Markets were disappointed in lowered forward guidance from both WMT and HD on Tuesday.  This caused a gap lower at the open (down 1.02% in the SPY, down 1.05% in the DIA, and down 1.30% in the QQQ).  After 15 minutes of fading the gap (tempting the dip buyers), the bears took over for a long, slow selloff that lasted until 2:30 pm.  At that point, prices ground sideways in a tight range near the low for the last 90 minutes of the day.  This action gave us gap-down, big-bodied, black candles with little to no lower wick in all three major indices.  All three are well below their T-line (8ema) with the DIA crossing down through its 50sma and SPY coming down close above its own 50sma by the close. 

On the day, all 10 sectors were in the red as Consumer Cyclical Energy (-3.30%) led the way lower and Consumer Defensive (-0.65%) held up better than the other sectors.  At the same time, the SPY was down 2.01%, the DIA was down 2.08%, and QQQ was down 2.37%.  The VXX spiked higher by 7.8% to 12.58 and T2122 plummeted deep into the oversold territory at 7.52.  10-year bond yields spiked hard to 3.954% and Oil (WTI) is down fractionally to $76.05 per barrel.  So, on the day, we saw a gap lower, a small bull trap, and then an all-day selloff on average volume (just greater than average in the SPY, and just below average in the DIA and QQQ).

In economic news, the Manufacturing PMI came in slightly above expectation at 47.8 (compared to a forecast of 47.1 and the January reading of 46.9).  At the same time, the Services PMI came in above forecast too at 50.5 (versus the expected 47.2 and the January reading of 46.8).  Meanwhile, the S&P Global Composite PMI beat the expectations too at 50.2 (compared to a forecast of 47.5  and a January value of 46.8).  It is worth noting that any of these PMI reading above 50.0 indicates economic growth while numbers below 50 indicate contraction.  Later in the morning, January Existing Home Sales came in below expectations at -0.7% (versus a forecast of +2.0% but still better than the December reading of -2.2%).  This drop was the 12^th straight monthly decline and also reached the lowest level (annually-adjusted 4.000 million units) in 12 years.

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In stock news, TSLA announced it has paused some plans to produce entire batteries in Germany and will instead carry out some of the steps in the US to take advantage of new US tax incentives.  Meanwhile, MSFT announced it will offer its PC games to the NVDA cloud gaming service.  This is seen as a move to appease critics of the MSFT acquisition of ATVI, as one of the grounds was that the AVTI game franchise “Call of Duty” would only be available via XBOX.  The deal with NVDA ensures Call of Duty will be available via XBOX, PCs, Macs, Chromebooks, Smartphones, and tablets.  At the same time, HSBC announced that it has cut the employee annual bonus pool by 4% to $3.4 billion, citing a global slump in demand for bankers to finance M&A deals.  Still, in the same release, HSBC also raised its CEOs pay by 14% to $6.7 million.  Then, after the close, Reuters reported that T is looking to sell its cybersecurity division in an attempt to pay down debt that it has lumbered under since the $108.7 billion purchase of Time Warner (which it has since sold) in 2018.  In similar news, C announced after the close that it has raised its CEO pay to $24.5 million (a 9% hike). Finally, AMZN is facing major pushback on its decision to force employees to return to the office as of May 1. Overnight, more than 5,000 employees signed a petition pushing CEO Jazzy to drop the return to office mandate. This came in addition, to thousands of internal office Slack system spam messages deriding the decision.

In stock legal and regulatory news, the EPA ordered NSC to clean up contaminated soil and water at the site of its East Palestine OH derailment wreck in early February.  It also ordered the company to send representatives to every public meeting with local residents after the company skipped the most recent one, citing fear for the safety of company employees.  Elsewhere, Swiss Financial Regulators are reviewing remarks made by the Chairman of CS.  Chairman Lehmann apparently told a Financial Times interview that the “outflows from the company (by customers) stabilized by December 1 (time of interview),” going as far as to say they had “flattened out” and partially reversed”.  However, the Swiss Regulator noted that customer outflows continued before, during, and after that interview.  Meanwhile, AMC shareholders (led by a public employee retirement system) have sued the company over issuing new shares without shareholder consent, in violation of state law.  Finally, the Biden Administration will not veto the US International Trade Commission ban on the US import of AAPL watches for infringing on patents owned by Alivecor.  (This refusal to veto is normal as Presidential vetoes of ITC rulings are rare.)

In energy news, CHK sold 2,300 wells and 172,000 acres of drilling rights (a portion of its Eagle Ford basin holdings) for $1.4 billion.  The deal is expected to close during Q2 2023.  Meanwhile, the March front-month Natural Gas future closed down again (another 7.8%) to $2.057/mmBtu (another 2.5-year low).  Analysts see minor support at $1.98/mmBtu, but below that prices are said to be likely to fall to $1.80/mmBtu.  This comes as another couple of days of uncommonly warm weather is forecast for the Ohio Valley region and Mid-Atlantic states.  Finally, the International Energy Agency (IEA) said Tuesday that the oil and gas industry could slash global methane emissions by 75% with an investment of just 3% of the industry’s 2022 income.  The energy sector is the source of 40% of methane emissions and the reason this is important is that methane has 85 times more warming effect than CO2.  Major oil companies have not (yet?) made a reply to the announcement.

