Empire State and Michigan Expectations

As mentioned in yesterday morning’s blog, Thursday turned out to be a Bull Trap. SPY gapped up 0.19%, DIA gapped up 0.28%, and QQQ gapped up 0.29%.  However, after 10 minutes, all three major index ETFs sold off sharply until 10 a.m.  The rest of the day saw a meander back and forth with the top of the range being Wednesday’s close and a slight bearish trend to the waves.  The lows of the day were reached at 3:40 p.m. but all three also rebounded sharply the last 20 minutes of the day.  This action gave us black-bodied Hanging Man type candles in all three major index ETFs.  They all retested their T-line (8ema) with the SPY and DIA passing the test and remaining above.  However, QQQ stayed below its T-line at the close.  This all happened on average volume in the SPY and DIA as well as slightly better-than-average volume in the QQQ.

On the day, nine of the 10 sectors were red as Financial Services (-1.10%) and Consumer Cyclicals (-1.10%) led the way lower.  At the same time, Energy (+0.39%) held up best and was the only sector that remained in the green.  Meanwhile, SPY lost 0.20%, the DIA lost 0.29%, and the QQQ lost 0.25%. VXX rose 2.58% to close at 13.91 and T2122 dropped all the way down to the lower end of its mid-range at 28.51.  10-year bond yields spiked again to 4.292% and Oil (WTI) popped another 1.78% to close at $81.14 per barrel.  So, the bearish tone was set in the premarket.  The three most-traded stock in the market were down big even before the market opened.  And with NVDA (-3.24%), TSLA (-4.12%), and AMD (-3.97%) down big and accounting for just under $90 billion in stock traded themselves, the rest of the market had very little chance of a green day. 

The only major economic news on Thursday included Weekly Initial Jobless Claims, which came in lower than expected at 209k (compared to a forecast of 218k and just less than the prior week’s 210k).  At the same time, Weekly Continuing Jobless Claims that also came in below the predicted level at 1,811k (versus a forecast of 1,900k but above the prior week’s 1,794k).  Meanwhile, February Core PPI (month-on-month) was a tick higher than anticipated at +0.3% (compared to the +0.2% forecast but well down from January’s +0.5% reading).  On the headline number, February PPI (month-on-month) was extremely hot at +0.6% (versus the +0.3% forecast and the +0.3% value in January).  At the same time, February Retail Sales (month-on-month) came in low at +0.3% (compared to the +0.5% forecast but much better than January’s -0.8%).  Later, Jan. Business Inventories were dead flat at +0.0% (versus a +0.2% forecast and the December +0.3% reading).  On the retail side, Jan. Retail Inventories came in just as expected at +0.3% (compared to the +0.3% forecast and a tick down from December’s +0.4% value).  Finally, after the close, the Fed’s Balance Sheet showed a modest increase to $7.542 trillion (compared to the prior week’s $7.539 trillion).

After the close, ADBE, TLNE, and ULTA all reported beats on both the revenue and earnings lines.  Meanwhile, ALTG beat on revenue while missing on earnings.  It is worth noting that ADBE raised its forward guidance.  Meanwhile, ULTA lowered its guidance.

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In stock news, on Thursday, AMKAF (Maersk, the global shipping giant) said the global container rates (freight shipping prices) have fallen to “unsustainable levels.”  The CEO told his shareholder conference that global overcapacity of shipping would hit profits and may take years to work off. (This came after announcing an 83% fall in net profit.) At the same time, NYCB announced that it had sold some loans for a profit (gain) and that total deposits had risen from $81.4 billion to $83 billion as of Feb. 5 (compared to December 31).  However, the banks also confirmed a 7% drop in deposits since then. Later, Bloomberg reported that AAPL has acquired Canadian AI startup DarwinAI.  No specifics on the deal were shared.  At the same time, Reuters reported that AMZN’s self-driving car unit Zoox is working to catch up with GOOGL’s Waymo unit.  AMZN said it is increasing the maximum speed of its Zoox cars from 35mph to 45mph, widen the conditions (to include dark and rain), and also expanding the geographical areas covered in its testing in CA and NV.  Later, ADBE approved a $25 billion share buyback program (for purchases between now and March 2028).  At the same time, a director of FWRG sold $165.5 million of the company’s stock Thursday. 

In stock legal, governmental, and regulatory news, on Thursday, MSFT told antitrust regulators in the EU that GOOGL has a competitive edge in AI.  MSFT said GOOGL’s edge comes from the massive amounts of (training) data it has collected as well as GOOGL’s AI-optimized chips.  MSFT made the case that GOOGL is the only company that is vertically integrated in a way that would allow it to dominate that market.  It said every other company will need to rely on multiple partnerships to achieve the same level of AI breadth.  GOOGL responded by saying that the regulators should focus on companies that don’t offer the same level of openness as GOOGL’s cloud and which have a long history of locking-in customers (implying MSFT).  Later, an FDA committee that advises on drug approvals voted in favor of approving GERN’s imetelstat anemia treatment by 12-2.  (The full FDA is not bound by the vote and will make its own final decision on June 16.)  At the same time, as expected, President Biden came out in opposition to Nippon Steel acquiring X (for $14.9 billion), saying the company must remain US owned and operated.  (No action was immediately announced, but the CFIUS, which regulates foreign investments in US firms will take its lead from the Treasury Dept. as led by Biden-report Sec. Yellen.) 

