Markets made a modest gap higher at the open (up 0.24% in the SPY, up 0.12% in the DIA, and up 0.44% in the QQQ). At that point, we had a small divergence as the bulls stepped in to lead a slow steady rally in the SPY and QQQ until 12:20 pm. Meanwhile, the DIA bobbed sideways over that same time. However, the bears got all three in sync when they stepped in at about 12:25 pm to take us on a slow decline that bottomed out at 3:30 pm with price right back at Friday’s closing level. The last 30 minutes saw a minor rally up off the lows across the SPY, DIA, and QQQ. This action gave us Shooting Star-type candles in all three major indices. It happened on less-than-average volume in the SPY and DIA and slightly greater-than-average volume in the QQQ.
On the day, eight of the 10 sectors were in the red as Basic Materials (-1.98%) led the way lower, while Utilities (+0.43%) held up better than the other sectors. At the same time, the SPY was up 0.07%, the DIA was up 0.14%, and QQQ was up 0.11%. The VXX fell 1.74% to 10.71 and T2122 dropped back into the lower half of the midrange at 37.50. 10-year bond yields climbed all day after started down significantly to close at 3.964% and Oil (WTI) was up 1.02% to $80.49 per barrel. So, overall, Monday was a bullish day all morning and a bearish day all afternoon, which ended up little changed. Still, the omens were not good for the bulls, leaving that gap-up high wick in all three of the major indices.
In economic news, January Factory Orders came in down, but better than expected at -1.6% (compared to a forecast of -1.8% and the December reading of -1.7%). At the same time, the NY Fed released a report saying that after three years of turmoil, global supply chains are back to normal with pressures on supply chains falling into better reading (fewer problems) than at any time since August 2019. Elsewhere, Natural Gas prices crashed Monday with the April front-month natural gas contract falling 14.5% after revised weather forecasts indicated mild temperatures ahead for the Spring in both the US and Europe.
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In stock news, the Wall Street Journal reported that PARA is considering the sale of its majority ownership of the BET and VH1 cable networks. Elsewhere, DXCM shares fell hard Monday after rival ABT received FDA approval for two glucose monitoring and insulin delivery systems. ABT said it is partnering with PODD, TNDM, and YPSN for launches in multiple countries. Meanwhile, UIS and BBBY fell sharply after both were removed from the S&P 600 Small-Cap Index. However, FICO was down slightly after being added to the S&P 500 (to replace LUMN which was moved to the Small-Cap 600 index and gained 4.1% on that move). In other news, LMT said it has resumed testing on its “advanced” F-35 jets (after a stoppage due to a government delivery halt over an engine safety concern). Separately, RTX was awarded a $5.2 billion contract to produce 278 engines for the F-35 (with a government option for up to buy up to 518 more engines). After the close, Bloomberg reported the TSLA has lowered the price of the “Plaid” versions of its Model S and Model X cars by another 4.3% and 8.3% respectively. At the same time, SCHW petitioned the SEC to withdraw its two recently proposed rules that would force all orders to be sent to auction and give customers the best possible execution of orders (essentially banning payment for order flow). Finally, TEAM announced after hours that it will lay off 500 employees (5% of its workforce).
In stock legal and regulatory news, Bloomberg reported Monday that the US Dept. of Justice will file suit to prevent JBLU from acquiring SAVE on antitrust grounds. (The $3.8 billion deal has been under fire related to ticket pricing and flight availability in the Northeast corridor.) Bloomberg added that the US Dept. of Transportation is expected to launch parallel proceedings also intended to block the deal. Elsewhere, the NHTSA has opened an investigation into AMZN’s self-certification of its Zoox robotaxi in 2022. Meanwhile, the US Supreme Court again declined to settle a split among Appeals Courts over whether federal wage laws allow workers to bring nationwide class-action type lawsuits when it refused to hear a case from an FDX employee. (Several companies had been pushing courts to limit lawsuits over wage issues, such as unpaid overtime, to cover only those employees in the single state where the suit was filed. So, the court’s refusal to hear the case is a de facto ruling in favor of the position of companies…FDX in this case. Meaning, if a company does wrong, it must be sued in every state in order for the employees of all states to be made whole.) After the close, FERC (Federal Energy Regulatory Commission) requested answers to another set of questions from the Freeport LNG export facility in Texas, before it will be allowed to restart full commercial operations. (The plant had already begun a partial restart after eight months of outage following a fire and explosion.) Finally, after hours, RIO agreed to pay the SEC a $15 million civil penalty for bribing officials in Guinea in order to retain mining rights.
