CS Fears Across Europe and US This AM

Markets gapped higher Tuesday as trader fear over regional banks faded over Monday night.  The SPY opened up 1.33% higher, the DIA up 1.04% higher, and the QQQ up 1.21% higher.  All three of those major indices then led a slow, steady rally until 11:30 am.  From that point, we saw a slow, steady pullback until 1 pm.  At 1 pm, that selloff picked up steam, reaching the lows of the day at about 3:20 pm.  However, the day ended with a rally in the last 40 minutes.  This action gave us gap-up, white-body candles.  The QQQ had the least wick on each end and crossed back above its T-line (8ema), 50sma, and 200sma.  However, the DIA printed a gap-up Doji that remained below its T-line and could be said to have failed a test of its 200sma overhead during the day.  Lastly, the SPY printed a gap-up, Spinning Top candle that failed a retest of its T-line and 200sma. 

On the day, all 10 sectors were in the green with Technology (+2.30%) leading the way higher while Energy (+0.40%) lagged behind the other sectors.  At the same time, the SPY gained 1.65%, the DIA gained 1.07%, and QQQ gained 2.30%.  VXX fell more than 5% to 51.66 and T2122 climbed but remains inside the oversold territory at 17.81.  10-year bond yields climbed to 3.691% and Oil (WTI) fell 4.4% to $71.52 per barrel.  So, Tuesday saw a reversal of sentiment, particularly in the regional banks, during the premarket and then a whipsaw day.  This was led by extremely volatile regional banks, which gapped very strongly higher but then got hit midday when Moody’s announced it has placed five regional banks on “review for downgrade” in terms of creditworthiness.  (I don’t know how much to put into this, but Bloomberg reported that more than 100 top executives of regional banks bought shares of their own company Tuesday.)  Once again, this happened on heavier-than-average volume, particularly in the SPY.

In economic news, interestingly, the February CPI numbers were a non-event for the market.  The year-over-year number came in at 6% which was exactly as expected (and much better than the January surprise 6.4%).  Meanwhile, the month-on-month number came in at 0.4% (again exactly as forecast but 0.1% better than the 0.5% reading last month).  At the same time, the February Core CPI reading was right on forecast year-over-year (and had fallen a tenth of a percent from January) while the month-over-month reading came in 0.1% high at 0.5% (versus a forecast and previous reading of 0.4%).  The bottom line is that this indicated that inflation is coming down but remains far above the Fed’s 2% target.  After hours, the API Weekly Crude Oil Stocks report was released.  The report said that US crude inventories rose 1.155 million barrels last week.  However, the report also saw sharp weekly declines in gasoline and distillates (diesel and heating oil) inventories.

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In stock news, NKE announced it will stop using kangaroo skin for shoes later this year.  This move comes weeks after German rival Puma made the same move.  In aerospace news, BA said its plane deliveries fell to 28 in February (down from 38 in January).  The company cites supply chain problems.  Over in the semiconductor space, Reuters reported that INFN (chips for telecom) is exploring strategic options including the sale of the company.  Elsewhere, RCAT announced it has made an unspecified “significant” investment in Firestorm (an American company that is developing a completely modular 3D-printed UAV.  Meanwhile, AMC investors approved issuing more shares and implementing a 1-for-10 reverse split while also converting APE shares into AMC common stock.  The move will allow AMC to raise money while diluting the position of existing AMC holders.  APE shares jumped 22% on the news while AMC fell 12%.  In Cupertino, AAPL stalled bonuses and promotions (and said they will reduce the frequency of future bonuses) while also expanding the company hiring freeze.  In other big tech news, META said on Tuesday that it will cut 10,000 jobs sometime this year.  This follows the company’s first round of layoffs last fall where 11,000 jobs (13% of the workforce) were eliminated.  In food news, TSN said after the close Tuesday that it will be closing two chicken processing plants in the US on May 12, resulting in the termination of 1,700 employees.  At the same time, DLTR announced it is at least temporarily stopped selling eggs amidst skyrocketing egg prices from last year.   The company says it hopes to bring back eggs in the fall.

In stock legal and regulatory news, a CA judge ruled that a California Civil Rights Agency must provide details of its investigation that resulted in the agency suing TSLA over “widespread race discrimination” at its main assembly plant.  (TSLA is claiming the agency did not investigate the discrimination cases before suing the company.)  In medical news, the FDA said data from PFE’s oral COVID-19 drug trials support its use in adults with a high risk of progressing to severe disease.  This brings the drug (pill) closer to approval.  At the same time, NVO said it will follow the lead of LLY and slash the list price for its insulin by up to 75%, bowing to pressure from President Biden and the 2022 Inflation Reduction Act (which capped Medicare recipients insulin price at $35 per month).  In the tech space, EBAY asked a US judge to block META’s bid to get an EBAY executive to testify as part of its defense of an FTC antitrust lawsuit.  EBAY claimed the META subpoena would allow META (whose marketplace is a competitor to EBAY) to get proprietary information. Elsewhere, the US Surface Transportation Board is set to announce its decision on whether to approve or reject the CP $31 billion bid to acquire KSU today.  In other railroad news, the state of Ohio sued NSC on Tuesday over the February 3 derailment that released over one million gallons of hazardous materials into the environment around East Palestine OH.  No dollar amount is yet listed, but the suit seeks compensation for the cleanup as well as the death of tens of thousands of animals and fish.

