December Payroll Data To Call Next Tune

For the first time in the new year, markets gapped down at the open Thursday (0.50% in the SPY, 0.50% in the DIA, and 0.68% in the QQQ).  All three major indices then spend the rest of the day wobbling sideways in a three-quarters of a percent range below the open. This action gave us black-bodied, indecisive candles on the day.  All three of the indices are now back just below their T-line (8ema) and remain in the recent consolidation.  The DIA is also back below its 50sma with the QQQ looking like a “Dreaded-h pattern” setup.

On the day, eight of the 10 sectors were in the red with the Technology (-2.06%) and Utilities sector (-1.82%) leading the way lower as the Energy sector (+1.24%) held up best.  Meanwhile, the SPY was down 1.14%, the DIA was down 1.00%, and the QQQ was down 1.57%.  Yet again, this took place on lower-than-average volume.  At the same time, the VXX was up 0.81% to 13.72 and T2122 dropped back down into the mid-range at 39.37.  10-year bond yields are up slightly to 3.72% and Oil (WTI) was up 1.37% to $73.84 per barrel.  So, overall, it was a bearish day that remains in the choppy consolidation of the last 2+ weeks.

In economic news, December ADP Nonfarm Employment was up more than expected, adding 235k jobs (compared to a forecast of +150k and the Nov. reading of +182k).  At the same time, both Imports and Exports were down in November, resulting in a Nov. Trade Balance that was better than expected at -$61.50 billion (versus a forecast of -$73.00 billion and the October value of -$77.80 billion).  Later the Dec. S&P Global Composite PMI came in better than expected at 45.0 (compared to the forecast of 44.6 but still worse than the November reading of 46.4).  Then the US December Services PMI came in at 44.7, which was better than expected (versus the forecast of 44.4 but again still worse than the Nov. reading of 46.2).  Finally, EIA Crude Oil Inventories came in higher than expected at 1.694 million barrels (compared to a forecast of 1.154 million barrels and stronger than the prior week’s 0.718 million barrels). 

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In stock news, SFIX announced Thursday that its CEO will be stepping down effective immediately and also said it would be cutting about 20% of its workforce.  Elsewhere, CAG raised its full-year sales forecast for 2023 by 7%-8% mostly on the impact of price hikes, and also increased its earnings forecast for the year.  At nearly the same time, LW also raised its own 2023 revenue forecast to $4.8-$4.9 billion and significantly raised EPS guidance from $2.45-$2.85 all the way to $3.75-$4.00/share.  Then BBBY announced that it was exploring options including bankruptcy to address its declining situation.  Overseas, AAPL’s primary phone maker Foxconn said that production at its main plant in China had “basically returned to normal” after a 12% decrease in December.  Meanwhile, LAZR announced that its Q4 production deals (orders) had exceeded the target for 60% year-on-year growth in its order book.  Majority owner of WWE (former CEO) Vince McMahon elected himself and two allies to the board of directors (removing three others) with an eye on returning to a leading role one year after leaving over a sexual harassment scandal.

In government action news, a NY Judge has ordered that JPM does have to face a lawsuit from sunglasses maker Ray-Ban over a $272 million cyber theft from the French company’s New York bank account.  Elsewhere, a US Bankruptcy judge has ruled that Celsius Networks actually owns most of its customers $4.2 billion crypto deposits. This means the customers will be last in line for payout from the lender’s bankruptcy case.  Later in the day, PTON agreed to pay a $19 million fine for failing to promptly report a defect in their treadmills that could cause serious injury.  Meanwhile, the FTC has proposed a rule that would forbid any company from requiring employees to sign non-compete or “training repayment” agreements.  The rules are months from final passage, but if put into effect the FTC says it expects this would raise the wages of 30 million Americans by a total of $300 billion per year.

In miscellaneous news, for the second time in a week, natural gas futures (natty) plunged 11% in a day after Wednesday’s 5% increase.  The very warm start to winter in the Northern Hemisphere (especially Europe) had hurt gas prices and put a large crimp in Russia’s efforts to squeeze Europe over its support of Ukraine.  Elsewhere, Fed ultra-hawk Bullard said Thursday that he is optimistic the new year will bring relief from inflation.  He also said “the probability of a soft landing has increased compared to where it was in the fall” adding that this is a great time to fight inflation because of the strong job market.

Overnight, Asian markets were mixed again.  South Korea (+1.12%) was an outlier to the upside with Australia (+0.65%), Thailand (+0.60%), and Japan (+0.59%) leading the region higher.  Meanwhile, India (-0.74%), Singapore (-0.48%), and Hong Kong (-0.29%) paced the losses.  In Europe, the bourses are mostly green at midday.  The FTSE (+0.27%) and CAC (+0.30%) lead the region higher while the DAX (-0.04%) is one of only two exchanges in the red in early afternoon trading.  As of 7:30 am, US Futures are pointing toward a mixed and flat start to the day (ahead of December Payrolls data).  The DIA implies a +0.12% open, the SPY is implying a -0.02% open, and the QQQ implies a -0.33% open at this hour.  At the same time, 10-year bond yields are just slightly higher at 3.729% and Oil (WTI) is off fractionally to $73.38/barrel in early trading.

The major economic news events scheduled for Friday include Dec. Avg. Hourly Earnings, Dec. Nonfarm Payrolls, Dec. Participation Rate, and Dec. Unemployment Rate (all at 8:30 am), Nov. Factory Orders and Dec. ISM Non-Mfg. PMI (both at 10 am).  The major earnings reports scheduled for the day are limited to GBX before the opening bell.  There are no major earnings reports scheduled for after the close.

So far this morning, GBX has reported a beat on the revenue line while missing on the earnings line.

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Unless you’ve been living under a rock, you know the other news of the day which is that the US House has yet to elect a Speaker as the GOP flounders to get its act together. The House adjourned again last night after an 11th attempt failed to reach the 218-vote majority required to elect a Speaker. The GOP is split with 6 “Never McCarthy” votes, 14 “Guarantee me more power” votes, and 202 “McCarthy” votes (of those 60 or so are said to be “McCarthy only” votes). The House will resume speech-making (nominations) and voting again at noon today as the fourth day of the Republican majority gets back underway. Again, if there is any good news, it is that without any real “GOP Platform Agenda” there is no real work that is being missed yet. The first real “must pass” legislation will be the US Debt Ceiling increase and that will not come for a few weeks. So far, markets do not seem to care and are just enjoying the distraction.

With that background, it looks like all three major indices are waiting to see what the December Payrolls data looks like before deciding what to do. Still, at this point in the premarket, all three major indices are close below their T-line (8ema) with the SPY retesting a support level and the QQQ seeming to work on a bearish Dreaded-h pattern. The consolidation range of the last 3 weeks continues to have a grip on the market. Regardless of the Payrolls data (where again, good news will likely be bad news for the market and visa-versa), be careful about chasing either direction on a Friday. No matter what it does today, this market can still break in either direction after reconsideration… especially a two-day reconsideration. If you do trade the post-announcement move, be very nimble or be prepared to wait out any reversal pressure your position might face. Volumes continue to be light as the big money has not decided on a direction yet.

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.


Swing Trade Ideas for your consideration and watchlist: No trade ideas today. You can find Rick’s review of tickers on his YouTube Channel here. Trade your plan, take profits along the way, and smart. Also, remember to check for impending earnings reports. Finally, remember that any tickers we mention and talk about in the trading room are not recommendations to buy or sell.

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