Earnings and Weekly Jobless Claims

Markets gapped modestly lower on Wednesday (down 0.48% in the SPY, down 0.33% in the DIA, and down 0.47% in the QQQ).  All three major indices took the first hour to find their footing and then a selloff began at about 10:30 am and lasted until about 11:45 am.  However, at that point, the bears took a rest and all three indices just meandered sideways along the bottom of their range the rest of the day.  This action gave us black-bodied Bearish Harami candles in the QQQ, SPY, and DIA with the latter two being more indecisive (Spinning Top type candles).  All three indices have held their T-lines (8ema) as support so far.

On the day, all 10 sectors are in the red as Technology (-1.79%) led the way lower and Communication Services (-0.20%) held up better than other sectors.  At the same time, the SPY was down 1.10%, the DIA was down 0.61%, and QQQ was down 1.78%.  At the same time, the VXX has shot up 3.74% to 11.66 and T2122 fell back out of the overbought territory and into the midrange at 66.30.  10-year bond yields are down to 3.625% and Oil (WTI) is up by 1.63% to $78.40 per barrel.  So, on the day, we saw an indecisive bearish leaning inside day, but support may be holding and there was not a ton of strength shown by the bears. 

In economic news, EIA Weekly Crude Oil Inventories came in just a bit below expected at 2.423 million barrels (compared to a forecast of 2.457 million barrels and last week’s +4.140 million barrels).  That was the only data.  However, there were several Fed speakers.  For example, Fed Governor Cook told an audience that the strong January Jobs Report coupled with moderating Wage Growth has increased the chances of a soft landing.  Elsewhere, NY Fed President Williams told a Wall Street Journal event that financial conditions are roughly in line with what the FOMC wants to see, but “we still have work to do (on raising rates).”  He went on to say “Moving to a federal funds rate of between 5.00% and 5.25% “seems a very reasonable view of what we’ll need to do this year in order to get the supply and demand imbalances down.”   At the same time, Minneapolis Fed President Kashkari told a Boston group that “there are some hopeful signs” but also “in my judgment…we need to bring the labor market into balance so that tells me we need to do more.”  Meanwhile, Fed Governor Waller told Arkansas State University that “There are signs that food, energy, and shelter prices will moderate this year….and the Fed’s rapid increases in interest rates have begun to pay off.”  However, he went on to say he is not seeing signs of a quick decline and he is “prepared for a longer fight.”  Finally, he said, “Though we have made progress reducing inflation, I want to be clear today that the job is not done.”

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In stock news, bucking trend among big banks, JPM said Wednesday that it will be HIRING 500 new small business bankers between now and the end of 2024.   Later, a US federal judge dismissed a lawsuit against WMT that had claimed the company had deceived customers by selling their Walmart brand “Fudge Mint Cookies” which contain neither fudge nor mint.  Meanwhile, the California New Car Dealers Association said that the TSLA Model Y and Model 3 were the two top-selling cars in that state for 2022.   However, TM retained its top spot for overall vehicle sales in the state, selling 17.3% of all cars sold in 2022 across all its various models.  At the same time, CNC has reached a $215.4 million settlement with the state of CA to resolve accusations of overcharging a state program in 2017-2018.  After hours, AFRM announced it is cutting 19% of its workforce after the CEO said the company deliberately over-hired the last few years to avoid missing product opportunities that were too compelling to miss.  In similar news, DIS said it will cut 7,000 jobs (3.6% of the workforce) as it reorganizes after the recent leadership change.  Finally, GOOGL and GOOG shares took a nosedive on the day as its new AI Chatbot Bard shared wrong information replies during a live-streamed company event to promote the new tool.  The company also failed to provide details on how and when it will incorporate Bard with existing offerings.

In energy news, the front-month March Natural Gas contract fell 7.3% Wednesday.  This erased gains from the prior two days and took the commodity to a level not seen since September 2020, closing at $2.3960/mmBtu.  This was up off the session low of $2.3690.  Meanwhile, Oil (WTI) closed up for the third day in a row as a weakening dollar helped offset what the EIA Weekly report said was a seventh consecutive week of US crude inventory builds, reaching a 20-month high of more than 37 million barrels.  At the same time, the EIA report said Gasoline inventories grew by 5 million barrels to almost 16 million barrels. That same report said distillate (diesel and heating oil) stocks grew by 2.932 million barrels, which was an increase of 2.8 million barrels more than expected.

