US stocks followed the rest of the globe, gapping strongly higher at the open (2% in the QQQ, 1.6% in the SPY, and 1.33% in the DIA).  The bulls then proceeded to run us up the first 30 minutes, following through strongly on the gap.  This leveled off into a sideways grind in a tight range as the bulls caught their breath from 10 am to 12:45 pm.  At that point, the bears took us lower for half an hour before the bulls stepped in to slowly rally back close at new highs in the large-cap indices.  (The QQQ sold off more heavily and recovered more slowly.  So, it did not reach the late morning highs again.)  This action is leaving us with gap-up, large white candles (with an upper wick in the QQQ).  And, as mentioned in the morning blog, all 3 major indices are now well above their T-lines (8ema).

On the day, all 10 sectors were green with seven of them being up at least 3%. Cons. Defensive (+1.90%) was the laggard and Consumer Cyclical (+4.30%) led the pack higher.  The SPY was up 3.05%, the DIA up 2.83%, and the QQQ up 3.14%.  VXX was down about 3.77% to 19.39 and T2122 is now well into the overbought territory at 90.08.  These moves came on slightly higher than expected volume.  Meanwhile, 10-year bond yields have climbed back from early losses but are still down to 3.631% and Oil (WTI) has spiked another 3.12% to $86.24/barrel (as markets seem to anticipate major production cuts by OPEC+ on Wednesday).  All-in-all, a very bullish day and perhaps near the end of a relief rally as we now approach the downtrend line.

In economic news, August Factory Orders same in dead flat (0.0%), which was below forecast (+0.2%) but also well above the July reading of -1.0%.  However, the most telling number of the day is that August Job Openings (JOLTs) were down a whopping 1.12 million over the July number (10.053 million vs July’s 11.170 million) as well as being far below forecast (10.775 million).  Taken together, these economic indicators seem to be telling us the US economy is cooling fast, which potentially could be read by traders as a reason for the Fed to lighten up soon.  After the close, API Weekly Crude Oil Stocks reported an unexpected drawdown of 1.770 million barrels (versus a forecast build of 1.966 million barrels and the prior week’s build of 4.150 million barrels).

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In Fed news, the FOMC members tried to talk markets out of believing they will pivot soon. NY Fed President Williams reiterated that the Fed’s fight with inflation is not done and it will take some time to decelerate the conditions causing inflation.  Meanwhile, new Fed Governor Jefferson also spoke to a conference in Atlanta, saying “Inflation is still the most serious problem facing the Fed and it may take some time to address.”  He went on to reiterate that the Fed is resolute on bringing inflation back down to 2%.  Finally, San Francisco Fed President Daly said “there’s a lot of room to slow the labor market before we get into severe recessionary conditions.”  She added her prediction that unemployment will reach the 4.5% range and not the high levels some project.  However, again she reiterated that the Fed needs to do further rate hikes to bring down inflation.

In stock news, during the day, an SEC filing indicated that Elon Musk has abandoned his attempt to back out of buying TWTR and is prepared to proceed under the original terms of the buyout deal.  TWTR traded in a 23% range on the day, closing up 22.24%, which is oddly still $2.20/share less than the agreed per share price of the deal.  In other stock news, HAS cut its full-year revenue forecast.  This falls in line with WMT and TGT having announced plans to drastically reduce inventory (those 2 companies account for one-third of HAS sales).  Elsewhere, the New York Times reported that AMZN has sent an internal announcement of a corporate hiring freeze for the rest of the year in its retail/e-tail business (as opposed to cloud IT services).  The Wall Street Journal also reported that META is working to reduce its office space by letting some existing leases expire and consolidating multiple buildings into one.  This comes as META is hiring fewer employees and adopting a hybrid (office/work-from-home) policy.  On the brighter side, F reported strong demand for new vehicles in September although it also reported actual sales for the month were down slightly due to supply shortages.