In energy news, oil fell to a three-month low on Tuesday, purportedly on worries that inflation will cause the Fed to increase rates higher than expected.  This is a bit odd since the stock market seems to have had a completely different read on the CPI data.  Elsewhere, the US Senate reintroduced a bill at the urging of the American Petroleum Institute (big oil) that would allow the nationwide sale, year-round, of a higher percentage blend of ethanol.  The bipartisan bill would allow a 15% blend (10% is the current maximum) and would increase US corn demand and perhaps food input prices at the margin.  The stated purposes of the bill are reducing fuel costs and dependence on foreign oil.  For what it is worth, it should be noted that this bill is opposed by many environmental groups (ethanol causes more smog than gasoline) and the US is an oil exporter, not an importer (3.6 million barrels per day exported).  However, there is broad backing from midwestern (corn-producing) states and the oil industry.  Finally, after the close, the US Interior Dept. withdrew a land exchange deal that had been approved by the Trump administration.  The deal would have allowed a road to be built through a national wildlife refuge to allow oil companies to more easily reach the North Slope drilling facilities.

After the close, GES, LEN, and CTOS all reported beats on the revenue and earnings lines.  Meanwhile, STNE missed on revenue while beating on earnings.  It is worth noting that GES lowered its forward guidance.  (LEN specifically cited high property prices as having helped offset supply problems during the quarter.)

Overnight, Asian markets leaned heavily to the green side.  Thailand (+2.70%), Hong Kong (+1.52%), and Singapore (+1.38%) led the region higher while India (-0.42%) was the only appreciable red in the area.  Meanwhile, in Europe, at midday, we see deep red across the board after the top holder of CS ruled out investing more in the company.  The FTSE (-2.32%), DAX (-2.81%), and CAC (-3.42%) are leading the region lower in early afternoon trade.  As of 7:30 am, US Futures are pointing toward a big move lower to start the day.  The DIA implies a -1.54% open, the SPY is implying a -1.55% open, and the QQQ implies a -1.38% open at this hour.  At the same time, 10-year bond yields are plunging to 3.526% and Oil (WTI) is down another 1.78% to $70.09/barrel in early trading.    

The major economic news events scheduled for Wednesday include February PPI, Feb. Retail Sales, and NY Empire State Mfg. Index (all at 8:30 am), Jan. Business Inventories and Jan. Retail Inventories (both at 10 am), and EIA Weekly Crude Oil Inventories (10:30 am).  The major earnings reports scheduled for the day include ARCO and CLMT before the opening bell.  Then after the close, ADBE, FIVE, HSAI, YY, TPC, and ZTO report.

In economic news later this week, on Thursday, we get Feb. Building Permits, Feb. Housing Starts, Feb. Export Price Index, Feb. Import Price Index, Weekly Initial Jobless Claims, and Philly Fed Mfg. Index.  Finally, on Friday, Feb. Industrial Production, and Michigan Consumer Sentiment are reported.

In earnings later this week, on Thursday, we hear from ASO, DG, GIII, MOMO, JBL, BEKE, LE, SIG, TITN, WSM, and FDX.  Finally, Friday, AQN and XPEV report.

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So far this morning, ARCO reported beats on both the revenue and earnings lines.  Meanwhile, CLMT beat on revenue while missing on earnings.  On the other side, EONGY missed on revenue while coming in in-line on earnings.

In late-breaking news, the Saudi National Bank, the largest holder of CS, ruled out providing any more assistance to the troubled Swiss bank.  This caused CS shares to plummet 24% before rebounding slightly and led to a spread of fear throughout Europe similar to what US markets suffered under the SIVB collapse last Friday.  Elsewhere, US mortgage demand rose 6.5% for the week (a 7% increase for home purchase loan applications and a 5% increase in refinance applications).  This came after rates plummeted on the SIVB news and came despite extremely volatile US interest rates.  Meanwhile, it was announced the federal prosecutors were investigating SBNY over their business with crypto clients prior to the bank being shut down.  However, NY state banking regulators said the closure had nothing to do with crypto.

With that background, markets seem to be following Europe’s lead in fearing a CS collapse (despite CS being well down the list of largest global banks or largest US banks). It looks like the bears are headed back to retest Monday’s candle, but in extremely volatile action during premarket. The QQQ, which has been the market leader all year, seems to be giving back the T-line (8ema). Of course, we still have PPI and Empire State Mfg. Index dat a to come before the bell. However, the trend remains bearish and strong. Extention is not yet a big problem in terms of the T-line or the T2122 indicator (at least as of Tuesday’s closing price). However, we need to watch out for gaps and extreme volatility at the open. So, this might be a time to sit on your hands until things settle out unless you are a seasoned volatility scalper/trader.

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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