Markets gapped down modestly on Wednesday (down 0.31% in SPY, down 0.50% in DIA, and down 0.16% in QQQ).  The large-cap indices then wandered sideways with a slightly bearish trend and the QQQ just flat meandered sideways until 2 pm. However, when the Fed announced, we saw volatility to the upside and then to the downside over the next 30 minutes. Yet, as soon as Fed Chair Powell began speaking, we got a strong bullish rally for 75 minutes.  Finally, we saw profit-taking in the last 15 minutes of the day.  This action gave us white-bodied candles with wicks on both ends.  Only the DIA would be seen as a candle signal as it printed an indecisive Spinning Top candle.  IT is worth noting that SPY closed right up against a resistance level.

On the day, nine of the 10 sectors were in the green as Technology (+2.72%) lead the way higher and Energy (-1.52%) lagged behind the other sectors.  At the same time, the SPY was up 1.06%, the DIA was up 0.01%, and QQQ was up 2.14%.  Meanwhile, the VXX was down 3% to 10.98 and T2122 is even higher, deep in the overbought territory to 98.74.  10-year bond yields plunged down to 3.417% and Oil (WTI) was off 2.75% to $76.70 per barrel.  So, on the day, we saw a drift sideways until the Fed Chair began speaking.  At that point, the bulls rallied very hard only to take profits the last 15 minutes of the day.  This all happened on heavier-than-average volume.

In economic news, the January ADP Nonfarm Employment Change came in well below forecast at +106k (compared to an expected +178k and a Dec. reading of +253k). Later, January Mfg. PMI came in slightly above expectation at 46.9 (versus a forecast of 46.8 and the Dec. value of 46.8).  Then the January ISM Mfg. PMI came in below what was expected at 47.4 (compared to the forecast of 48.0 and December’s reading of 48.4).  At the same time, the December JOLTs Job Openings report showed a much higher reading than expected at 11.012 million (versus the forecast of 10.250 million and the Nov. value of 10.440 million).  All of these tend to indicate the Fed policies are having the impacts they had hoped.

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However, the main event of the day was the Fed and in Fed news, the FOMC hiked rate 0.25% to 4.50% – 4.75%, which is the highest since October 2007.  During his press conference, Fed Chair Powell repeatedly referred to the “disinflationary process that has started.”  However, he also said “we’re going to be careful about declaring victory” and “we’ve got a long way to go.”  Powell said the labor market is still out of balance and the Unemployment Rate will need to rise from its low 3.5% level to complete the journey back to 2% inflation.  Finally, in a side note to one question, Powell said “a couple more” (rate hikes were likely to come).  That last note was exactly the music the bulls wanted to hear.

In stock news, FDX announced it was cutting more than 10% of management as part of the overall 2% workforce reduction. The company said it had already reduced staff by 12,000 since June.  Elsewhere, AMGN launched a direct competitor drug to ABBV’s blockbuster arthritis offering (Humira).  Competition is expected to lower customer prices, but analysts are expecting the savings to be limited (~ 5%) since it is in the interest of both companies to keep margins as high as possible.  Meanwhile, Reuters reports that RIVN is laying off 6% of its workforce in an effort to cut costs.  At the same time, the Polish competition watchdog (Office of Consumer Protection) has accused AMZN of misleading consumers via its sales and delivery practices on its website.  In other news, Reuters reports that RPD is considering strategic options after attracting acquisition interest.  (RPD spiked 23% Wednesday afternoon on this report.)  Finally, AMC has requested stockholder approval to increase its shares outstanding by 10 times.  However, it has coupled that proposal with a second very popular one that would convert deeply discounted preferred shares into common stock and the two ideas will be decided on a single vote.  The vote is scheduled for March 14.

In energy news, natural gas continued its relentless march downward, closing down 8% to $2.46/mmBtu on Wednesday.  The front-month natty has lost more than 20% so far this week alone.  This appears to be a consumption-led decline since natural gas inventories are only 4% higher than they were a year ago.  Elsewhere, the midday EIA Crude Oil Inventories showed a much larger-than-expected build in oil stocks.  US Inventories went up 4.140 million barrels (compared to a forecast of +0.376 million barrels and following last week’s build of +0.533 million barrels).  This was the sixth straight week of oil inventory builds in the US.  As mentioned above, WTI closed down 2.75% at $76.70/barrel (which was actually after recovering from an afternoon low of $76.08/barrel).

