Markets opened with a modest gap higher in the 3 major indices Tuesday (up 0.3% in the SPY and DIA and up 0.6% in the QQQ).  After immediately recrossing that gap the bulls stepped in to rally prices for 2 hours in all 3 of those indices.  Then we traded sideways in a VERY tight range for about 2 hours.  At 1:15 pm, we started a very strong selloff that crossed back down to the lows of the day and lasted until 2:30 pm.  At that point, markets reversed yet again and strongly rallied back across the morning gap and about three-quarters of the way back to the highs of the day, only for another selloff to take us back down the last 30 minutes.  This action gave us very indecisive Spinning Top candles in all 3 indices.  The body of these candles is right at the T-line (8ema) in the QQQ, just above the T-line in the SPY, and just above the breakout of the J-hook pattern in the DIA. 

It is worth noting that the DIA action happened on heavier than average volume, while the SPY and QQQ failed to reach their average volume levels.  On the day, nine of the ten sectors are in the green with only the Energy (-0.16%) in the red while the Basic Materials (+2.05%) sector was far out front and Technology (+0.81%) led the pack of sectors higher.  Meanwhile, SPY gained 0.52%, DIA gained 1.00%, and QQQ gained 0.71%.  The VXX is up 2.91% to 17.66 and T2122 has remained just in the overbought territory at 83.53.  10-year bond yields continue to be very volatile and fell back to 4.134% and Oil (WTI) was down 2.77% to $89.25/barrel.  So, overall, it was a very indecisive and whipsaw day punctuated by a strong morning rally, a mid-day drift, and then an afternoon selloff and rebound.  It’s also clear money was chasing the safety of the mega-cap DIA.

In economic / energy news, the EIA Short-Term Energy Outlook came out Tuesday.  It said the US Q4 and Q1 natural gas prices are expected to be a whopping 17% lower than the EIA had forecast in October.  This is based on a huge increase in natural gas storage as winter approaches.  The report also said it expects natural gas and coal-fueled electricity generation to fall in 2023 from 24% (2022) to 22% (2023).  Finally, the group expects Russian oil output to decrease 14% in 2023, down to 9.3 million barrels per day.  Elsewhere, after the close, the API Weekly Crude Oil Stocks report showed a large unexpected build in oil inventories.  The API report shows a build of 5.618 million barrels over the week compared to a forecast of a 1.100-million-barrel increase and last week’s 6.530-million-barrel drawdown.

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In stock news, GFI ended its bid to acquire AUY after a joint bid of $4.8 billion was made by AEM and PAAS.  (The GFI bid back on May 31 had been $6.7 billion, but that offer has declined to $4 billion as GFI stock declined since the end of Spring.)  Across the pond, STLA won its appeal of an EU order to pay $30 million in back taxes to Luxembourg.  This was a blow to EU rulings that are intended to stop sweetheart tax deals between EU countries and companies.  Meanwhile, Airbus announced that it delivered 60 jets in October, up from 55 in September.  This contrasts with BA, which delivered 35 jets in October down from 51 in September after a fuselage flaw caused delays in the production and delivery of 737 Max planes.  After the close, space company ASTR announced it is laying off 16% of its workforce as the faces rocket delays. Finally, META began laying off 11,000 employees at 6 am today.

In international news, there is an opposite side of the economic harm caused by Russia’s war of aggression in Ukraine.  The country of Georgia says it has received more than 100,000 Russian immigrants, most of which are college educated and many of whom brought significant money with them. As a result, Georgia anticipates its 2023 GDP will be close to 10% compared to pre-Russian-draft forecasts of 2.5% GSP growth.  (Of course, one assumes those people will return home someday.)  In China, the government has expanded a financing program aimed at shoring up troubled real estate developers amid that country’s growing loan defaults from that sector.  The plan will offer $34.5 billion of bond financing to private firms that are at risk of defaulting on loans.

After the close, SFM, AKAM, GO, AMC, MRC, JKHY, MASI, ARRY, NOG, GXO, OVV, NLOK, and VVX all reported beats on both the revenue and earnings lines. Meanwhile, OXY, DAR, and OSCR reported beats on revenue while missing on earnings.  On the other side, DOX, PRI, AMRK, and ANGI missed on revenue while beating on earnings.  Regrettably, DIS, NWS, NWSA, FNF, IAC, VSAT, and NVAX all missed on both the top and bottom lines.

