CS and FRC Down Again On Rethink

Markets opened weak on Thursday with SPY gapping down 0.62%, DIA gapping down 0.59%, and QQQ gapping down 0.29%.  However, bulls immediately started a strong rally in the QQQ and the two large-cap indices followed after an hour of wandering around near the open.  Shortly after 1 pm, all three major indices rallies began a very mild consolidation pullback that lasted until 2:40 pm.  At that point, a more modest rally got underway again and drove into the close with the SPY, DIA, and QQQ all closing very near the highs of the day.  This action gave us large, white-bodied candles with very little wick.  Again, the QQQ led, bouncing up off its T-line (8ema) and pulling away during the day to break the downtrend line that had held since the start of February.  For its part, the SPY crossed up through its T-line and 200sma.  Meanwhile, the DIA came up and is sitting just below both its T-line and 200sma.

On the day, nine of the 10 sectors were in the green with Technology (+2.77%) leading the way higher while Communications Services (-0.27%) was the only red sector.  At the same time, the SPY gained 1.73%, the DIA gained 1.17%, and the QQQ gained 2.64%.  VXX plummeted 8.19% to 50.46 and T2122 surged back up out of oversold territory at 31.93.  10-year bond yields surged to 3.587% on a risk-on day while Oil (WTI) climbed 1.12% to $68.32 per barrel.  So, Thursday, saw a gap lower on lasting fear of bank contagion.  However, the bulls led by tech (particularly semiconductors) rallied markets out of the recent choppy consolidation range.  Again, this happened on heavier-than-average volumes across the board, particularly in the QQQ.

In economic news, February Building Permits came in notably stronger than expected at 1.524 million (versus a forecast of 1.340 million and much stronger than the January reading of 1.339 million).   Likewise, the February Housing Starts came in above expectations at 1.450 million (compared to the forecast of 1.310 million and the Jan. value of 1.321 million).  This meant Building Permits were up 13.8% for February and Housing Starts were up 9.8%.  Both seem to show the housing market remains strong.  Meanwhile, the February Export Price Index was well above expectation at +0.2% (compared to a forecast of -0.1% but down significantly from the January +0.5% value).  At the same time, the February Import Price Index fell but not as much as expected at -0.1% (versus a forecast of -0.2% and a January reading of -0.4%).  This means the average value of the goods the US exported rose while the average value of goods imported fell in February. Elsewhere, Weekly Initial Jobless Claims came in lower than expected at 192k (compared to a forecast of 205k and well below the prior week’s 212k).  All of the above tends to show a robust economy.  On the other side of the ledger, like the Empire State report Wednesday, the Philly Fed Mfg. Index came in well below the reading expected at -23.2 (versus a forecast of -15.6 but slightly better than the Feb. reading of -24.3).  So, currently (March), Manufacturing seems to have slowed greatly while the rest of the economy appears to still be in good shape.

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In stock news, the Financial Times reported that HOOD made a policy exception (policy banning short positions) for their customers who had Puts on SBNY.  The exception will allow HOOD customers holding profitable Puts in SBNY to keep those positions open into the expiration date (today).  Elsewhere, STLA has launched the first tranche of its nearly $1.6 billion buyback program starting today and going through June.  Meanwhile, BLNK announced Thursday that it has won a contract from the US Postal Service to sell the agency 41,500 electric vehicle charging units.  (No dollar amount was given for the contract.)  Mid-afternoon, Reuters reported that PACW was well into talks about receiving a liquidity boost from ATCO.  In other regional bank news, FRC received $30 billion from JPM, C, BAC, WFC, GS, and MS as part of a rescue package.  Later, to calm investor fears, the CEO of MULN released a statement telling investors that the automaker was on track to fulfill its deliveries schedule, including beginning delivery for a 6,000-unit order before the end of March.  After the close, MSFT announced and made a demo of a new “AI Copilot” for its Office 365 programs (Word, Excel, PowerPoint, and Outlook).  The AI product will first be released to 20 of MSFT’s enterprise customers but will be rolled out wider soon.  Finally, DUK announced after the close, that its unit in Central Florida (Polk County) will begin construction this month on its first water-based (lake) solar array of 1,800 floating solar panels (generating 1 megawatt) covering 2 acres of water.

