Friday brought the markets a divergent open with the QQQ gapping up 0.55%, SPY gapping up 0.29%, and DIA opening 0.09% higher. The two large-cap indices then immediately recrossed the gap in the first 5 minutes before all three began a morning rally that lasted until 11:30 am. This was followed by a sideways grind until 1:15 pm when all three major indices pulled back for a few minutes before starting another rally at 1:25 pm. This rally lasted the rest of the day, closing very near the highs of the day. This action gave us Morning Star signals in both the SPY and QQQ. The DIA printed a similar candle, but the Friday candle didn’t climb enough to qualify as a Morningstar. SPY and QQQ also climbed back above their respective T-line (8ema) and 50sma levels. This happened on greater than average volume in the SPY and QQQ and less than average in the DIA.
On the day, all 10 of the sectors were in the green as Technology (+2.87%) led the way higher and Utilities (+0.71%) lagged the other sectors. Meanwhile, the SPY was up 1.86%, the DIA was up 0.92%, and QQQ was up 2.74%. At the same time, the VXX fell 3.57% to 12.17, and T2122 spiked back up into the overbought territory at 92.13. 10-year bond yields rose to 3.481% and Oil (WTI) was up 1.33% to $81.40 per barrel. So, on the day we saw a divergent, blah opening followed by two sustained rallies broken up by a mid-day pause for rest.
In economic news, on Friday, December Existing Home Sales came in a little better than forecast at 4.02 million (versus the expected 3.96 million and the Nov. reading of 4.08 million). Later Philly Fed President Harker (voter) said he expects a few more Fed hikes but he favors them being quarter-point hikes. He expects the Fed Funds Rate to go above 5% and then favors holding it there for some time. Interestingly, he said he sees the economy slowing but NOT tipping into recession. At the same time, KC Fed President George (non-voter and retiring this month) said a soft landing is still possible and that she supports a moderation in the pace of hikes. In the afternoon, Fed Governor Waller (voter and hawk) told the Council on Foreign Relations that he supports scaling-back rate hikes to 0.25% at this next meeting and feels the FOMC is “pretty close” to interest rates that are “sufficiently restrictive” to bring inflation back to the 2% target. He also said that under the current policy, he expects inflation to fall to between 3% and 3.5% by year-end. Those remarks end the Fed Speak prior to the Feb. 1 decision as they hit the “pre-meeting quiet period” on Saturday.
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In stock news, Reuters reported Friday that AMZN will be investing $35 billion by 2040 into expanding data centers in Virginia. Pending state approval of up to 15 years of additional Sales and Use tax exemptions, the investment would yield 1,000 new jobs in the state. Elsewhere, AAPL won an appeal that throws out a $308.5 million jury verdict against the company for infringing a patent related to digital rights management. In other AAPL news, the company has begun layoffs in its retail stores (particularly kiosk-type locations inside other retail locations) as of Friday. Meanwhile, GM (and Korean partner LG Energy Solutions) has indefinitely shelved plans to build a fourth GM-specific US battery plant. Across the Atlantic, a French court ordered UBER to pay 139 drivers a total of $18.43 million in damages and lost salaries. This is a follow-up on a 2020 decision by the top French court, ruling the drivers were employees and not contractors. UBER plans to appeal the damages award. Finally, ABB sold its US power conversion business unit for $505 million to a Swiss company. The deal is scheduled to close in the second half of 2023, subject to US and Taiwanese regulatory approvals.
In energy news, the Texas Pubic Utilities Commission voted for what amounts to an increase in electricity costs in that state. The commission voted unanimously to require electric utilities to pay power plants to remain on standby as well as directing the Texas grid operator (ERCOT) to build new generation sources. In other energy news, Natural Gas prices continued its plummet Friday, closing down more than 4.3% to 19-month low of $3.134/mmBtu (actually a rebound from the session lows of $3.11). Elsewhere, Bloomberg reported a flurry of outages at Canadian processing facilities has again disrupted the flow of oil to the US. Chief among these were outages at a CNQ “oil-sands upgrading” facility (which starved the ENB Mainline pipeline) and another ice-caused outage of the Keystone pipeline (this time on the Canadian side of the border).
It is easy to get pessimistic in the face of headlines about huge job cuts. However, consider this perspective. First, remember that job cuts are almost universally good for big corporate bottom line. Second, take a broader view of those big tech layoffs, such as the numbers that were reported this weekend by Morning Brew. MSFT hired more than 40,000 people in the 18 months ending in December. So, even after last week’s layoffs, the company has added 30,000 jobs since July 2021. Meanwhile, GOOGL laid off 12,000 last week, which was less than one-third of the 36,750 new jobs it added in just the first nine months of 2022. Finally, META recently cut 11,000 jobs. That’s a lot unless you compare it to the 26,000+ jobs META added in 2020 and 2021. In other words, even after these mass layoffs, the tech titans have still grown massively in the last couple of years. So, reorganizing to improve efficiency was very likely in order, regardless of economic conditions.
