Earnings Mixed Jobless Claims On Tap

Markets gapped down to open in a divergent way on Wednesday (down 0.49% in SPY, down 0.19% in the DIA, and down 0.78% in the QQQ).  However, the SPY and QQQ immediately began to rally and recrossed that gap by early afternoon.  From there, both of them traded sideways into the close at very near the previous closing price.  Meanwhile, the DIA began trading sideways right after its gap lower and continued to undulate just below that opening price all day.  This action gave us gap-down, white-bodied candles in both the SPY and QQQ that retested and held their T-lines (8emas).  At the same time, the DIA printed an inside day, indecisive Doji candle that also held a retest of its T-line.  All of this happened on very low volume (far below the average volume in all 3 major indices).

On the day, six of the 10 sectors were in the red with Energy (-0.93%) leading the way lower while Financial Services (+0.57%) held up better than other sectors.  At the same time, the SPY lost 0.02%, DIA lost 0.27%, and QQQ lost 0.05%.  VXX fell another 0.38% to 39.09 and T2122 fell slightly to just outside the overbought territory to 79.79.  10-year bond yields rose a bit to close at 3.595% while Oil (WTI) dropped 2.35% on the day to $78.95 per barrel.  So, Wednesday was teed up for the bears at the open but they just could not deliver.  Bulls simply did not want to give up and bought the dip led by regional banks.  Yet, it remained an indecisive day as the bulls also failed to break out.  All we can say for sure is that we are sitting in a consolidation area with a bullish trend still intact as the 3ema > 8ema > 17ema > 50sma > 200sma.   

In economic news, the EIA Weekly Crude Oil Inventories fell more than expected with a 4.581-million-barrel drawdown (versus to a forecasted 1.088-million-barrel drawdown and farther below the prior week’s 0.597-million-barrel inventory build). The drawdown was largely due to a combination of increased exports and refineries reopening.  At the same time, EIA reported a gasoline inventory build of 1.300-million-barrels (compared to a forecasted 1.267-million-barrel drawdown and the prior week’s 0.331-million-barrel drawdown).  In addition, Weekly Distillate (diesel and heating fuel) Stocks fell 0.356-million-barrels (versus a forecasted 0.927-million-barrel drawdown and the prior week’s reading of -0.606-million-barrels).  Finally, the Fed Beige books showed that economic activity in the US has changed very little in recent weeks and the prospects for future growth were mostly unchanged.  However, there were signs that inflation was cooling as lenders’ new loan volumes and loan demand fell and several banks tightened lending standards.  The report also noted “modest-to-sharp declines in the prices of nonlabor inputs and significantly lower freight costs in recent weeks.”

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In stock news, TOYOF (Toyota Motors) announced it will invest $338 million in a plant to manufacture hybrid compact cars in Brazil. GM and VLKAF (Volkswagen) both have recently announced similar investments in the same technology in Brazil.  In other auto news, VLVLY rolled out a new electric “coupe-shaped SUV” that has no rear window.  Meanwhile, META carried out another round of job cuts (as part of its previously announced 10,000 job cuts during 2023).  No specific number of layoffs was mentioned but this round seems focused on the software engineers and related teams.  In the late afternoon, GE announced that workers at its largest union (about 3,000 employees) have ratified a new two-year contract.  Eight other smaller GE employee unions also ratified contract extensions.  Elsewhere, SNAP rolled out a new AI-powered chatbot to all users (it had previously only been available to their premium subscribers) on Wednesday.

In stock legal and regulatory news, the NHTSA reported that STLA is recalling almost 132,000 2021 Model Ram 1500 pickups due to powertrain software issues. Meanwhile, AMGN won an appeal, which upholds patents that bar generic versions of its psoriasis drug Otezla (which had been proposed by NVS).  AMGN sold $2.2 billion of the drug in 2022.  At the same time, the US 5th Circuit Court of Appeals said it will fast-track the review of ILMN’s challenge of the US FTC’s order to divest Grail LLC (which ILMN acquired and closed prior to regulatory approval).  It is worth noting that the EU also ordered ILMN to divest Grail back in December.  In Asia, Chinese government investigators concluded that the TSLA factory (where an employee died on February 4) had safety weaknesses and recommended an unspecified penalty.  Elsewhere, the US 9th Circuit Court of Appeals ruled that AMZN must face a class action lawsuit claiming that the company illegally monitored a private Facebook group used by employees to discuss working conditions.  In the semiconductor sector, GFS sued IBM, claiming that IBM shared the proprietary intellectual property of GFS with INTC and a new Japanese-state-backed chip-building consortium named Rapidus.  After the close, TSLA announced it has settled its lawsuit against a former employee they accused of stealing trade secrets.  No details of the settlement were announced.  Finally, STX agreed to pay $300 million for violating sanctions and shipping Chinese phone maker Huawei $1.1 billion worth of hard drives between mid-2020 and mid-2021.

