December Jobs Numbers Will Call Tune

Thursday saw mixed to start the day.  The SPY gapped up 0.09%, DIA opened 0.16% higher, and QQQ gapped down 0.47%.  At that point, all three major index ETFs put in a morning rally that hit the highs of the day at about 11:30 a.m. This was followed by a modest selloff that lasted right into the close.  That action gave all three a large high wick on a small black body.  This could be seen as Gravestone Doji in the DIA and QQQ as well as an Inverted Hammer in the SPY.  The DIA also retested and failed its T-line (8ema).  This all happened on average volume in the DIA and below-average volume in the SPY and QQQ.

On the day, seven of the 10 sectors were in the red with Energy (-1.35%) far out front leading the market lower while Healthcare (+0.67%) was by far the strongest sector.  At the same time, the SPY lost 0.31%, DIA gained 0.11%, and QQQ lost 0.51%.  The VXX was just on the red side of flat to close at 16.08 and T2122 fell a bit but remains in its midrange at 36.52. 10-year bond yields rose again to 3.999% and Oil (WTI) dropped 0.43% to close at $72.39 per barrel.  So, on the day, we saw a divergence at the open with the high-tech QQQ gapping down while the two large-cap index ETFs opened on the green side of flat.  However, after that, the three acted in lock-step the rest of the day.  So, the bullish trendlines remain broken in the DIA, SPY, and QQQ.  However, the DIA is still basically consolidating while the SPY and especially QQQ continue their pullback.

The economic news on Thursday included the December ADP Nonfarm Employment Change which came in much stronger than expected at +164k (compared to a forecast of +115k and the revised November number of +101k).  This was the largest gain since August.  Later, Weekly Initial Jobless Claims were lower than predicted at 202k (versus a forecast of 216k and the previous week’s 220k).  At the same time, Weekly Continuing Jobless Claims were also down to 1,855k (compared to a forecast of 1,883k and the prior week’s 1,886k reading).  Later, Dec. S&P Global Services PMI came in better than anticipated at 51.4 (versus a 51.3 forecast and the prior 50.8 value).  At the same time, Dec. S&P Global Composite PMI was slightly lower than expected at 50.9 (compared to a 51.0 forecast but still stronger than the November 50.7 value).  Later, EIA Weekly Crude Oil Inventories showed a larger than predicted drawdown of 5.503 million barrels (versus a forecast calling for a 3.200-million-barrel drawdown but still not as much as last week’s 7.114-million-barrel drawdown).  Finally, after the close, the Fed Balance Sheet came in $32 billion lower than the prior week at $7.681 trillion (compared to the prior week’s $7.713 trillion.

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In stock news, MBLY (who sells semiconductors into the auto industry) said Thursday that it has seen a pullback in orders from customers who are clearing excess inventory.  This sent both MBLY and competitors (NXPI, TXN, and WOLF) crashing lower as well as raising concerns about auto sales.  At the same time, F posted its best US sales numbers since 2020, saying that sales rose 7.1% to 1.99 million units in 2023.  Sales of F electric vehicles also rose 18% and now makeup 17% of total sales.  Later, retail analysts reported that AMZN shored up absolute market dominance for the Christmas season.  The data shows AMZN had 21% of global order volume for the Thanksgiving through Black Friday period, but jacked that up to an amazing 29% of global orders for all of Xmas season.  Consumer Intelligence Research noted that AMZN’s ability to hit two-day delivery deadlines seemed to be a critical factor in winning the huge order volumes.  Later, major European retailer Carrefour halted the sale of PEP products as the two companies fight over price hikes.  Elsewhere, DIS subsidiary ESPN signed a $920 million, eight-year deal for an extension of the network’s exclusive media rights to 40 NCAA championships (including the lucrative college basketball postseason).  This was triple the average annual amount ESPN had paid for the same rights in the past.  Later, the CEO of PSX told an energy industry conference that the company would sell $3 billion worth of “non-core” assets in 2024.  He gave no timelines but said discussions were ongoing.  After the close, XOM signaled it will take a big hit in Q4 as it books a $2.5 billion write-down related to wells abandoned in CA as well as a hit from lower energy prices.  (XOM reports February 2nd.) 