Later, the Fed announced that JPM has been fined $348.2 million over inadequate monitoring of its own and client trading activities and lack of reporting of trades.  At the same time, the FDA announced it had approved a MDGL treatment for nonalcoholic steatohepatitus.  In addition, the FDA also approved TEVIMBRA, a throat cancer treatment from BGNE.  Later, RBGLY (Reckitt Benckiser, Mead Johnson) was hit with a $60 million jury award as the jury found the company negligent for not warning of the risk of enterocolitis from using the company’s baby formula.  After the close, the US Chamber of Commerce filed suit against the SEC alleging the agency’s new climate-risk reporting rules exceed the agency’s authority.  On the other side, the Sierra Club also sued the SEC over the same rules but in a different jurisdiction, alleging the agency stripped down the rules due to business influence.  After the close, LYFT and UBER announced they will cease operations in Minneapolis after the city’s council voted Thursday to override a Mayoral veto and require the companies to pay the equivalent of the local minimum wage of $15.57 per hour effective May 1.

Overnight, Asian markets were mostly in the red with just three of 12 exchanges in the green.  Shenzhen (+0.60%), Malaysia (+0.59%), and Shanghai (+0.54%) were the gainers while South Korea (-1.91%), Hong Kong (-1.42%), and Taiwan (-1.28%) led the rest of the region lower.  Meanwhile, in Europe, the opposite picture is taking shape with only two of 15 exchanged below break-even at midday.  The CAC (+0.35%), DAX (+0.34%), and FTSE (+0.08% lead the region higher in early afternoon trade.  In the US, as of 7:30 a.m., Futures are pointing toward a modestly green start to the day.  The DIA implies a +0.15% open, the SPY is implying a +0.19% open, and the QQQ implies a +0.14% open at this hour.  At the same time, 10-year bond yields are back down slightly to 4.277% and Oil (WTI) is off two-thirds of a percent to $80.73 per barrel in early trade.

The major economic news scheduled for Friday include Feb. Export Price Index, Feb. Import Price Index, and NY Empire State Mfg. Index (all at 8:30 a.m.), Feb. Industrial Production (9:15 a.m.), and Michigan Consumer Sentiment, Michigan Consumer Expectations, Michigan 1-Year Inflation Expectation, and Michigan 5-Year Inflation Expectations (all at 10 a.m.).  The major earnings reports scheduled for before the open are limited to ERJ and JBL.  There are no reports after the close.      

So far this morning, HIBB missed on revenue while reporting as expected on the earnings line.  (ERJ and JBL report closer to the open.)

In miscellaneous news, on Thursday, a US bankruptcy judge ordered the arrest of a Camshaft Capital hedge fund manager for helping an Indian startup hide $533 million from its lenders.  Elsewhere, Freddie Mac reported Thursday that US average 30-year fixed-rate mortgage rates fell from 6.88% to 6.74% in the last week, marking almost a quarter percent drop in the last two weeks. Meanwhile, US Senate Democrats (notably Senator Sanders) introduced a bill calling for a 32-hour work week.  They cited gains in productivity advances, including those from AI, as justification for a shorter workweek.

In late-breaking news, MCD suffered a system outage which shut down both the order app and store operations at 2 a.m. Eastern time.  Another surge of similar issues came from Europe at 5 a.m. Eastern.  The outage is known to have effected at least 5,500 of the company’s 40,000 global locations. MCD announced that the problem is not related to any cybersecurity event.

With that background, it looks like the Bulls are trying to come back from overnight lows with all three major index ETFs printing large, white-body candles after a premarket gap down. All three are back near the break-even line at 7:30 a.m. with the DIA and QQQ both retesting their T-line level from their gap-down and SPY having crossed back up through it’s T-line following a gap down below it. It is worth noting that the QQQ and DIA T-lines are flat while the SPY T-line is still rising modestly. So, the short-term trends remain bullish but are under pressure after Thursday’s down day. Meanwhile, the longer-term trend remains bullish in the SPY and QQQ with DIA definitely chopping sideways. In terms of extension, none of the three major index ETFs is too far from its T-line and the T2122 indicator is back down in the lower end of its mid-range. This means both sides still have plenty of room to run if they can gather the momentum. Looking at those 10 Big Dog tech names, all 10 are green this morning with the two biggest names (NVDA and TSLA) leading the way both in volume and percent move. This tends to point toward a green market, since it is hard to fight the sheer dollar flows from those 10 tickers. Finally, remember that today is Friday, payday. So, prepare your account for the weekend by taking profits, hedging, lightening up, or however you manage weekend risk. Also bear in mind that today is option expiration Friday and a triple-witching day to boot. So, be wary of volatility and/or pinning.

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 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 gains are 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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