In stock legal and regulatory news, AAL lost an appeal to the European Union Court of Justice which had sought to get the EU to nullify an agreement between AAL and DAL (where AAL gave up two airport landing slots to DAL for the Heathrow and Philadelphia airports) due to DAL not using the slots they were given.  At nearly the same time, London’s High Court ruled LNVGY (Lenovo) must pay IDCC $138.7 million for a license for use of a portfolio of IDCC’s telecom patents. Elsewhere, CS was sued by US investors claiming the bank defrauded them by concealing problems and for having material weaknesses in internal controls that contributed to those shareholders having the wrong impression of the bank’s finances.  Meanwhile, after the close, the FDA Advisory Board voted 16-1 in favor of full approval of the PFE oral COVID-19 antiviral treatment for adults at high risk of progression to severe disease.  (The FDA very seldom rules against the Advisory Board’s recommendation.)  Also, after the close, Dept. of Labor investigators reported that BP safety rules and poor training contributed to the death of two Ohio refinery workers last year.  OSHA has proposed that BP pay $156,250 in penalties (the amount is limited by federal statute) for eleven violations at the facility, which BP has since sold to CVE.

In miscellaneous news, the Fed reported data Thursday evening saying that banks had borrowed a record $153 billion from its Discount window over the last week.  This was a massive jump over the prior week’s borrowing of $4.58 billion.  In addition, it was a huge increase in the record borrowing from the Fed. Prior to this week, the previous record was $111 billion borrowed in one week during the 2008 financial crisis.  Elsewhere, there are a few troubling signs (in terms of economic strength) coming out of how companies treat their employees when times get tough.  BBBY announced Thursday that it will not pay severance to the employees let go from stores the retailer closes.  (Presumably, those people would still be eligible to draw state unemployment insurance benefits, meaning presumably the company paid unemployment premiums for those employees.)  Then, last night, GOOGL decided it will not honor previously approved (and started) medical or maternity leave of those employees it has laid off.  However, regardless of the employee’s status at the time of layoff, those people will get standard severance as of their termination date. There was no word on how much this move will save the tech giant.

After the close, FDX missed on the revenue line but crushed estimates on earnings ($3.41 versus the analyst-expected $2.76 per share).  FDX also raised its forward guidance for 2023.

Overnight, Asian markets ended the week green across the board.  Hong Kong (+1.64%), Taiwan (+1.52%), Malaysia (+1.46%), and Japan (+1.20%) led the region higher.  Meanwhile, in Europe, the bourses lean heavily to the green side at midday.  Only Portugal (-1.05%) and Switzerland (-0.25%) are in the red.  At the same time, the FTSE (+0.45%), DAX (+0.33%), and CAC (+0.19%) lead the rest of the region higher in early afternoon trading.  As of 7:30 am, US Futures are modestly down.  The DIA implies a -0.44% open, the SPY is implying a -0.30% open, and the QQQ implies a -0.03% open.  10-year bond yields are falling significantly again (implying a move to safety) at 3.50% and Oil (WTI) is up 0.35% to $68.59/barrel in early trading.

The major economic news events scheduled for Friday are limited to Feb. Industrial Production (9:15 am), and Michigan Consumer Sentiment (10 am).  The major earnings reports scheduled for the day include AQN and XPEV before the opening bell.  There are no major earnings reports scheduled for after the close. Also, be aware that today is Triple-Witching Friday.

So far this morning, AQN beat on both the revenue and earnings lines.  However, XPEV missed on both lines.  It is also worth noting that XPEV has lowered its forward guidance. Unrelated, but also of note is that CS, FRC, PACW, and probably other banks are getting hammered by bears again early this morning. There seems to have been a rethink about whether the huge bailout loans/deposits of CS and FRC are bullish or bearish. Beware any spread of that sentiment across the other banks.

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In central banks news, despite the EU raising rates 0.50% Thursday, Fed Funds Futures indicate there is an 80.5% probability of a quarter-point hike by the FOMC next week.  The remaining 19.5% of probability is on “there will be no hike at all.” Interestingly, one of the reasons cited by European Central Bank President Lagarde for staying with a half percent rate hike was that the ECB feared a change in course would spook markets.  As one would expect, she went on to say the European banking system is strong, there is no liquidity crisis, and there is no tradeoff between price stability (inflation) and financial stability.  On the other side of the Pacific, China loosened its reserve requirement ratio (the key tool the People’s Bank of China uses to regulate monetary policy).  The move reduces that requirement to 7.6%, the lowest level since 2007.  So, China is easing, Europe is tightening, and the US appears to be on path to slowing its tightening.

With that background, it looks like markets are reassessing yesterday’s bullish move, despite the FRC bailout taking shape (which was just a rumor yesterday afternoon). The SPY looks to be coming back down to retest its T-line and 200sma. Meanwhile, the DIA looks to be failing or pushing down off those averages in premarket action. However, QQQ remains strong and QQQ bulls are not giving an inch this morning. Overextension is not an issue in large-cap indices. However, QQQ is a bit extended above its T-line. Another issue we have to deal with today is that today is Triple-Witching Friday. So be prepared for volatility swings as the big institutions roll positions (on top of banking sector concerns and news). And, triple witching or not, it is Friday. So, take some profit, pay yourself, and get your positions ready for the weekend news cycle and Fed meeting next week.

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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