So far this morning, SYF has reported a beat on both the revenue and earnings lines. However, BKR reported a miss on both the top and bottom lines.
Overnight, Asian markets were green across the board on modest moves, but keep in mind that many Asian markets are closed to celebrate Lunar New Year. Japan (+1.33%) was an outlier to the upside. Meanwhile, in Europe, we see a similar picture taking shape at midday. Only the FTSE MIB (-0.44%) is showing red while the FTSE (+0.33%), DAX (+0.08%), and the CAC (+0.10%) are leading the region higher in early afternoon trade. As of 7:30 am, US Futures are pointing toward a start to the day just on the red side of flat. The DIA implies a -0.01% open, the SPY is implying a -0.09% open, and the QQQ implies a -0.07% open at this hour. At the same time, 10-year bond yields are up to 3.504% and Oil (WTI) is up three-quarters of a percent to $82.24/barrel in early trading.
There are no major economic news events scheduled for Monday. The major earnings reports scheduled for the day include BKR and SYF before the opening bell. Then, after the close, BRO, CR, LOGI, and ZION report.
In economic news later in the week, on Tuesday we get Mfg. PMI, Global Composite PMI, Services PMI, and API Crude Oil Stocks. Then Wednesday EIA Crude Oil Inventories are reported. On Thursday, we get Dec. Durable Goods Orders, Q4 GDP, Dec. Goods Trade Balance, Weekly Initial Jobless Claims, Dec. Retail Inventories, and Dec. New Home Sales. Finally, on Friday, Dec. PCE Price Index, Dec. Personal Spending, Michigan Consumer Sentiment, and Dec. Pending Home Sales are reported.
In terms of earnings, on Tuesday, we will hear from MMM, DHI, DHR, GE, HAL, IVZ, JNJ, LMT, ONB, PCAR, RTX, TRV, UNP, VZ, CNI, COF, FFIV, ISRG, MSFT, SLGN, TXN, and WAL. Then, on Wednesday, ABT, APH, ASML, T, ADP, BA, BOKF, ELV, FCX, GD, GPI, HES, KMB, NDAQ, NEE, NSC, BPOP, PGR, TTM, TEL, TDY, TXT, USB, AMP, AXTA, AXS, BOOT, CACI, CLS, CCI, CSX, FLEX, IBM, LRCX, LVS, LEVI, LBRT, PKG, PLXS, RJF, STX, NOW, STLD, TER, TSLA, and URI report. Thursday, we hear from VLVLY, ALK, AAL, AIT, ADM, ATLKY, BX, BFH, BFH, CRS, CNX, CMCSA, CFR, DOW, EXP, EWBC, FCNCA, JBLU, HZO, MMC, MA, MKC, MBLY, MUR, NOK, NOC, NUE, ORI, ROK, SAP, SHW, LUV, STM, TROW, TSCO, VLO, VLY, WBS, XEL, XRX, AJG, EMN, INTC, KLAC, KNX, LHX, OLN, RMD, RHI, V, WRB, and WY. Finally, on Friday, AXP, ALV, BAH, CHTR, CVX, CL, GNTX, HCA, and ROP report.
In late-breaking news, the US Dept. of Justice has opened a probe into ABT or more specifically Abbott’s Sturgis MI infant formula plant which was shut down in 2022 after inspections and caused a national infant formula shortage. (Abbott’s Sturgis plant makes roughly 25% of the US supply of infant formula.) Meanwhile, overseas, India’s Commerce Minister said that AAPL is planning to manufacture 25% of its iPhones in India. That would be a major increase over the 6% of iPhones manufactured in India in the past. This would take advantage of India’s very cheap labor and less restrictive labor laws (Indian workers for AAPL’s primary contract manufacturer Foxconn rioted in 2022 because they had not been paid in three months). No timing for the transition was announced, but JPM cited the same move could be made by 2025 in a September research note. Elsewhere, French President Macron is forging ahead with changes that will raise the retirement age in France. Unions are still supporting the protesters, who have caused gridlock in many major cities in France. In addition, unions have announced a second day of general strikes on January 31. Finally, the US Dollar is down this morning against the Euro and Yen. This comes as ECB Hawks are talking up rate hikes in Europe.
With that background, it looks like the premarket indices are flat and remain undecided this morning. , but not making major moves either direction. The SPY is retesting its 50sma, the DIA looks like it will head up to retest its T-line (8ema) again and QQQ is retesting previous highs. Only the QQQ has any extension from its T-line, but the T2122 indicator is deep into the overbought territory. The Fed is in a quiet period, so we don’t have to worry about Fed-speak. However, there will be several major earnings reports this week (as outlined above). So, be careful of earnings dates. However, the market bias is bullish in the SPY and QQQ with the DIA in more of a sideways wedge formation.
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: SWKS, TSLA, PINS, MU, GOOG, META, WB, AMZN. 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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