Debate in Rearview, May PCE on Deck

On Thursday, markets started out just on the red side of flat.  SPY opened 0.03% lower, DIA opened 0.15% lower, and QQQ opened 0.04% lower.  From there, all three major index ETFs meandered sideways in waves ranging from up half a percent to down a third of a percent.  The most notable move of the day was the late-day rally on the final up wave.  This action gave us white-bodied, indecisive candles (some form of a Spinning Top) in all three.  SPY and DIA both retested their T-line (8ema) from above and passed by bouncing up off that line.  However, it should be noted that all three of the major index ETFs traded at far less than half of their 50-day average volume. 

On the day, nine of the 10 sectors were in the green with Energy (+0.49%) leading the market higher.  Meanwhile, Consumer Defensive (-0.38%) was the laggard and only sector in the red.  At the same time, SPY gained 0.16%, DIA gained 0.08%, and QQQ gained 0.26%.  VXX fell another 0.64% to close at 10.81 and T2122 climbed again, this time closing right in the center of its mid-range at 52.54.  On the bond front, 10-year bond yields fell to 4.286% and Oil (WTI) gained 1.19% to close at $81.86 per barrel.  So, Thursday was a very low volume and just on the bullishly indecisive day where it looks like traders were either holding off until after the Presidential Debate or PCE data release.  (Or maybe traders have already left for a very long holiday break.) 

The major economic news scheduled for Thursday included Weekly Initial Jobless Claims, which came in slightly lower than expected at 233k (compared to a forecast of 236k and a previous week value of 239k).  In terms of ongoing claims, the Weekly Continuing Jobless Claims were higher than predicted at 1,839k (versus a 1,820k forecast and the prior week’s 1,821k reading).  At the same time, May Core Durable Goods Orders were down at -0.1% month-on-month, compared to a forecast of +0.2% and the April +0.4% reading.  For the headline number, May Durable Goods Orders (again, month-on-month) were down but higher than anticipated at +0.1% (versus the -0.5% forecast but down from April’s +0.2% value).  Meanwhile, Q1 Core PCE Prices were higher than expected at +3.70% (compared to the +3.60% forecast and sharply higher than April’s +2.00% value).  At the same time, Q1 GDP was stronger than was predicted at +1.4% (versus a +1.3% forecast but down as expected from Q4’s +3.4%).  In terms of Q1 GDP Price Index, it came in exactly as predicted at +3.1% (compared to a +3.1% forecast and the Q4 +1.7%).  Elsewhere, the Preliminary May Goods Trade Balance was a bit worse than anticipated at -$100.62 billion (versus the -$96.00 billion forecast and -$99.41 billion April reading).  At the same time, Preliminary May Retail Inventories were lower than April at +0.0% (compared to April’s +0.2% number).  In the housing market, May Pending Home Sales well lower than predicted at -2.1% (versus a forecast of +0.6% but far, far better than April’s -7.7%).  Then after the close, the Fed Balance Sheet fell significantly, down $22 billion for the week, to $7.231 trillion from the prior week’s $7.253 trillion.

In terms of Fed speak, Atlanta Fed President Bostic said Thursday that he expects one rate cut in 2024 and as many as four cuts in 2025. As all Fed speakers, Bostic hedged, saying, “There are plausible scenarios in which more cuts, no cuts, or even a raise could be appropriate. I will let the data and conditions on the ground be my guide.”  At the same time, Fed Governor Bowman spoke again, continuing her recent statements that she is not ready to cut rates until data more clearly shows inflation is falling.  She said, “we are still not yet at the point where it is appropriate to lower the policy rate, and I continue to see a number of upside risks to inflation.”  Bowman added, “Should the incoming data indicate that inflation is moving sustainably toward our 2% goal, it will eventually become appropriate to gradually lower the federal funds rate to prevent monetary policy from becoming overly restrictive.” 

After the close, NKE missed on the revenue line while beating on earnings.  Both were significant with a 3% miss on revenue and a 18.8% beat on earnings.  It is also worth noting that NKE also lowered forward guidance.

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In stock news, on Thursday BP announced they have halted hiring and is slowing the rollout of renewable energy (offshore wind) projects in a bid to win over investors.  At the same time, NYCB said it expects to do a one-for-three reverse stock split in mid-to-late July.  (No specific date was announced.)  Later, WMT announced it has added NKLA hydrogen fuel-celled semi-trucks to its Canadian fleet.  (This comes less than two months after reported that WMT was not receiving the TSLA semi-trucks it had ordered due to production delays.)  After the close, NOK announced it will acquire INFN in a $2.3 billion deal ($6.65 per share, a 26.4% premium on INFN’s Thursday close price).  Meanwhile, ILMN announced it will take a $1.47 billion “goodwill” charge related to its forced spinoff of Grail.  At the same time, Bloomberg reported that MSFT has begun informing its customers that a Russian state-sponsored hacking group had breached their internal systems, including emails.