After the close, DIS, MOH, DCP, ORLY, RE, MGM, DBOEY, AB, EFX, MMS, ASGN, FLT, SONO, NVST, WTS, CXW, NLY, AEIS, and UVV all reported beats on both the revenue and earnings lines.  Meanwhile, GT, PPC, TSE, WYNN, and APP all beat on revenue while missing on earnings.  On the other side, XPO IFF, SON, STC, ENS, ULCC, AVB, TTMI, and MPWR all missed on revenue while beating on earnings.  Unfortunately, PAA, LNC, EQH, MAT, STE, HI, FWRD, and UHAL all missed on both the top and bottom lines.  It is worth noting that IFF, MAT, EFX, STE, TTMI, CXW, and FWRD all lowered their forward guidance.  However, MMS, ENS, and APP raised their forward guidance.

Overnight, Asian markets were mixed with China in the green and the rest of the region in the red.  Shenzhen (+1.64%), Hong Kong (+1.60%), Shanghai (+1.18%), and India (+0.12%) posted the only green.  Meanwhile, Singapore (-0.86%), Australia (-0.53%), and Malaysia (-0.42%) paced the losses.  In Europe, with the lone exception of Norway (-0.08%), the entire region is well into the green at midday.  The FTSE (+0.73%), DAX (+1.29%), and CAC (+1.28%) are leading that region higher in early afternoon trade.  As of 7:30 am, US Futures are pointing toward a gap higher to start the day.  The DIA implies a +0.60% open, the SPY is implying a +0.73% open, and the QQQ implies a +1.11% open at this hour.  At the same time, 10-year bond yields are down to 3.599% and Oil (WTI) is off fractionally to $78.31/barrel in early trading.

The major economic news events scheduled for Thursday is limited to Weekly Jobless Claims (8:30 am).   The major earnings reports scheduled for the day include ABBV, APO, MT, ARES, AZN, BN, BAX, BWA, BRKR, CIGI, DBD, DUK, FAF, GTES, HLT, HII, NSIT, NSP, IPG, ITT, K, LITE, MSGE, MAS, MDU, PATK, PTEN, PEP, PM, RL, SPGI, SEE, TPR, TU, TIXT, TPX, THC, TRI, TM, WMG, WEX, and WTW before the opening bell.  Then, after the close, BHF, CBT, CC, BAP, DXCM, EQR, EXPE, FLO, G, LYFT, MTD, MHK, MSI, NGL, OSCR, PYPL. CNXN, TEX, MODG, USX, VTR, and YELL report.  

Later this week, in economic news Friday, we get the Michigan Consumer Sentiment and Jan. Federal Budget Balance reports and we hear from Fed members Waller and Harker.  In terms of earnings on Friday, ENB, FTS, GPN, HMC, IQV, MGA, NWL, SPB, and SLVM report.

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So far this morning, TM, PEP, PM, MT, CRARY, DUK, THC, BWA, IPG, WTW, HLT, TRI, VWDRY, ITT, BRKR, MSGE, PTEN, and WEX all beat on both the revenue and earnings lines.  Meanwhile, AZN, ASX, TPR, SEE, TPX, ARES, DBD, TIXT, and BN all missed on revenue while beating on earnings.  On the other side, CS, BAX, HII, and KIM all beat on revenue while missing on earnings.  Unfortunately, SIEGY, FAF, MAS, and CIGI missed on both the top and bottom lines.  It is worth noting that PM, WTW, TPR, and CIGI all raised their forward guidance.  However, BAX and MAS lowered their forward guidance.

In late-breaking news, in addition to its earnings miss, CS reported massive and unprecedented client outflows (customers withdrawing their money) while warning there may be more losses in 2023.  Elsewhere, Bloomberg reports that funds have closed more than $300 billion in short positions (according to data from JPM and DB).  This move brought the market closer to its 10-year average neutral position.  While this may seem bullish on its face, it could also mean that there are fewer shorts to squeeze and markets may have a harder time climbing unless the funds get outright bullish and start buying.

With that background, it looks like all three major indices are looking to gap higher while remaining inside the recent trading range (no breakouts). DIA’s gap will take it right back up to a potential resistance level. The trend remains bullish with even the DIA having slipped out of its Wedge formation modestly to the upside. With only the Weekly Jobless Claims scheduled today, look for generally strong earnings (better than had been expected), LUV being grilled by the Senate, and oddball news like yesterday’s GOOG AI demonstration failure to drive markets.

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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