Debt Ceiling Drama and FOMC Minutes

Tuesday saw a gap lower to start the day (down 0.40% in the SPY, down 0.28% in the DIA, and down 0.50% in the QQQ).  At that point, all three major indices ground sideways until noon, with the DIA even actually recrossing its gap in a modest bullish trend.  However, at noon, the Bears stepped in to lead a selloff that lasted until 2:30 pm before grinding sideways into the close near the lows.  This action gave us larger, black-bodied candles with more upper wick and small lower wick.  The DIA failed a retest of its T-line (8ema) and crossed back below its 50sma.  Meanwhile, the SPY crossed back below its own T-line.  This happened on less-than-average volume in all three of the major index ETFs.

On the day, nine of the 10 sectors were in the red with Technology (-1.44%) out in front leading the way lower as Energy (+0.67%) was the only sector in the green and held up considerably better than the others.  (This was likely due to the warning from Saudi Oil Minister for oil speculators to “watch out,” which oil markets took to indicate more production cuts might be on the way soon.)  At the same time, the SPY lost 1.12%, DIA lost 0.69%, and QQQ lost 1.27%.  VXX gained 1.90% on the day to end at 36.49 and T2122 fell but remains in the mid-range at 39.79.  10-year bond yields fell a bit to 3.698% while Oil (WTI) climbed 2.40% to end the day at $73.78 per barrel.  So, Tuesday saw a pullback in the QQQ and SPY as well as retesting of the recent lows in the DIA.  It was notable that none of the “big dog” tech names were holding markets up Tuesday with only AMD (+0.11%) even slightly in the green.    

The only economic news Tuesday, Building Permits came is extremely low at 1.147 million (compared to a forecast of 1.416 million and the prior reading of 1.430 million).  This was a massive miss of nearly 20%.  Later in the morning, Preliminary May Mfg. PMI came in below expectation at 48.5 (versus a forecast of 50.0 and an April value of 50.2).  However, at the same time, Preliminary May Services PMI came in stronger than had been anticipated at 55.1 (compared to a forecast of 52.6 and an April reading of 53.6).  The Preliminary S&P Global Composite PMI also came in significantly stronger than expected at 54.5 (versus a forecast of 50.0 and an April value of 53.4).  Finally, after the close, the API Weekly Crude Stocks Report showed a large and unexpected drawdown of 6.799-million-barrels (compares to a forecast of a 0.525-million-barrel inventory build and the prior week’s 3.690-million-barrel build).  

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In debt ceiling news, the political drama continued Tuesday.  GOP Congressmen publicly “expressed doubt” on whether June 1 was a real deadline (as opposed to an artificial date set by the White House to put pressure on the GOP).  This implies the GOP side may be less likely to worry about it.  Meanwhile, GOP Speaker McCarthy said Tuesday that “negotiators are nowhere near (a deal)” and that “a deal must be reached by Friday to avoid default” (the latter based on McCarthy promising his party conservatives 3 full days to read any agreed deal before a vote) … but he also added, “there was still time.”  For their part in the drama, Congressional Democrats did two things Tuesday.  First, they introduced a bill to expand Social Security by raising taxes on the wealthy.  Secondly, they began circulating a “discharge petition” which would bring a vote on increasing the debt ceiling to the floor.  They have 213 signatures as of Tuesday evening and need 218 to force the vote (regardless of House Speaker McCarthy’s feelings on the matter).  Meanwhile, the White House said talks continue and tried to stay “above the fray.” At the end of the day, very few people believe there will be a default.  However, any deal before the deadline would mean one side or the other caved.  So, expect more of the same drama and a last-minute deal. For what that is worth, The Financial Times reported that the combination of this news (and in particular the GOP portions) was the cause behind the down day on Wall Street. 

In stock news, climate activists repeatedly attempted to storm the stage at SHEL’s shareholder meeting after their resolution (calling for SHEL to set more ambitious climate strategy) only got 20% of the shareholder votes.  Despite an overall week tape, the regional banks had a good day Tuesday with PACW (+7.74%), ZION (+4.63%), WSFS (+4.35%), and BKU (+4.32%) leading the group higher.  Elsewhere, AAPL announced a deal with AVGO to expand their relationship (AAPL already accounts for 20% of AVGO revenue) to supply AAPL with 5G chips for their phones.  Later UBER announced it is partnering with GOOGL (Waymo division) to offer driverless cars for ride-hailing and food delivery in the 180 square miles around Phoenix AZ.  At the same time, WH was halted briefly Tuesday after it was announced CHH is seeking to buy WH.  It is unclear at this point what WH management or board feels about the idea.  After the close, Elon Musk attempted to rev up a bidding war as he said TSLA will decide on the location of a new factory before the end of this year.

In stock legal and regulatory news, in the wake of FOX’s $787.5 million defamation settlement, another pending defamation case, and more recent on-air “misreporting” (on homeless veterans, migrants, and a hotel) activist investors have filed a proxy resolution calling for the network to study using “on-air labels” to distinguish news from its notorious opinion content.  However, with Chairman Murdoch holding 42% of the voting shares, it is unlikely this resolution will pass.  At the same time, across the pond, EU antitrust regulators have closed an investigation into the video licensing policies of a trade group whose members include GOOGL, AMZN, AAPL, and META.  Elsewhere, the NTSB announced it will hold a two-day investigative hearing on June 22-23 over the NSC train derailment in East Palestine OH back in March.  Meanwhile, the state of CA has filed a request with the US EPA asking for permission to ban internal combustion-only vehicle sales in that state by 2035. The same request also asks the EPA to approve the state’s proposed increasingly stricter car emission standards starting in 2026. Finally, the Netherlands said late Tuesday that MMM had been notified that the company will be held financially responsible for the cleanup of “forever chemicals” in a Dutch river.  No dollar value or estimate is yet available but it is expected to be significant since the contamination includes ground and water with the river dispersing contamination over a large area.

