Markets gapped about 1% higher for the second straight time on Monday, following Europe and Asia.  They even managed to follow-through for a few minutes.  However, by 10 am, a long, slow selloff had taken over to more than fill the gap and drive to the lows of the day before rebounding the last 10 minutes of the day.  This left us with gap-up, Bearish Engulfing Candles with an upper wick on all 3 major indices.  Once again, all this action is taking place on very low volumes. Energy was far and away the biggest gaining sector, while Healthcare was by far the biggest losing sector of the session.  Four of the 10 sectors were positive with the other six being negative.  On the day, SPY lost 0.79%, DIA lost 0.64%, and QQQ lost 0.85%.  The VXX gained 1.72% to 21.91 and T2122 was flat remaining in the overbought territory at 81.63.  10-year bond yields rose to 2.982% and Oil (WTI) spiked 4.64% to $102.12/barrel.

In economic news, despite the increase in bond yields, the curve remains inverted.  The 5-year bond yields is higher than the 10-year bond yield and the 2-year yield is higher than the 5-year yield.  So “2s vs 5s,” “5s vs 10s,” and “2s vs 10s” are all inverted, which are all potential indicators of a coming recession.  Also related to bonds, it was announced that China’s holdings of US Bonds (debt) fell to $980 billion, below $1 trillion for the first time in 12 years (since May 2010). I am not sure if this is a reflection of the health of the Chinese economy, on Chinese perception of US debt risks, come combination of the two, or pure coincidence.

In business news, more companies are reporting belt-tightening.  Early in the day Monday, GS announced it will slow hiring and reinstitute year-end performance reviews and staff reductions.  Later, AAPL said they will slow hiring and reduce spending for some groups.  This comes after MSFT reported over the weekend that they had laid off 1% of its staff and GOOGL said last week they will slow hiring and expected employees to work harder to avoid job cuts.  It was also reported (but not announced) that META has told team managers to weed out poor performers to reduce staff sizes as its Ad business struggles.

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On the Russian story, as many expected, state-owned Gazprom said that due to “unforeseen circumstances” it is not in a position to comply with gas contracts in Europe.  This claim was made to not only cover future non-supply but also to cover the gas shipment reductions (40%) that Gazprom has put in place since June (as direct responses to Western sanctions). Germany has forcefully rejected the Gazprom “force majeure” claim.  European economists are projecting scenarios where the cutoff of Russian gas would reduce the German GDP by at least 6% with major industries like chemicals being shut down nearly completely.  So, in addition to people staying warm in winter, such a move would crush the European economy.

In Forex news, the dollar dropped early this morning on rumors that the ECB will raise rates by 50 basis points amidst a worsening inflation background.  European bonds and stocks fell on the more hawkish outlook. 

After the close, IBM reported beats on both the top and bottom lines.  However, the company slightly reduced guidance for the year in terms of free cash flow (from $10.5 billion to $10 billion) as well as reporting that gross margins shrank from 55.2% (Q1) to 53.4% (Q2).  So far this morning, JNJ, VLVLY, TFC, HAL, TELNY, CFG, and SBNY have all reported beats on both lines.  Meanwhile, NVS, MAN, and HAS all missed on revenue while beating on earnings.  However, ALLY reported a miss on both the top and bottom line.

Overnight, Asian markets were mixed but leaned heavily to the red side on modes moves.  Japan (+0.65%) and India (+0.38%) were the only appreciable gainers.  Meanwhile, Hong Kone (-0.89%), Thailand (-0.74%), and Australia (-0.56%) paced the losses.  In Europe, stocks are also mixed on modest moves at mid-day.  Russia (-1.92%) is by far the biggest loser.  Meanwhile, the FTSE (+0.28%), DAX (+0.01%), and CAC (-0.12%) are typical of the region in early afternoon trading.  As of 7:30 am, US Futures are pointing toward a gap higher to start the day.  The DIA implies a +0.66% open, the SPY is implying a +0.83% open, and the QQQ implies a +0.88% open at this hour.  10-year bond yields remain flat at 2.98% and Oil (WTI) is down almost 2% to $100.57/barrel.

The major economic news events scheduled for Tuesday include June Building Permits and June Housing Starts (both at 8:30 am).  The major earnings reports scheduled for the day include ALLY, CFG, HAL, HAS, JNJ, LMT, MAN, NVS, SBNY, and TFC before the opening bell.  Then after the close, CALM, IBKR, JBHT, NFLX, and OMC report.

In economic news coming later this week, on Wednesday, June Existing Home Sales and Crude Oil Inventories are announced.  On Thursday we get Philly Fed Mfg. Index and Weekly Jobless Claims.  Finally, on Friday Mfg. PMI and Services PMI are released.

Again, earnings season and recession fears (including those stoked by Russia) are top of mind for most traders. There are smaller issues that pop up, such as rumors NCR is in talks to be acquired by a private equity firm or that individual companies are tightening belts to get ahead of a downturn. However, with the Fed still more than a week out, those two major themes dominate markets. Futures are showing that markets are in a positive mood this morning. However, expect more volatility and chop. The only two things that we know for sure are that we are seeing very low volumes (which tells us there is not much conviction in either the bull or bear camps) and we also know the trend remains bearish until it is broken and price proves it can hold the break.

Stick with your trading rules, trade with the trend, and take those profits when you have them. Demonstrate patience and wait for confirmation. Remember that trading is our job. So, do the work and follow the process. Always move your stops in your favor and remember the “Legend of the man in the green bathrobe“…it is NOT house money, it’s all our money! One way to put this is Buffett’s first rule of making big money in the market, which is to not lose big money in the market. So, don’t be stubborn. If you have a loss, just admit you were wrong, respect your stop, and take the loss before it grows. 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. Lastly, remember it is Friday. So, be prepared for the weekend news cycle.

See you in the trading room.

Ed

Swing Trade Ideas for your consideration and watchlist: MRVL, DKNG, C, SOFI, KWEB, CGC, WMT, AAPL, ARKK, NFLX, AFRM. 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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