Markets started the day dead on Thursday (“gapping” up 0.06% in the SPY, up 0.11% in the QQQ, and down 0.25% in the DIA). The large-cap indices both then proceeded to be dead money for 30 minutes. However, the Bulls had other plans in the QQQ as a strong rally kicked in at the open and did not let up until noon. After their 30-minute wake-up call, the SPY and DIA followed QQQ higher until 11 am before resting for an hour. From noon until 2 pm all three major indices sold off a bit (with DIA even crossing back through its open to new lows at 2 pm). Yet the Bulls would have none of this and led a strong rally across the board the last two hours of the day, taking all three of the major indices out very near the highs. This action gave us large, white-bodied candles in the SPY and QQQ with essentially no lower wick and a tiny upper wick. Meanwhile, the DIA printed a white-bodied candle with a longer lower wick and a tiny upper wick.
On the day, six of the 10 sectors were in the green with Technology (+1.83%) leading the way higher as Communications Services (-0.71%) lagged behind the other sectors. At the same time, the SPY gained 0.96%, DIA gained 0.43%, and QQQ gained 1.86%. VXX fell another 4% to 34.90 and T2122 climbed back up outside of the oversold territory to 75.61. 10-year bond yields spiked up to 3.651% (as a flood of money came out of bonds) while Oil (WTI) fell 1.18% to end at $72.03 per barrel. So, Thursday saw the large caps unsure but the “big dog” tech names like NFLX, NVDA, AMD, AMZN, and AAPL dragged the rest of the market to new highs. This happened on close to average volume in all three major indices.
In economic news, Weekly Initial Jobless Claims came in below expectations at 242k (compared to a forecast of 254k and the prior week’s 264k number). However, it must be noted that three-quarters of the decline from last week was due to the stopping of massive fraudulent claims coming from the state of MA. At the same time, the Philly Fed Manufacturing Index came in better than expected (but still negative) at -10.4 (versus a forecast of -19.8 and far better than the April reading of -31.3). Later in the morning, April’s Existing Home Sales were just shy of the anticipated value at 4.28 million (compared to a forecast of 4.30 million but well below the March value of 4.43 million). This represented a 3.4% month-on-month decline. After the close, the Fed Balance Sheet was reported at $8.457 trillion, which is down $46 billion from one week ago. Meanwhile, Bank Reserve Balances at the Federal Reserve were up to $3.280 trillion (from last week’s $3.225 trillion).
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In Fed talk, Fed Governor Jefferson (also Vice-Chair nominee) told a conference that inflation may be slowing but it is too early to judge the full impact of the rapid rate increases the Fed instituted in the last 15 months. He said “By some measures, progress has been slowing” and “Outside of energy and food, the progress on inflation remains a challenge,”. However, Dallas Fed President Logan seemed to be in the other camp, saying “The data in coming weeks could yet show that it is appropriate to skip a meeting.” However, uber-hawk St. Louis Fed President Bullard told the Financial Times “(the slow progress on taming inflation) may warrant taking out some insurance by raising rates somewhat more to make sure that we really do get inflation under control.”
In stock news, Reuters reported Thursday that in the wake of the failures of SBNY, SVB, and FRC, banks now see social media as a serious threat rather than a potential marketing channel. Reuters says banks, especially the majors like JPM and C, have set up teams to monitor social media, contact any complaining customers to resolve issues quickly, and also nip any reputational risks in the bud. (Unstated, but implied, is the big banks using bots to post counter-messaging to any concerns over liquidity.) In a related story, SCHW (who was a brokerage mentioned among the bank deposit run stories) raised $2.5 billion through a debt offering on Thursday. Elsewhere, the NYSE and NASDAQ said they will nullify premarket trades of CDW (made between 4 am and 4:22 am Eastern) after share prices briefly plunged 96%. Meanwhile, Reuters reported SONY is considering spinning off its finance unit in an IPO just three years after taking full control of that line. Also, in the afternoon, META shared new details on its AI work, including a custom AI chip being developed in-house. The company claimed it has been developing AI chips since 2020 and their chips use a fraction of the electricity of market-leading NVDA’s AI chips. In political spat news, DIS has canceled plans to build a $1 billion office campus in Florida, announced the closing of a luxury hotel there, and also canceled the relocation of 2,000 high-paid employees (averaging $120k) to that state amidst the company’s fight with the Florida Governor. The fight is over the Governor’s retaliation against the company for publicly stating opposition to his 2022 cultural agenda law. The impact on DIS of these decisions is unknown although it has already lost its self-controlled zoning and tax district and will spend a large amount suing the state for breaking related contracts. On the FL side of the equation, these moves will cost the state billions of dollars in lost taxes, jobs, and development in the next few years.
