Stocks gapped 1% – 1.5% higher across all 3 major indices on Friday.  However, from that point they just ground sideways in a very tight range, until a pop higher the last 5 minutes of the day.  This left us with gap-up, white-bodied candles that closed very near the high of the day.  Each of those 3 major indices are now sitting just above their respective T-lines (8ema).  It’s worth noting volume remains well-below average.  All 10 sectors were solidly green with Financial Services being by far the hottest group. On the day, SPY gained 1.87%, DIA gained 2.04%, and QQQ gained 1.81%.  The VXX fell 3.5% to 21.54 and T2122 spiked just up into the overbought territory at 81.67.  10-year bond yields fell to 2.926% and Oil (WTI) prices were up almost 1.9% to $97.55/ barrel.  It’s worth noting that the 2yr vs 10yr bond yields and 5yr vs 10yr bond yields both remained inverted at the end of the week.  By the end of the day Friday, 31.35% of stocks were trading above their 40sma.  At the same time, 16.16% of stocks are trading above their 200sma. 

Taking a broader look, on the week, SPY was down 0.92%, QQQ was down 1.17%, and DIA was down 0.24%.  All 3 printed Hammer-type candles on that weekly chart.  However, all 3 also remain below their weekly T-lines and 50sma levels.  Those 50smas also continue to fall.  In short, the trend remains to the downside.

In economic news Friday, the NY Empire State Mfg. Index came in much higher than expected (11.10 vs -2.00 forecast and -1.20 in June).  June Retail Sales also came in a bit above expectation (+1.0% vs +0.8% estimated and -0.1% the prior month).  However, May Business inventories rose slightly more than expected and May Retail inventories were the same as the prior month.  Finally, the Michigan Consumer Sentiment came also in slightly above forecast (47.3 actual versus 47.0 consensus estimate but still down from the June 47.5).  Taken as a whole, these are clues that the Fed will continue on course for a 0.75% rate hike on July 27.

SNAP Case Study | Actual Trade

In supply chain news, over the weekend, President Biden took action to prevent 115k railroad workers from striking today (and for another 60 days). He also appointed an emergency board whose task is to find a contract compromise within 30 days.  This action prevents 30% of US freight from coming to a halt.  However, from a different direction, ADM is among the major rail users already complaining about inadequate (untimely) rail service. The nation’s ports are staggering from slow rail (and trucking) service causing containers to stack up and having nowhere to put them.  The Port of Los Angeles currently has over 33,000 containers waiting for an average of 9-plus days for pickup by rail or trucking shippers. MarineTraffic says over 640,000 containers are sitting on ships waiting to be unloaded at US ports at the moment.  And CNBC says that out of all US ports, only the Norfolk, VA, and NY/NJ ports are operating at normal speeds.  As a potential answer to this, railroads are proposing that they be allowed to reduce the minimum staffing for a train from two to one employee. Not surprisingly, unions oppose the move as a major safety hazard.

In the invasion story, Saturday Russia took another step back toward a centrally-planned economy.  Putin has appointed a new Deputy Prime Minister (Manturov, formerly Trade Minister) whose job is to mobilize the Russian economy to support the war. New laws force companies to accept military contracts (on the military’s terms) and force workers to work nights, weekends, and holidays, as well as give up vacations if the company feels it necessary. Manturov also declared two new focuses of the Russian economy.  First, he plans to develop local (Russian-made) attack drones.  Second, Taiwan won’t sell them advanced chips and even after ramping up the buying of lower-end chips from China, they have decided they want to develop a Russian semiconductor industry (which will take years at best). 

On the same topic from a different perspective, the first step toward creating this new industry would be to get the lithography equipment needed to make a semiconductor Fab plant. However, currently, ASML (Netherlands) is the only source of lithography equipment in the world and they won’t sell to Russia.  So, Russia will need to steal and/or develop this technology to compete with ASML. Elsewhere, from a European economy point of view, Gazprom announced that they extracted 10% less and exported 33% less natural gas in the first 6 months of 2022 compared to 2021. With the natural gas flow now shut down completely (ostensibly for maintenance) and fear Russia will not turn it back on, the SHEL CEO warned Europe that energy rationing may hit the region by winter and the IEA concurred that Russia is likely going to prevent European nations from filling storage tanks before winter to maximize their leverage.

Overnight, Asian markets were green across the board.  Hong Kong (+2.70%), South Korea (+1.90%), and Shanghai (+1.55%) led the region higher but even the laggard (New Zealand) was up 0.37%.  (Japan was closed today for a holiday.) In Europe, the same is true with the exception of Russia (-0.62%) at mid-day.  This comes on optimism from the EU announcing it will sign a new gas supply deal with Azerbaijan (to replace Russian gas) and a weakening dollar.  The FTSE (+1.19%), DAX (+1.28%), and CAC (+1.53%) are leading the region up in early afternoon trading.  As of 7:30 am, US Futures are pointing toward another significant gap higher to start the day.  The DIA implies a +0.96% open, the SPY is implying a +1.01% open, and the QQQ implies a +1.18% open at this hour.  10-year bond yields are at 2.956% and Oil (WTI) is up almost 2% to $99.51/barrel in early trading.

There are no major economic news events scheduled for Monday.  The major earnings reports scheduled for the day include BAC, SCHW, GS, PLD, and SYF before the opening bell.  Then after the close, we hear from IBM.  So far this morning, GS, NRCBY, and SYF have all reported beats on both lines.  BAC beat on revenue while coming in light on earnings.  (SCHW and PLD report closer to the bell.)

In economic news coming later this week, on Tuesday we get June Building Permits and June Housing Starts.  Then 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.

Earnings season will continue to be a big story and leads the news today. Futures are showing that markets like what they hear out of Europe and earnings so far today. However, be aware that both large-cap indices gaps could be seen as testing the mid-term downtrend. (As the old saw goes, “trust but verify”…or in our case get confirmation.) We certainly could have put in a bottom, but the most recent swing-low was a lower-low (for the DIA and SPY) and that puts a kink in a new bullish trend. So, expect more volatility and chop. Since the vast majority of traders don’t remember a similar situation, we are likely to whipsaw back and forth as the market re-learns the lessons taught in prior decades. There are only two things that we know for sure. First, the low volumes of the last few weeks tell us there is not a huge amount of conviction in either the bull or bear camps (and a LOT of retail traders have fled the market). Second, we 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: AI, BA, ARKK, AFRM, TDOC, TCOM, DKNG, TGT, AAPL, NFLX, RIDE, TLT, C. 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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