In miscellaneous news, on Saturday San Francisco Fed President Daly said the Jan. inflation data “suggests the disinflation momentum we need is far from certain.” She went on to suggest that “tighter (Fed) policy, for a longer time, is likely needed,” but she did not speak to specific policy moves other than to suggest she thinks the 5.1% terminal projection made in December will be revised upward. Elsewhere, on Sunday, the Chinese government set a slightly lower annual growth target compared to 2022. China is looking for GDP growth of 5% according to a report released at the opening of the country’s annual parliament meeting. This compares to the 2022 target of 5.5%. Meanwhile, also Saturday, it was reported that F had filed a patent application for technology that remotely disables heating/air conditioning, radio, and ultimately the car itself if the customer fails to make lease payments on time. The patent also includes a feature for self-driving cars to return themselves to F impound lots. However, F says it has no (current?) plans to deploy these technologies itself. (Still, I be there are a lot of banks that would like to have those features installed.) Finally, the FDA rejected an application from Elon Musk’s Neuralink, which had wanted to start testing its brain implants in humans.
Overnight, Asian markets were mostly in the green on modest moves, with the exception of China. Shenzhen (-1.98%), Shanghai (-1.11%), and Hong Kong (-0.33%) were the only red in the region. Meanwhile, Thailand (+0.72%), India (+0.67%), and Australian (+0.49%) led the rest of the region higher. Over in Europe, the bourses are evenly split between red and green bourses at midday. The FTSE (+0.24%), DAX (+0.11%), and CAC (+0.12%) lead the region on volume (as always). However, it looks like Europe is just as eager for another clue from Fed Chair Powell as the US markets. As of 7:30 am, US Futures are pointing toward a start to the day just on the green side of flat. The DIA implies a +0.02% open, the SPY is implying a +0.12% open, and the QQQ implies a +0.22% open at this hour. At the same time, 10-year bond yields are down to 3.94% and Oil (WTI) is off six-tenths of a percent to $79.96/barrel in early trading.
The major economic news events scheduled for Tuesday are limited to Fed Chair Powell testifying before Congress (10 am) and then the API Weekly Crude Oil Stocks Report is released at 4:30 pm. Major earnings reports scheduled for the day are limited to DKS, DOLE, ESAB, FERG, SE, and THO before the opening bell. Then, after the close, CASY, CRGY, and CRWD report.
In economic news later this week, on Wednesday, we get ADP February Nonfarm Employment Change, Jan. Imports and Exports, Jan. Trade Balance, Fed Chair Powell testifies before Congress again, Jan. JOLTs Job Openings, EIA Crude Oil Inventories, WASDE Ag Report, and Fed Beige Book. On Thursday, Weekly Initial Jobless Claims are reported. Finally, on Friday, we get Feb. Avg. Hourly Earnings, Feb. Nonfarm Payrolls, Feb. Participation Rate, Feb. Unemployment Rate, and Feb. Federal Budget Balance.
In earnings news later this week, on Wednesday, we hear from, ABM, BF.A, CPB, GOL, KFY, LTH, and REVG. On Thursday, BJ, GBTG, JD, WLY, TTC, QFIN, DOCU, GPS, ORCL, ULTA, and MTN report. Finally, on Friday, we hear from, ERJ.
So far this morning, DKS, DOLE, SE, and ESAB have all reported beats to the revenue and earnings lines. Meanwhile, THO missed on both the top and bottom lines. It is worth noting that THO lowered its forward guidance while DKS raised its guidance. It is also worth noting that DKS crushed expectations with more than double the same-store sales growth in Q4 than analysts had expected.
In late-breaking news, Bloomberg reports META will lay off thousands more employees as soon as later this week. Elsewhere, BBY has entered a new market, by striking a deal with Atrium Health. This will expand the BBY “Geek Squad” offering to include the delivery and setup of durable medical equipment (DME) such as heart monitors, vitals, oxygen delivery, etc.
With that background, it looks like the market remains undecided and is waiting on guidance from Fed Chair Powell. So, beware volatility as his opening statement is released and then he begins his testimony at 10 am. Meanwhile, the recent downtrend line remains broken in all three major indicies. However, their 3-day upward move is not very secure either. We definitely have not put in a new higher-low to signal a bullish trend yet. We have no problem with extension (either according to T2122, or the T-line). As I see it, we remain basically at the same place we were in premarket Monday. The DIA is testing a potential resistance level, SPY has a little room to run before hitting its next resistance level, and QQQ has the most headroom above before hitting its next potential resistance level. DIA also has its 50sma just overhead and you could draw a longer-term downtrend just above in the QQQ. Continue to be careful in an unsettled market (especially where the Fed wants to raise expectations for their terminal rate and tamp down any hope for a rate cut this year). (With that said, current Fed Fund Futures say there is a 70.8% probability of a quarter-point hike in two weeks while 29.2% are betting on a half-point hike. Not a single sole has bought futures to indicate they are betting on either no hike or a larger than half-percent hike.)
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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