In stock legal and regulatory news, a US district judge issued a temporary restraining order preventing AMGN from closing its $27.8 billion purchase of HZNP until after the suit brought by the FTC to block that deal has been heard in court. Meanwhile, the US Supreme Court refused to take up an appeal of a lower court decision to throw out a lawsuit against GOOGL. The case challenged the so-called “Section 230” liability protection of social media companies for content posted by their users. This caused a sigh of relief across all major tech names. In another case, the Supreme Court ruled 9-0 against AMGN in its bid to revive patents in an infringement case the company had brought against SNY and REGN. Elsewhere, GOOGL agreed to pay the state of WA $39.9 million to settle a lawsuit claiming the company had misled users about its location tracking practices. (The company had previously paid $391.5 million to settle a suit from 40 states last November and another $80+ million to settle with AZ in October over the same issue.) Later, the NHTSA announced that F is recalling 422k SUVs because the video from rearview cameras may fail even after a prior recall repair. This recall includes 2020-2023 Ford Explorers and Lincoln Navigators.
After the close, AMAT, ROST, FTCH, and GLOB all reported beats on both the revenue and earnings lines. Meanwhile, DXC, FLO, and CVCO all missed on revenue while beating on earnings. Unfortunately, QFIN missed on both the top and bottom lines. There were no guidance changes announced.
Overnight, Asian markets leaned heavily to the green side. Hong Kong (-1.40%), Thailand (-0.77%), and Shanghai (-0.42%) were the only red in the region. Meanwhile, New Zealand (+1.03%), South Korea (+0.89%), and Japan (+0.77%) led the more numerous gainers. In Europe, we see a similar story taking shape at midday. The CAC (+0.65%), DAX (+0.57%), and FTSE (+0.43%) lead all but three bourses higher with only Denmark (-0.53%) showing any appreciable loss in early afternoon trade. In the US, as of 7:30 am, Futures are pointing toward a very modest green start to the day. The DIA implies a +0.12% open, the SPY is implying a +0.17% open, and the QQQ implies a +0.05% open at this hour. At the same time, 10-year bond yields are flat at 3.65% and Oil (WTI) is up 1.14% to $72.76/barrel in early trading.
The major economic news events scheduled for Friday is limited to hearing from three Fed speakers (Williams at 8:45 am, Bowman at 9 am, and Chair Powell at 11 am). The major earnings reports scheduled for the day are limited to DE, CTLT, and FL before the open. There are no earnings reports scheduled for after the close.
So far this morning, DE beat on both the revenue and earnings lines. Showing solid growth in revenue (+30% which was a 17.2% upside surprise) and earnings (+42%, which was a 12.6% upside surprise). However, FL missed on both the top and bottom lines. It is worth noting that DE also raised its forward guidance while FL lowered its guidance at the time of reporting. (CTLT was scheduled to report at 7 am but has been delayed for some reason.)
In miscellaneous news, after the close, the US and Taiwan reached a trade agreement covering customs procedures, regulatory practices, anti-corruption measures, as well as small business issues. The deal is not expected to impact any tariffs. This deal was really just a “make-up” deal because Taiwan had previously been excluded from the Indo-Pacific Economic Framework to avoid conflicts with China. Elsewhere, G7 countries unveiled new sanctions and export controls that target Russia. The measures added 70 entities to a blacklist prohibiting them from receiving any exports from G7 countries as well as 300 sanctions against individuals, entities, vessels, and aircraft considered facilitators. The Russian energy-extracting industry was also targeted. Meanwhile, in Kansas, a Wheat industry group announced the results of its survey of the state’s winter wheat crop. The survey expects Kansas (the largest wheat-producing state) to have the lowest crop yield since 2000. They expect a crop of 178-million-bushels (compared to a USDA forecast of 191.4-million-bushels and 2022’s 244.2-million-bushel winter wheat crop). If this new estimate is correct, expect pressure on food prices related to wheat despite the recent extension of the Russia-Turkey-Ukraine grain export deal.
With that background, it looks like DIA is pushing up against resistance at yesterday’s closing level. However, SPY and QQQ are looking to push higher this morning. In addition, all three major indices are up off the premarket lows and are now at the top of their premarket range. Just be aware that QQQ (the market leader) is close to retesting its next resistance level above and it is really a relative handful of massive tech names dragging QQQ (and the rest of the market) higher. Over-extension from the T-line is also a problem for QQQ and to a lesser extent for SPY. However, the T2122 indicator is still in (the top of) its mid-range telling us we have at least a little room left. All of this is taking place on a Friday after a nice up week (especially in QQQ). So, profit-taking and rest for the market seem in order. Don’t get caught off-guard by some Friday selling. Still, we can’t fight the tape and the trend remains bullish at the moment.
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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