while it significantly cut its holdings of BK (by 60%) and sold off almost half of its ATVI holdings.  BRKA also slashed its holdings of TSM in an odd “trader-like” move since Buffett had only held TSM for a few months.

In stock legal and regulatory news, XOM told a judge that a 10-month lockout of 650 union workers from one of their refineries was not intended to target union employees and was, instead, a move taken to reduce costs and improve profits. (The case is an appeal of an NRLB ruling calling for XOM to compensate the employees for the “illegal lockout” last year after finding the lockout happened after the union notified the company of a potential strike later in the year.)  Elsewhere, a US Bankruptcy judge has indicated his intention to dismiss the JNJ talc unit bankruptcy that had been filed in an attempt to shield the parent company from nearly 40,000 lawsuits claiming JNJ talc caused cancer.  After the close, the National Transportation Safety Board announced it was opening an investigation into the Dec. 18 incident when a BA 777 operated by UAL sharply dropped 2,200 feet to just 775 feet before recovering.

After the close, ANDE, GXO, ABNB, HLF, SCI, AKAM, WIRE, and CRK all reported beats on both the revenue and earnings lines.  Meanwhile, MCY, ENLC, and CLW beat on revenue while missing on earnings.  On the other side, CNDT and GDDY missed on revenue while beating on earnings.  Unfortunately, DVN and WFG missed on both the top and bottom lines.  It is worth noting that ABNB raised its forward guidance while CNDT and GDDY both lowered their guidance.

Overnight, Asian markets leaned heavily to the downside with only India (+0.48%) and Malaysia (+0.28%) in the green.  Meanwhile, South Korea (-1.53%), Hong Kong (-1.43%), and Taiwan (-1.42%) led the region lower.  In Europe, we see the opposite picture taking shape at midday.  Russia (-1.35%), Greece (-1.18%), and Finland (-0.53%) are the only appreciable red while the FTSE (+0.15%), DAX (+0.58%), and especially the CAC (+1.42%) lead the rest of the region higher in early afternoon trade.  As of 7:30 am, US Futures are pointing to a start to the day just on the red side of flat.  The DIA implies a -0.10% open, the SPY is implying a -0.16% open, and the QQQ implies a -0.17% open at this hour.  At the same time, 10-year bond yields are down slightly to 3.751% and Oil (WTI) is down two-thirds of a percent to $78.55/barrel in early trading.

The major economic news events scheduled for Wednesday include NY Fed Empire State Mfg. Index and January Retail Sales (both at 8:30 am), January Industrial Production (9:15 am), December Business Inventories and, December Retail Inventories (both at 10 am), and EIA Weekly Crude Oil Inventories (at 10:30 am).  The major earnings reports scheduled for the day include ADI, AVNT, GOLD, BIIB, CHEF, FIS, GNRC, ICL, KHC, LAD, MLM, OC, PSN, RPRX, RBLX, R, SABR, SITE, SAH, SUN, TMHC, TTD, WAB, and WAT before the opening bell.  Then after the close, ALB, ALSN, AMED, AEE, AIG, AWK, AR, CF, CSCO, SYH, CPA, ET, EQT, EQIX, HST, INVH, KGC, MRO, NEX, NUS, NTR, QDEL, RSG, REZI, RNG, ROKU, ROL, RGLD, RUSHA, SGEN, SHOP, SUM, SPWR, SNPS, TNET, TROX, TWLO, WCN, WELL, and Z report.   

In economic news later this week, on Thursday, we get January Building Permits, January PPI, January Housing Starts, Weekly Initial Jobless Claims, Philly Fed Mfg. Index, and a couple of Fed speakers (Mester, Bullard, and Mester again).  Finally, on Friday, January Import Price Index and January Export Price Index are reported.

In terms of earnings later in the week, on Thursday, we hear from ARCH, BLMN, CVE, CEG, CROX, CNB, ETR, EPAM, FOCS, GGR, GVA, HAS, HSIC, H KBR, KELYA, LH, NSRGY, NGD, NMRK, DNOW, NRG, OGN, PARA, PBF, POOL, POR, RCM, RS, STNG, SO, SCL, SYNH, TOST, USFD, VC, VNT, VMC, WSO, WST, WE, ZBRA, AEM, AL, AEL, COLD, AMN, AMAT, ATR, BIO, BFAM, ED, CLR, DASH, DKNG, DBX, FBIN, GLOB, IAG, TDS, TXRH, USM, and VALE.  Finally, on Friday, ASIX, AMCX, AXL, AN, CNP, CRBG, DE, MD, and PPL report.

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So far this morning, KHC, BIIB, ADI, TMHC, OC, WAB, ICL, AVNT, WAT, and CHEF have all reported beats to both the revenue and earnings lines.  Meanwhile, ADRNY, GOLD, SAH, MLM, GNRC, RPRX, and TTD all missed on revenue while beating on earnings.  On the other side, SUN and PSN both beat on revenue while missing on the earnings line. Unfortunately, LAD and SITE reported misses to both the top and bottom lines.  (R and RBLX report later this morning.) It’s worth noting that ADI, TMHC, AVNT, and CHEF all raised forward guidance.  However, MLM lowered its forward guidance.

In late-breaking news, TSLA has agreed to open 7,500 of its charging stations in the US to electric vehicles from other car makers.  This move was necessary for TSLA to continue qualifying for certain government incentives. Elsewhere, GS announced it is dropping plans for a branded credit card as it takes another step further away from consumer banking as part of its strategic reorganization.  Finally, US mortgage rates rose to 6.39% (from 6.18%) for a 30-year, fixed-rate, conforming loan.  This spike had the expected effect on mortgage applications as overall volume fell 7.7%.  (Including a 13% fall in refinance applications and a 6% fall in new home purchase applications.)

With that background, it looks like markets are looking to open very modestly lower (at least before the data dump this morning), while holding above the T-line (8ema) in all three major indices. However, the trend in all three remains bullish with resistance not too far above in the SPY and DIA as well as to a lesser extent in the QQQ. The volatility should not be as bad as yesterday’s CPI-induced whipsaw. However, be cautious regardless.

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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