In miscellaneous news, US Army Corps of Engineers reports that low water levels in the Mississippi River are causing a major shortage of transport in the center of the country.  1,600 barges are waiting for USACE dredging to make the lower Mississippi passable as the river has essentially been closed since last week.  The lack of those barges will be a real problem for agriculture, chemical, and other industries.  For example, 60% of US grain exports travel that river and exit the country via Gulf ports.  This could have a major impact on ADM, CAG, and BG among others. Meanwhile, the EU is set to approve PM purchasing a Swedish competitor of the spinoff MO.  Swedish Match is a large player in European cigarette alternatives.  Finally, US weekly mortgage demand plummeted last week as the average 30-year fixed-rate mortgage rose to 6.75% (from 6.52%) and hurricane Ian killed demand.  The number of applications to refinance loans fell 18% and new home purchase loan applications fell 13% for an overall decline of 14.2%.

So far this morning, AONNY, HELE, and RPM have all reported beats on both the revenue and earnings lines.  LW is scheduled to report at 8:30 am.

Overnight, Asian markets were mostly (and in some cases very strongly) green.  Hong Kong (+5.90%) was a clear outlier. Meanwhile, India (+2.29%), Australia (+1.74%), and Taiwan (+1.66%) led the gainers.  Only the mainland Chinese exchanges, Shenzhen (-1.29%) and Shanghai (-0.55%), were red on the day.  In Europe, we see a completely different story, with red across the board at midday.  The FTSE (-1.01%), DAX (-0.75%), and CAC (-0.62%) lead the region lower on volume.  However, most of the smaller exchanges have made bigger moves in early afternoon trade.  This comes as doubt of a central bank pivot sets in among traders.  (For what it is worth UK PM Truss also made another blunder in telling her party conference she is undecided whether to raise government benefits to offset inflation. That may be true, but while there are ongoing protests over “cost of living” in the streets, the optics are just abysmal.  As of 7:30 am, US Futures are pointing toward a down start to the day.  The DIA implies a -0.70% open, the SPY is implying a -0.68% open, and the QQQ implies a -0.65% open at this hour.  10-year bond yields are up again to 3.683% and Oil (WTI) is up another half of a percent to $86.96/barrel in early trading.

The major economic news events scheduled for Wednesday include OPEC+ decision on production cuts (tba), Sept. ADP Nonfarm Employment Change (8:15 am), August Imports/Exports and August Trade Balance (all at 8:30 am), Sept. Services PMI (9:45 am), Sept. ISM Non-Mfg. PMI (10 am), and EIA Weekly Crude Oil Inventories (10:30 am).  We also have another Fed speaker (Bostic at 4 pm).  The major earnings reports scheduled for the day is limited to HELE, LW, and RPM before the open.

In economic news later this week, on Thursday, the Weekly Initial Jobless Claims are reported.  Finally, on Friday, Sept. Avg. Hourly Earnings, Sept. Payrolls, Sept. Participation Rate, and Sept. Unemployment Rate are reported.

In earnings reports later this week, on Thursday, we hear from CAG, STZ, MKC, and LEVI.  Finally, on Friday, there are no major earnings reports scheduled.

With this backdrop, we see that it appears the Fed members have talked us off the hopium (of a Fed easing) that markets had been smoking. All 3 major indices are above their T-lines, but it looks like we are headed back in that direction for a retest. The strong bear trend remains in place and is the indication we should heed. That line more-or-less coincides with a potential support level from a line across the tops starting on 9/23. Continue to expect volatility and watch for the next bearish leg now that we’ve relieved over-extension.

Keep in mind that trading is our job. It’s not a hobby. So, treat it that way. Do the work and follow the process. Stick with your trading rules, trade with the trend, and take those profits when you have them. Demonstrate patience and wait for confirmation. Don’t be stubborn. If you have a loss, just admit you were wrong, respect your stop, and take the loss before it grows. When price does move in your direction, always move your stops in your favor (remember the “Legend of the man in the green bathrobe“…it is NOT HOUSE MONEY, it’s all OUR MONEY!). Lastly, remember that you get rich slowly and steadily in Trading…not by striking it rich on one or two trades. So, give up that lottery ticket mentality.

See you in the trading room.

Ed

Swing Trade Ideas for your consideration and watchlist: SSYS, BBIG, RIG, TSM, VLO, WMT, COST, PINS, ORCL, XOM, FDX, and MSFT. 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.

🎯 Mike Probst: Rick, Got CTL off the scanner today. Already up 30%. Love it.

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

🎯 Arnoldo Bolanos: LTA scanner really works $$, thanks Ed.

🎯 Bob S: LTA is incredible…. I use it … would not trade without it

🎯 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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