After the close, VFC, TOL, A, PANW, and URBN reported beats on both the revenue and earnings line.  Meanwhile, INTU missed on revenue while beating on earnings.  It is worth noting that INTU and A lowered their forward guidance.  At the same time, TOL and PANW both raised forward guidance.  Surprises included +51% (TOL), +31% (VFC), and +20% (PANW) on earnings.

Overnight, Asian markets leaned heavily to the red side with Hong Kong (-1.62%), Shanghai (-1.28%), and Japan (-0.89%) leading the way lower.  There was no significant green among the Asian exchanges.  Meanwhile, in Europe, we see strong red numbers across the board at midday.  The CAC (-1.12%), DAX (-1.66%), and FTSE (-1.74%) lead the region lower with only Russia (-0.06%) near breakeven in early afternoon trade.  In the US, as of 7:30 am, Futures are pointing to a down start to the day.  The DIA implies a -0.38% open, the SPY is implying a -0.34% open, and the QQQ implies a -0.29% open at this hour.  At the same time, 10-year bond yields are down to 3.68% but Oil (WTI) is up another one and two-thirds percent to $74.09/barrel in early trading. 

The major economic news events scheduled for Wednesday are limited to EIA Weekly Crude Oil Inventories (10:30 am), FOMC May Minutes (2 pm), and Treasury Sec. Yellen speaks (10:05 am).  The major earnings reports scheduled for the day are limited to ANF, ADI, BMO, BNS, DY, KSS, WOOF, XPEV, and UHAL before the open.  Then, after the close, AEO, ENS, PLUS, GES, MOD, NVDA, SNOW, and SPLK report.  

In economic news later this week, on Thursday, we get Preliminary Q1 GDP, Preliminary Q1 GDP Price Index, Weekly Initial Jobless Claims, April Pending Home Sales, the Fed Balance Sheet, and Bank Reserve Balances with the Fed.  Finally, on Friday, April Durable Goods Orders, April Goods Trade Balance, Aprile PCE Price Index, April Personal Spending, April Retail Inventories, and Michigan Consumer Sentiment are reported.

In terms of earnings reports later this week, on Thursday, we hear from AMWD, BBY, BURL, CM, DLTR, GCO, HEPS, MDT, NTES, RL, RY, TD, TITN, ADSK, COST, DECK, GPS, MRVL, RH, ULTA, and WDAY.  Finally, on Friday, BIG, BAH, and HIBB report.

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In miscellaneous news, Bloomberg reported Tuesday what most traders have known for decades.  Corporate guidance is in inaccurate 70% of the time when it comes to the two numbers the market cares about most (revenue and earnings). Sandbagging is still the name of the game…beat and lower, beat and lower, rinse and repeat.  Finally, US mortgage demand dropped as expected as 30-year, fixed-rate, conventional mortgage rates crossed over 7% Tuesday.  For the week, the average rate was 6.69% showing the volatility.  The Mortgage Brokers Assn. reports applications for new home purchase loans fell 4% (down 30% from one year prior) and refinance applications dropped 5% (44% lower than on year ago).

So far this morning, ADI, WOOF, and DY have reported beats on both the revenue and earnings lines.  Meanwhile, BMO and BNS reported huge beats on revenue (112% and 110% upside surprises respectively) while missing on earnings. On the other side, KSS missed on revenue but beat on earnings (a 130% upside earnings surprise).  However, XPEV missed on both the top and bottom lines.  It is worth noting that XPEV also lowered its forward guidance.  (ANF reports later this morning.)

With that background, it looks like the Bears are trying to follow through on Tuesday’s down day and currently had premarket prices near their overnight lows. QQQ is retesting its T-line for support this morning while SPY and especially DIA fall further below their own 8ema. It is notable that the SPY premarket move would break its uptrend line and challenge its 17ema if the market session follows the early traders’ lead. However, QQQ remains in a bullish trend (the current move is nothing but a pullback or over-extension relief…yet). Extension from the T-line is not a problem in any of the major indices nor is the T2122 indicator (which remains in its mid-range). So, we have room to run if the bears want to stretch their legs. This is an area to be especially careful as it is looking like it could be at least a short-term trend break. Also, as mentioned above, none of the tech “big dog” names stepped up to hold markets yesterday. This was an uncommon occurrence of late and it is worth keeping an eye on. In short, be careful. The rally may have exhausted itself for at least a while.

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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🎯 Dick Carp: the scanner paid for the year with HES-thank you

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🎯 Malcolm .: Posted in room 2, @Rick… I used the LTA Scanner to go through hundreds of stocks this weekend and picked out three to trade:  PYPL, TGT, and ZS.   Quality patterns and with my trading, up 24%, 7% and 12%…. this program is gold.

🎯 Friday 6/21/19  (10:09 am) Aaron B: Today, my account is at +190% since January. Thanks, RWO HRC Flash Malcolm Thomas Steve Ed Bob S Bob C Mike P and everyone that contributes every day. I love our job.

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