So far this morning, PFGC, SPTN, ICL, CPRI, HGV, CLMT, NOMD, and CRBG all reported beats on both the top and bottom lines.  Meanwhile, GIB, HBI, BHG, WEN, and COHR all missed on revenue while beating on earnings.  Unfortunately, DHI, RCI, MIDD, WWW, and SEAS all missed on both the revenue and earnings lines.  It is worth noting that HBI, BHG, and WWW all also lowered their forward guidance.

Overnight, Asian markets were mixed.  Taiwan (+2.18%), South Korea (+1.06%), and Singapore (+0.63%) led the gains while Hong Kong (-.120%), Shenzhen (-0.79%), and Thailand (-0.62%) paced the losses.  In Europe, markets are leaning to the downside at midday.  The FTSE (-0.27%), DAX (-0.56%), and CAC (-0.35%) are typical of the early afternoon trade.  However, there are three small exchanges that are barely green and three smaller exchanges that are down more than one percent at this point.  As of 7:30 am, US Futures are pointing toward a down open as the market reacts to GOP gains in mid-term elections with cautious pessimism.  The DIA implies a -0.36% open, the SPY is implying a -0.31% open, and the QQQ implies a -0.32% open at this hour.  10-year bond yields are down slightly to 4.126% and Oil (WTI) is off 0.84% to $88.15/barrel in early trading.

The major economic news events scheduled for Wednesday, we get EIA Crude Oil Inventories (10:30 am), the WASDE Ag Report (noon), and another Fed speaker (Williams at 3 am).  The major earnings reports scheduled for the day include BHG, CLMT, CPRI, GIB, COHR, CRBG, DHI, GGB, HBI, HGV, ICL, LTH, MIDD, NOMD, PFGC, RBLX, RCI, SEAS, SWX, SPTN, TRP, TGNA, WEN, and WWW before the open.  Then, after the close, ADV, ATO, BGS, BRFS, CANO, CPNG, CRGY, ENS, FSM, G, JXN, JAZZ, KGC, LNW, MFC, RBT, NGL, RXT, RDFN, RNG, RIVN, STE, TTEK, TTEC, VET, and WYNN report. 

In economic news later this week, on Thursday, October CPI, Weekly Initial Jobless Claims, October Federal Budget Balance, and 2 Fed speakers (Mester at 1:30 pm and George at 2:30 pm) report.  Finally, on Friday, we get Michigan Consumer Sentiment.

It is a bit lighter week of earnings reports as, on Thursday, we hear from AZN, AZUL, BDX, BAM, CAE, CEPU, EPC, GBTG, KELYA, EYE, NICE, PRMW, RL, SBH, SIX, TPR, TDG, USFD, WRK, WE, YPF, BZH, COMP, EDR, FLO, ITUB, STN, and TOST.  Finally, on Friday, AQN reports.

As the mid-term results settle, it appears GOP gains were less than expected, picking up control of the House, but with the Senate likely to once again come down to a runoff race in GA. Meanwhile, in the crypto world, yesterday the exchange Binance saved its competitor FTX buy buying out that company to prevent its failure. This comes after several billions of dollars were withdrawn from FTX in 72 hours as its own coin crashed. Bitcoin fell 3% overnight on the reaction. At this point, all eyes move on from elections toward Thursday’s inflation number.

With that background, it looks like the markets are set to open with a down, but “inside day” type of price. At this point, extension from the T-line is not an issue and T2122 is just barely into the overbought territory. The divergence between the mega-cap DIA (which has been pulling markets higher pretty much single-handedly as of late and the other two indices is the elephant in the room. “How long can those few stodgy mega-caps hold up the entire market” is the question. With all this said, remember that the reality of the economy and the direction of the economy has not been changed one bit by the election. It is all about perception and reaction today. So, beware of the knee-jerk reaction as well as follow-on tremors if/when sore losers start challenging the legitimacy of elections in various spots around the country. The bottom line is that we should be cautious and sustained in our actions. Don’t jump “all in” and “all out.” Slow and steady wins the race.

Be deliberate and disciplined, but don’t be stubborn. Remember that it is 100 times more important to avoid big mistakes than it is to pick big winners. If you have a loss, admit you were wrong and take the loss before it gets out of hand. And when price does move in your direction, always move your stops in your favor and take a little profit off the table. (You have to remember the “Legend of the man in the green bathrobe“…in that situation, it is NOT HOUSE MONEY you’re betting, it’s all OUR MONEY!). Finally, trading is not your hobby. It’s a job. The money is real. 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. I know the Powerball is huge right now, but give up that lottery ticket mentality.

See you in the trading room.

Ed

Swing Trade Ideas for your consideration and watchlist: TXG, VZ, XLP, BAC. 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.

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