After the close, LRCX, CCI, EFX, LVS, LBRT, FFIV, WTFC, and FNB all beat on both the revenue and earnings lines.  Meanwhile, TSLA, IBM, STLD, and KMI all missed on the revenue line while beating on earnings.  On the other side, DFS and ZION both beat on revenue while missing on the earnings line.  Unfortunately, AA missed on both the top and bottom lines.  It is worth noting that FFIV also lowered its forward guidance. It is also worth noting that AA had a massive 360% surprise miss on earnings while LVS had a strong 65% upside surprise on earnings. Regional banks ZION, WTFC, and FNB all reported strong upside surprises in revenue (27%, 30%, and 26% respectively).

Overnight, Asian markets leaned heavily to the red side on modest moves, with only Japan (+0.18%), Hong Kong (+0.14%), and India (+0.03%) clinging to the green.  Meanwhile, Thailand (-0.99%), South Korea (-0.46%), and Taiwan (-0.40%) paced the losses in the rest of the region.  In Europe, we see red across the board at midday.  The DAX (-0.77%), CAC (-0.43%), and FTSE (-0.12%) are leading the region lower in early afternoon trade.  In the US, as of 7:30 am, Futures are pointing toward another gap lower to start the day.  The DIA implies a -0.42% open, the SPY is implying a -0.66% open, and the QQQ implies a -0.91% open at this hour.  At the same time, 10-year bond yields are starting the day down at 3.566% and Oil (WTI) is off more than 1.5% to $77.90/barrel in early trading.

The major economic news events scheduled for Thursday include the Weekly Initial Jobless Claims and Philly Fed Mfg. Index (both at 8:30 am) and March Existing Home Sales (10 am).  We also get two Fed speakers (Waller at noon and Bowman at 3 pm).  The major earnings reports scheduled for the day include 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 before the open.  Then, after the close, CSX, KLNX, PPG, STX, VMI, and WRB report.  

In economic news later this week, on Friday, Mfg. PMI, S&P Global PMI, and Services PMI are reported.  On the earnings front later this week, on Friday, ALV, FCX, HCA, PG, RF, SDVKY, SAP, and SLB report.

So far this morning, DHI, GPC, KEY, SNA, CMA, HRI, SNV, MMC, HBAN, and HSQVY (Husqvarna) all reported beats on both the revenue and earnings lines.  Meanwhile, T, PM, BX, and TSM missed on revenue while beating on the earnings line. On the other side, AXP, RAD, NOK, TFC, and TCBI all beat on revenue while missing on earnings.  Unfortunately, ALK and POOL missed on both the top and bottom lines.  It is worth noting that DHI and GPC raised their forward guidance while TSM and POOL lowered forward guidance.  Among the notable surprises were a 158% upside surprise on revenue from PM, a 44% upside surprise on earnings by DHI, a 61% downside surprise by RAD, and most of the regional banks posting 30% – 60% upside revenue surprises.

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In banking news, analytics company Attom Data reported Wednesday that the rate of US foreclosures rose 22% in Q1 (compared to Q1 2022), hitting a 3-year high.  It also reported that home repossessions also climbed 6% versus 2022.  However, we should note that much of the preceding three years was covered by a foreclosure moratorium and the number of foreclosures is still lower than they were prior to the pandemic.  They are also only a fraction of the record foreclosures in a quarter from back in 2009. 

In miscellaneous last-minute news, TSLA signaled more price cuts lay ahead even as it reported the margin damage from its recent spate of discounts.  Analysts argued on Bloomberg over whether this was aimed at killing off upstart rivals which have sprung up all over or is just trying to keep new plants from needing to idle.  Either way, the fact is that TSLA growth has dramatically slowed and discounts are one way to create more demand.  In other electric vehicle news, TM introduced new models and broadened its offerings to China (like most EV makers did at the Shanghai Auto Show with the glaring exception of “no show” TSLA at this year’s event).  Elsewhere, Swedish Home Goods company IKEA (not US listed) said it will invest $2.2 billion in the US over the next three years to update stores, build new order pickup centers, and expand its footprint in the US.  Finally, the most important chipmaker in the world, TSM, forecasts a weak market for chips for the rest of 2023.  However, the company is sticking with its $36 billion investment plan for 2023 to increase capacity.

With that background, it looks like the bears are again retesting the T-line (8ema) as support in all three major indices this morning. (The QQQ could even be gapping down through the T-line.) However, there is still some economic data before we get to the open. Regardless, the consolidation within a bullish trend remains in place and the moving averages remain stacked bullishly. Over-extension is obviously not a problem in terms of the T-line and the T2122 indicator is also not overbought at the moment (but close to that area at the top of the mid-range). We should also realize that the SPY, DIA, and QQQ all sit not far from potential support below or from potential resistance above. Once again, we have to put aside what we think/feel will should happen and just follow the chart. Right now, the chart tells us to maintain a long bias on a swing trading horizon while keeping an eye peeled, watching for trend breaks. So, be careful and continue go with the trend.

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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