Markets opened flat and ground sideways for the first hour in all three major indices. The bears then stepped in to drive a modest selloff that lasted until 12:30 pm. At that point, again all three major indices ground sideways along the lows. However, at about 2 pm, markets began a rally (slightly stronger than the morning selloff) which continued all the way into the close. This action gave us white-bodied candles with lower wicks and also inside day candles. You might even say the QQQ printed a Hammer that also retested its T-line. So, all three major indices remain in a bullish average stack (3ema > 8ema > 17ema > 50sma > 200sma).
On the day, nine of the 10 sectors were in the green with Financial Services (+0.77%) leading the way higher while Energy (-0.83%) lagged behind the other sectors. At the same time, the SPY gained 0.36%, DIA gained 0.32%, and QQQ gained 0.08%. VXX fell 2.73% to 39.50 and T2122 climbed back into the overbought territory to 90.22. 10-year bond yields continued to shoot higher to close at 3.602% while Oil (WTI) lost 1.85% to $80.99 per barrel. So, Monday was sort of a meandering day that saw price drift lower in the morning and higher in the afternoon but all within a fairly tight range (inside Friday’s candles in all three major indices).
In economic news, on Monday NY Fed’s Empire State Manufacturing Index came in far above expectation at 10.80. This is compared to a forecast of -18.00 and the March reading of -24.60. The 10.80 was the strongest reading since July of 2022. Meanwhile, in political news, US House Speaker McCarthy traveled to Wall Street Monday to pitch the same idea that he has proposed for months. Namely, the GOP will pass a one-year debt ceiling increase (paying debts already incurred, money already spent), in exchange for Democrats and the President agreeing to cut spending back to 2022 levels, reversing some of President Biden’s policies, and then only increasing spending a maximum of 1% per year going forward. The proposal continues to be a non-starter for Democrats and would also require significant cuts to everything else in the budget unless McCarthy’s fellow Republican, Senate Minority Leader McConnell, gives up his (and others) proposed Defense spending increases (which added $118 billion to President Biden’s last Defense budget request of $740 billion). So, the US default versus Debt Ceiling increase (and whatever else rides along with that passage) debate is not likely to get serious until May when pressure builds. This will give financial news more fodder to discuss the implications of a US default on its debt.
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In stock news, LLY announced it will invest $1.6 billion in two Indiana manufacturing plants in order to support the production of its recently approved cancer drug Jaypirca. At the same time, TSLA got bad public relations buzz after the company cut the bonuses of 20,000 employees at its Shanghai factory over the weekend. As a result, employees took to social media to ask the Chinese people to rally behind them and to ask TSLA CEO Elon Musk to override the decision. (These are the same workers he praised in tweets last year for “burning the 3 am oil” to keep operations running during the city’s COVID-19 lockdown.) In other auto-industry news, RNLSY (Renault) announced it is reviewing prices worldwide for its electric vehicles after the latest round of price cuts by TSLA. Elsewhere, PCRFY (Panasonic), which supplies batteries to TSLA, said Sunday that it is considering building a battery plant in Oklahoma after the state passed laws to allow the Governor to offer the company more incentives to do so. Meanwhile, MRK announced a deal to acquire RXDX for $200/share. After the close, it was reported Samsung (SSNLF) is considering replacing GOOGL’s Google with MSFT’s Bing as the default search engine for its phones and tablets. This would be a significant hit to GOOGL’s search ad business.
In stock legal and regulatory news, ILMN settled a patent infringement suit (related to genetic testing patents) brought against it by Ravgen Inc. The settlement details were not disclosed. Elsewhere, the $1.6 billion defamation lawsuit brought against FOX for allegedly defaming Dominion Voting Systems was delayed one day. It is widely believed this delay was to allow FOX to seek settlement terms from Dominion (which has already been granted summary judgment on the facts that FOX knowingly and purposefully published lies about Dominion and that those lies caused Dominion harm). In related news, Reuters reported after the close that a group of FOX investors has now demanded company files and part of the Dominion case discovery as they consider filing suit against FOX directors and executives for the damage they have suffered as a result of the company’s false narrative and fraudulent reporting (and presumably any settlement or judgments) have or will have on their stock value. Meanwhile, the US Treasury Department announced Monday that VLKAF (Volkswagen), BMWYY (BMW), NSANY (Nissan), RIVN, HYMTF (Hyundai) and VLVLY (Volvo) electric vehicles would lose access to a $7.500 tax credit. TSLA Model 3 vehicles will see their eligibility cut to $3,750 while other TSLA models retain the full $7.500 credit. Most F and STLA electric vehicles will also see their tax credit cut to $3,750. GM Bolt, Bolt EUV, Cadillac Lyriq, Chevy Equinox EV and Blazer EV will all still qualify for the $7.500 tax credit. Over at the US Supreme Court, justices declined to hear a GM appeal seeking to revive a racketeering lawsuit against STLA (or more precisely its Fiat division). In other Supreme Court news, the justices did hear an appeal by WORK (owned by CRM now) seeking to have a shareholder lawsuit dismissed. The case accuses WORK of misleading statements prior to the “self-listing” when WORK was offered. At the same time, the SEC filed charges against another cryptocurrency exchange (Bittrex) for operating an unregistered securities exchange. After hours, nine more US states joined the US Dept. of Justice lawsuit against GOOGL that alleges the company broke antitrust law with its digital advertising business (by abusing its dominance).