After the close, ALGN, ALGT, ALL, AFG, AVT, CCS, CTVA, ENVA, THG, HOLX, MCK, MTH, META, MAA, QRVO, TTEK, and UGI all reported beats on both the revenue and earnings lines.  Meanwhile, AFL, BHE, CHX, DXC, GL, LFUS, MOD, and RRX missed on revenue while beating on earnings.  On the other side, PTC and SLM both beat on the revenue line while missing on earnings.  However, CHRW, HTHIY, LSTR, MET, and MUSA missed on both the top and bottom lines.  It is worth noting that ALGN, AVT, GL, HOLX, MCK, PTC, SLM, and TTEK all raised their forward guidance.  Unfortunately, BHE, CCS, CHX, CTVA, DXC, LSTR, LFUS, and QRVO all lowered their own forward guidance.

Overnight, Asian markets were mixed on modest moves.  Taiwan (+1.14%), South Korea (+0.70%), and Malaysia (+0.29%) led the gainers.  Meanwhile, Hong Kong (-0.52%), Singapore (-0.41%), and Shenzhen (0.22%) paced the losses.  In Europe, the bourses lean heavily to the green side at midday.  The FTSE (+0.57%), DAX (+1.29%), and CAC (+0.22%) lead the way higher while only a couple smaller exchanges show any red in early afternoon trade.  As of 7:30 am, US Futures are pointing toward a very mixed open.  The DIA implies a -0.42% open, the SPY implies a +0.38% open, and the QQQ implies a +1.32% gap higher at the open.  At the same time, 10-year bond yields continue to fall at 3.389% and Oil (WTI) is down six-tenths of a percent to $75.98/barrel in early trading.

The major economic news events scheduled for Thursday include Weekly Initial Jobless Claims, Q4 Nonfarm Productivity, and Q4 Unit Labor Costs (all at 8:30 am), and December Factory Orders (10 am).   Major earnings reports scheduled for the day include FLWS, ABB, WMS, APD, ALFVY, ATI, AME, APTV, ARCO, ARW, ABG, AVY, BALL, BCE, BCX, BERY, BMY, BR, BIP, BC, CAH, CMS, CNHI, COP, DB, LLY, EL, RACE, FCFS, HBI, HOG, HSY, HON, ITW, ICE, LANC, LAZ, LEA, MMP, MKL, MRK, NJR, PH, PENN, DGX, RCI, SBH, SNDR, SIRI, SNA, SONY, SWK, TT, GWW, WNC, and WEC before the opening bell.  Then, after the close, GOOGL, AMZN, AAPL, TEAM, BSMX, BZH, BYD, CVCO, CRUS, CLX, CTSH, COLM, DECK, F, GEN, GILD, GOOG, HIG, HUBG, KMPR, LPLA, MEOH, MCHP, MTX, OTEX, POST, QCOM, RGA, SIGI, SKX, SKYW, SBUX, and X report.  

In economic news later in the week, on Friday, Jan Avg. Hourly Earnings, Jan. Nonfarm Payrolls, Jan. Participation Rate, Jan. Unemployment Rate, Services PMI, and ISM Non-Mfg. PMI are reported.  In terms of earnings later this week, on Friday, we hear from AON, ARCB, AVTR, SAN, BSAC, BBU, BEPC, BEP, CBOE, CHD, CI, LYB, MOG.A, NFG, REGN, SAIA, SNY, and ZBH.

So far this morning, CAH, MRK, BMY, CNHI, ABB, BBVA, EL, BDX, BCE, LEA, APTV, AWK, PH, TT, BIP, RCI, DGX, MKL, HSY, WEC, CMS, AME, RACE, DNA, HOG, SBH, FLWS, VSTO, JHG, NJR, FCFS, SXC, DLX, and IMKTA all beat on both the revenue and earnings lines.  Meanwhile, SHEL, SONY, HON, TAK, LLY, IFNNY, BERY, APD, ABG, SIRI, DASTY, BC, ALFVY, BR, ATI, and WNC all missed on revenue while beating on earnings.  On the other side, COP, ICE, HBI, LAZ, and GOOS beat on revenue while missing on earnings.  Unfortunately, APDSKFRY, AVY, PENN, WMS, and BALL missed on both the top and bottom lines.  It is worth noting that BMY, LLY, BDX, PH, TT, HSY, RACE, NJR, and WNC all raised their forward guidance.  However, MRK, EL, LEA, APTV, SWK, SIRI, AVY, HBI, WMS, and GOOS all lowered their own forward guidance.

With that background and more data ahead, it looks like the recent leaders (QQQ and SPY) are going to gap up and try to take markets higher this morning. However, the mega-cap DIA is looking to gap down and is languishing inside its recent wedge, just above its T-line. The SPY is completing its golden cross (50sma cross above 200sma) this morning. A certain group of traders will see that as a great sign and will get long. So, the trend, gaps, technical signs, and two broader market indices are all bullish this morning. Perhaps it is a rotation out of the safety mega-cap names that is weighing the DIA down. Regardless, the bias is bullish, but a lot of economic data is still showing a slowing economy. So, there will continue to be some headwinds.

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.

Ed

🎯 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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