After the close, CHK, CZR, CVI, FANG, AGR, TOL, PANW, MATX, KEYS, PSA, FLS, O, BKD, SBAC, LZB, IAA, WSC, CSGP, ALIT, and EXAS all beat on both the revenue and earnings lines.  Meanwhile, COIN, CWH, GFL, CW, and IOSP all missed on the revenue line while beating on earnings.  On the other side, UFPI, BXC, ESI, and MTDR beat on the revenue line while missing on earnings.  Unfortunately, BCC, RIG, and UNVR missed on both the top and bottom lines.  It is worth noting that PANW, SBAC, and EXAS raised their forward guidance.  However, PSA, O, and CSGP have lowered their forward guidance.

Overnight, Asian markets were red across the board.  South Korea (-1.68%), India (-1.53%), and Japan (-1.34%) led the region lower.  Meanwhile, in Europe, we see the same picture taking shape at midday.  The European bellwethers FTSE (-1.15%), DAX (-0.73%), and CAC (-0.89%) are leading the continent lower even as several of the smaller exchanges have larger losses in early afternoon trade.  As of 7:30 am, US Futures are pointing toward a flat start to the day.  The DIA implies a +0.04% open, the SPY is implying a -0.01% open, and the QQQ implies a +0.02% open at this hour.  At the same time, 10-year bond yields are down a bit to 3.935% and Oil (WTI) is off 0.85% to $75.74/barrel in early trading.

The major economic news events scheduled for Wednesday is limited to the February FOMC Minutes (2 pm), the API Weekly Crude Oil Stock Report (4:30 pm) and Fed member Williams speaks (6:30 pm).  The major earnings reports scheduled for the day include ALLE, BIDU, BLCO, BCO, CRL, CSTM, CRVN, GRMN, GIL, IBP, IQ, NI, OSTK, PRG, SBGI, TRGP, TJX, TNL, UTHR, VRT, and WWW, before the opening bell.  Then after the close, ATUS, ANSS, APA, BTG, CPE, CAKE, CHRD, CDE, FIX, CTRA, CCRN, DVA, EBAY, ETSY, EXR, GSM, FNF, ICLR, LBTYA, VAC, DOOR, MATV, MOS, MYRG, NTAP, NVDA, OPAD, OGS, OUT, PAGS, PARR, PK, PDCE, PXD, PR, RXT, RIO, RYI, SNBR, SM, STN, SUI, RUN, TDOC, VMI, and WES report.

In economic news later this week, on Thursday, we get Q4 GSP, Q4 GDP Price Index, Weekly Initial Jobless Claims, and EIA Crude Oil Inventories.  Finally, on Friday, the January PCE Price Index, January Personal Spending, Michigan Consumer Sentiment, and January New Home Sales are reported.

In terms of earnings later in the week, on Thursday, BABA, AMR, AEP, AMT, HOUS, AMBP, AAWW, BBWI, BHC, CBRE, CQP, LNG, COMM, DPZ, DTE, EME, AG, FCN, GPC, GFI, IRM, KDP, LKQ, MRNA, MODV, NTES, NEM, NICE, NOMD, OPCH, PZZA, PCG, PRMW, PWR, RCII, SPTN, SRCL, FTI, TFX, BLD, TAC, VIPS, W, YETI, ACCO, ATSG, ACA, ADSK, BALY, BECN, SQ, BKNG, BWXT, CVNA, CE, CGAU, CENX, CHE, CWK, EIX, ERIE, FTCH, FND, INTU, LYV, MTZ, MELI, OII, ZEUS, OPEN, PBA, PRI, RHP, SEM, SWN, VICI, WBD, and INT report.  Finally, on Friday, we hear from CM, GTLS, CNK, EOG, EVRG, FMX, FYBR, GTN, DINO, IEP, LAMR, and CRC.

So far this morning, BIDU, NI, IQ, BCO, CRL, ALLE, FDP, GEL, QUAD, and PRG all reported beats on the revenue and earnings lines.  Meanwhile, GRMN and TNL missed on revenue while beating on earnings. Unfortunately, CSTM, VRT, GIL, WWW, OSTK, UTHR, and DRVN all missed on both the top and bottom lines.  It’s worth noting that VRT and ALLE both raised their forward guidance.  However, GRMN and CRL both lowered their forward guidance.  (TJX, TRGP, AGESY, IBP, and STLA all report later in the morning.)

With that background, it looks like the bulls have pushed premarket prices up off the lows and are now looking to gap higher by between a quarter and a half of a percent. If this holds into the morning, it will help with the extension (which was not “terrible” anyway) below the T-line (8ema) among the three major indices. However, T2122 still shows us well inside the oversold reversal zone. The Fed Minutes are the big news of the day, but it seems unlikely that we will hear anything that we don’t know already (hikes will continue with a preference to stay at a quarter percent hike…remember, the meeting took place before the hot January Payrolls and CPI reports came out). As of this morning, we still have 79% of the Fed Futures bets on a quarter-percent hike while 21% are looking for a half-percent hike in March. All three major indices also have potential support levels not too far below. However, the trend (and momentum as of Tuesday) are bearish in the short term while the basic character of the market has been “chop and thrash back-and-forth” in recent weeks. So, continue to show some caution.

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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