In stock government, legal, and regulatory news, on Thursday the US Department of Commerce announced it will award MCHP $162 million in grants to increase the US production of microcontroller chips which are key components in both consumer and defense industries.  Later, Consumer Reports issued a public letter to the FDA calling for strongly increased regulation and inspection.  The consumer rights group said that 84 of 85 supermarkets and fast food restaurants it has recently tested had foods that contain plastics and in fact, 79% of the food tested contained these phthalates or BPA chemicals.  (These chemicals are known to disrupt hormone production and regulation as well as pose a wide range of health risks.)  At the same time, the SEC ruled that AAPL and DIS cannot avoid shareholder votes about the company’s use of AI tech.  These board proposals were made by labor groups with the measures, if passed, asking for an accounting of the company’s use of AI technologies.  (Both companies had argued the votes could be left off board agendas because they related to “normal business operations.”  The SEC disagreed.)  The EEOC filed a motion asking a federal judge to reject TSLA’s motion to pause a lawsuit alleging widespread racial bias at the company’s Fremont CA plant.  (TSLA had filed a motion asking that the suit be indefinitely paused until after two other lawsuits are settled.)  After the close, the NRLB ruled that GOOGL must bargain with a union representing contract workers at its YouTube Music unit.

Overnight, Asian markets were mostly in the red.  Shenzhen (-1.07%), Shanghai (-0.85%), and Hong Kong (-0.66%) led the region lower.  Meanwhile, in Europe, we see red across the board at midday.  The CAC (-1.08%), DAX (-0.79%), and FTSE (-0.85%) lead the region lower in early afternoon trade.  In the US, as of 7:30 a.m., the Futures are pointing toward a modestly down start to the day (ahead of data).  The DIA implies a -0.18% open, the SPY is implying a -0.22% open, and the QQQ implies a -0.29% open at this hour.  At the same time, 10-year bond yields are back above four percent at 4.036% and Oil (WTI) is up 0.82% to $72.81 per barrel in early trading.

The major economic news scheduled for Friday includes Dec. Avg. Hourly Earnings, Dec. Nonfarm Payrolls, Dec. Private Nonfarm Payrolls, Dec. Participation Rate, and Dec. Unemployment Rate (all at 8:30 a.m.), Nov. Factory Orders, Dec. ISM Non-Mfg. Employment, and Dec. ISM Non-Mfg. PMI (all at 10 a.m.).  The major earnings reports scheduled for the day are limited to GBX and STZ before the open.  There are no major reports scheduled for after the close. 

In miscellaneous news, Reuters reported that short-sellers lost $195 billion in 2023 according to research by S3 Partners research.  The report specifically noted huge losses in TLSA, NVDA, AAPL, META, MSFT, and AMZN as the largest sources of pain for the shorts.  Elsewhere, Reuters reported that the Biden Administration has bought 13.82 million barrels of domestic oil to refill the strategic petroleum reserve.  They have also accelerated the return of 4 million barrels that had been loaned to oil companies.  (The SPR holds 354 million barrels and 180 million were released by the administration in 2022 at an average price of $95/barrel.  So far, the buybacks are below the target price of $79/barrel and the buyback fund has enough to purchase another 46.5 million barrels even at that price which is higher than market.)  The latest bid, put out Wed., was for another 3 million barrels for April delivery.  Meanwhile, ADBE Analytics (retail analysts) issued a report Thursday saying that US shopper spending rose 4.9% for the holiday season.  The report cited an increase in “Buy Now Pay Later” options and deep discounts on electronics and apparel as key factors in the increase.

So far this morning, STZ reported beats on both the revenue and earnings lines.  GBX had be scheduled to report at 6 a.m. but has not done so yet.

With that background, it looks like the Bears are anticipating disappointing December Jobs Numbers this morning (or perhaps anticipating strong jobs numbers which they think will cause the Fed to hold off on the start of rate cuts). Either way, the major index premarkets all opened with a modest gap lower. Since then, all three major index ETFs have given us smaller but black-bodied candles in the early session. So, the Bears remain in control of the short-term trend and the longer-term daily uptrend lines remain broken. However, no new lower-high has presented itself in any of the three major index ETFs. (We are technically not yet in a downtrend.) In terms of extension, the two large-cap index ETFs are not too far from their T-line (8ema), but the QQQ is getting stretched below its T-line. At the same time, the T2122 indicator remains in its mid-range. So, both the Bulls and Bears do both have room to run if they can gather the momentum to do it. Continue to keep an eye on the Tech Big Dogs. If we are seeing a rotation out of those names (which have dragged markets along for a year or more), it will be hard for markets to do anything except retreat. Finally, remember this is Friday…payday. So, prepare your account for the weekend news cycles and don’t forget to pay yourself.

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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