In banking news, Bloomberg reported that WFC execs are privately concerned that efforts to unionize its bank employees will soon result in union victories. However, the executives say they have plans to spend millions of dollars to address employee “pain points” and defeat organizing efforts. Elsewhere, a report showed that the average regional bank has reported only a 3% reduction in deposits since before the “banking crisis” began. However, there are exceptions, such as SCHW which saw an 11% reduction in deposits. Meanwhile, AAPL has announced a high-yield 4.15% savings account (via partner GS) for users of its Apple Card as it seeks to draw users away from traditional banks.
Overnight, Asian markets leaned heavily to the red side. Only Japan (+0.51%), Shanghai (+0.23%), and Shenzhen (+0.04%) managed any green. Meanwhile, Hong Kong (-0.63%), Taiwan (-0.59%), and New Zealand (-0.44%) led the rest of the region lower. In Europe, the mirror image of Asia is taking shape at midday. Only Russia (-0.21%) and Spain (-0.24%) are in the red. Meanwhile, the CAC (+0.67%), DAX (+0.64%), and FTSE (+0.21%) lead the rest of the region higher in early afternoon trade. In the US, as of 7:30 am, Futures are pointing toward a green start to the day. The DIA implies a +0.39% open, the SPY is implying a +0.41% open, and the QQQ implies a +0.63% open at this hour. At the same time, 10-year bond yields are back down to 3.577% and Oil (WTI) is off 0.20% to $80.69/barrel.
The major economic news events scheduled for Tuesday are limited to March Building Permits and March Housing Starts (both at 8:30 am) and API Weekly Crude Oil Stock Report (4:30 pm) and Fed member Bowman speaks at 1 pm. The major earnings reports scheduled for the day include BAC, BK, ERIC, GS, JNJ, LMT, and PLD before the open. Then, after the close, FHN, IBKR, ISRG, NFLX, OMC, UAL, and WAL report.
In economic news later this week, on Wednesday, EIA Crude Oil Inventories and Fed Beige Books are reported and Fed member Williams speaks. On Thursday, Weekly Initial Jobless Claims, Philly Fed Mfg. Index, and March Existing Home Sales are reported and we get two Fed speakers (Waller and Bowman). Finally, on Friday, Mfg. PMI, S&P Global PMI, and Services PMI are reported.
In terms of earnings reports later this week, on Wednesday we hear from ABT, ALLY, ASML, BKR, CFG, ELV, LAD, MS, NDAQ, EDU, SYF, TRV, USB, AA, CCI, FDS, EFX, FFIV, IBM, KMI, LRCX, LVS, LBRT, STLD, TSLA, WTFC, and ZION. On Thursday, ALK, T, AN, BX, CMA, DHI, EWBC, FITB, GPC, HRI, HBAN, KEY, MAN, MMC, NOK, NUE, PM, POOL, RAD, SNA, SNV, TSM, TFC, UNP, WSO, and WBS report. Finally, on Friday, ALV, FCX, HCA, PG, RF, SDVKY, SAP, and SLB report.
After the close, JBHT reported misses on both the revenue and earnings lines. So far this morning, BAC, JNJ, LMT, ERIC, BK, and CBSH all beat on both the revenue and earnings lines. Meanwhile, GS missed on revenue while beating on earnings. A couple of notes of interest, BAC’s revenue was a 58% larger beat than analysts expected and BK’s revenue was also a 63% upside surprise. At the same time, ERIC’s earnings beat was double the analyst-expected number. It is also worth noting that JNJ has raised its forward guidance.
One last miscellaneous story of note. Bloomberg reports this morning that investors are the most underweight stocks (versus bonds) that they have been since early 2009. This may mean nothing significant for short-term traders. However, for longer-term traders and investors, it means there is a ton of money sitting on the sideline earning almost nothing. That flood of cash back into the market as FOMO kicked in is what led to the massive rally that began in 2009 and continued essentially unbroken until the pandemic in 2020 (or if we throw out that one-off event until the top in 2022). It is just something to keep in mind moving forward.
With that background, it looks like the bulls are trying to break out of the recent range (going back to the start of the month in the case of QQQ) this morning. The bullish trend continues with the moving averages stacked. Over-extension does not appear to be a problem in terms of the T-line (8ema) for any of the major indices. Yet a case can be made that we are getting extended to the upside according to the T2122 indicator. We should also realize we are up against a potential resistance line in the SPY and not too far below on in the DIA. QQQ might be called at “resistance” but it is definitely a weaker or less obvious level. Once again, if we can put aside fear and prediction, the chart is telling us to maintain a long bias on a swing trading horizon while keeping a sharp eye out for trend breaks. So, be careful and go with the flow.
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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