In stock legal and governmental news, on Thursday the US Center for Disease Control and Prevention narrowed the recommendation for the use of RSV vaccines.  GSK, PFE, and MRNA are the drug companies in that market.  GSK got crushing in its home British market, falling 7%.  Meanwhile, UBER and LYFT agreed to pay $175 million to settle a lawsuit over classifying drivers as contractors.  (The news came shortly after the MA Supreme Court ruled that a fall vote will let voters decide whether drivers are contractors or employees.)  At the same time, the FCC Chair (Rosenworcel) demanded that T, VZ, CMCCSA and other cable and telecom companies report their efforts to stop fraudulent political robocalls and other AI-generated political mis-information. Later, Federal regulators FERC voted 2-to-1 to approve a new LNG plant in LA state.  The move clears the way for the private “Venture Global” to become the second largest LNG exporter in the US behind LNG (Cheniere).  At the same time, the NTSB once again had to sanction BA (and said it would refer the matter to the Dept. of Justice) this time over the company’s misrepresentations and illegal release of partial undisclosed investigative information (which had tried to attribute the January 5 ALK mid-air door blowout to “lost paperwork” in an attempt to downplay company quality issues).  Once again, BA responded with a meaningless public apology. 

Elsewhere, the ultra-Republican Supreme Court blocked the EPA from regulating ozone emissions that may worsen air pollution in neighboring states.  The ruling in favor of KMI and three GOP-led states will prohibit the EPA from regulating smog-producing ozone emissions from power plants and steel furnace operations.  Later, a US Appeals Court ruled that META must face a class-action lawsuit alleging it prefers foreign workers over American citizens (because it can pay lower wages and have more docile employees when the threat of losing US residency is tied up in the employment agreement.  At the same time, in a quite surprising 5-4 decision, the US Supreme Court threw out the opioid settlement with Purdue Pharmaceuticals that had been meant to resolve the bankruptcy of the company.  Without specifically attacking the practice, this decision will make it harder for companies to use the “Texas Two-Step” process to avoid liability by declaring bankruptcy and making the waiver of liability part of the settlement agreement with creditors (plaintiffs).  (MMM and JNJ are major companies trying to use that process now to avoid liabilities.)  After the close, BAC, GS, JPM, C, MS, UBS, DB, BCS, BNPQY, and NWG settled a long-running antitrust lawsuit for rigging the $465.9 trillion interest rate swaps market.  As usual, the ten banks were not forced to admit wrongdoing and will pay only $46 to $71 million.

Overnight, Asian markets were mixed with seven of the region’s 12 exchanges in the green.  Shanghai (+0.73%), Japan (+0.61%), and Taiwan (+0.55%) paced the larger gainer group.  Meanwhile, New Zealand (-0.99%) and Thailand (-0.65%) led the losing exchanges.  In Europe, markets are much greener at midday with 11 of 15 bourses above break-even.  The CAC (-0.31%), DAX (+0.62%), and FTSE (+0.59%) lead the region higher in early afternoon trade.  In the US, as of 7:30 a.m., Futures are pointing toward a modestly green start to the day.  The DIA implies a +0.07% open, the SPY is implying a +0.35% open, and the QQQ implies a +0.42% open at this hour.  At the same time, 10-Year bond yields are up to 4.304% and Oil (WTI) is up almost a percent to $82.51 per barrel in early trade. 

The major economic news scheduled for Friday includes May Core PCE Price Index, May PCE Price Index, and May Personal Spending (all at 8:30 a.m.), June Chicago PMI (9:45 a.m.), Michigan Consumer Sentiment, Michigan Consumer Expectations, Michigan 1-Year Inflation Expectations, and Michigan 5-Year Inflation Expectations (all at 10 a.m.).  We also hear from Fed Governor Bowman at noon.  There are no major earnings reports scheduled for either before the open or after the close Friday.

In miscellaneous news, on Thursday it was announced that North Korea will send troops to Ukraine to support Russia within a month.  Reportedly, Russia claims these troops will be engineering units that will free up more Russian troops (for their typical “meat wave” assault tactics).  However, Pentagon spokesman told the press that the US expects the troops to be “cannon fodder,” meaning they expect the North Koreans to be part of combat operations.  Most analysts expect this announcement to be yet another Putin gambit to get the West to self-restrict by not sending troops to train AFU (Ukraine military) troops and take over border patrol duties from Ukrainian troops.

In other news, most snap analysis of last night’s Presidential debate indicate that Biden performed poorly, reinforcing his “age problem” by not coming across as strong (in the sense of physical vigor as potentially indicated by a forceful voice).  On the other side, as usual ex-President Trump lied non-stop.  Fact-checkers found 30 lies or misleading statements by Trump during his share of the 90-minute event.  Still, most see it as a victory for Trump.

With that background, it looks as if markets (or at least the broader indices) are starting the premarket stronger. SPY and QQQ gapped up to start the premarket and had printed small white-body candles since that start. For its part, DIA has reacted much more modestly with a slight open higher in the early session and giving us a small, indecisive, white-bodied candle since then. lower. All three major index ETFs remain above their T-line (8ema). Again, remember that despite intraday movement, all three major index ETFs are still quite near their all-time highs. So, the short-term trend is modestly bullish. However, the mid-term and especially the longer-term trend in all three major index ETFs remains very bullish. In terms of extension, none of those three are extended above their T-line and the T2122 indicator is in the center of its mid-range. Therefore, the market has plenty of room to run in either direction. With regard to those 10 big dog tickers, nine of the 10 are in the green this morning. Only GOOGL (-0.16%) is in the red early. You should also be aware that the biggest dog, NVDA (+0.91%) and the second-biggest, TSLA (+1.12%) are leading the rest of the market higher early.

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 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 gains are 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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