On Wednesday, markets started out little changed. SPY opened 0.04% lower, DIA opened 0.09% higher, and QQQ opened down 0.14%. From there all three major index ETFs rallied the first hour and then wobbled sideways until 2 p.m. Then the Fed news started coming out and all three sold off sharply and continuously until a tiny bounce at the end of the day. This action gave us huge black candles and what could be called Bearish Trader’s Best Friend in the SPY, DIA, and QQQ. SPY and QQQ both crossed below their T-line (8ema), with SPY and DIA both also crossing below their 50sma. For DIA, this was a 10th consecutive black candle and lower close in the DIA. That is the first time this has happened since 1974. This all took place on well-above-average volume in all three major index ETFs.
On the day, all 10 of the sectors were in the red as Consumer Cyclical (-3.80%) led the way lower. (However, half the sectors lost more than 3%.) On the other side, it was Tuesday’s big loser, Communications Service (-1.79%) held up better than any of the other sectors. Meanwhile, SPY lost 2.98%, DIA lost 2.61%, and QQQ lost 3.61%. VXX spiked 16.78% to close at 51.72 and T2122 fell all the way down to the bottom of its oversold territory to close at 0.82. On the bond side, 10-Year bond yields spiked higher to close down to 4.504% while Oil (WTI) was flat to close at $70.00 per barrel. So, on Wednesday, the market was all about the Fed…and the market was not pleased with what it heard (see below). What had started as a modestly bullish day after the modest morning rally turned into a bloodbath the last two hours of the day.
The major economic news scheduled Wednesday included Preliminary Nov. Building Permits, which came in higher than expected at 1.505 million (compared to a forecast of 1.430 million and an October reading of 1.419 million). At the same time, Q3 Current Account was down again to -$310.90 billion (versus a forecast of -$286.0 billion and a Q2 -$275.0 billion number). Meanwhile, Nov. Housing Starts were down coming in at 1.289 million (compared to the 1.350 million forecast and October’s 1.312 million value). Later, the EIA Weekly Crude Inventories showed a smaller-than-predicted drawdown of 0.934 million barrels (versus a forecasted 1.600-million-barrel drawdown and the prior week’s 1.425-million-barrel draw). Then at 2 p.m., the Fed Interest Rate Decision was a quarter-point cut as anticipated, down to 4.50% compared to the previous 4.75%. At the same time, Fed Q4 Current Year Interest Rate Projection was stable at 4.4% while the Q4 1st Year Interest Rate Projection spiked half a percent to 3.9% (up from the prior quarter’s 3.4%). Looking further out, the Fed Q4 2nd Year Interest Rate Projection also rose to 3.4% (from the previous value of 2.9%) while the Q4 3rd Year Interest Rate Projection rose less to 3.1% (compared to the previous 2.9% value). Far out on the horizon, the Q4 Longer-Term Interest Rate Projection rose a tick to 3.0% (versus the previous quarter’s 2.9% forecast).
In Fed news, as mentioned, the FOMC cut rates a quarter percent as the market had expected. However, at the same time as the rate-cut announcement, updates to the Fed “Dot Plots” (average of FOMC member interest rate forecasts) showed that they now only expect two quarter-point rate cuts in 2025, with Fed Funds ending 2025 at 4.00%. It also showed they expect 2024 inflation (PCE inflation rate) to come in at 2.4% and 2025 to ends at 2.5%. Later, in his press conference, Fed Chair Powell said it is too soon to tell what the new Trump Administration will do to the economy. When questioned about it, Powell said, “it’s very premature to make any kind of conclusions. We don’t know what will be tariffed, from what countries, for how long, in what size …We need to take our time, not rush and see what the new president delivers.” (Trump campaigned on heavy tariffs, which would be hugely inflationary as well as being economically restrictive. On the other hand, he also campaigned on more tax cuts for corporations and the wealthy, which would theoretically lead to economic expansion…but lead to an increased deficit. However, Trump is not known for telling the truth or being consistent. So, time will tell.) Powell went on to say, “From this point forward it’s appropriate to move forward cautiously and look for progress on inflation … from now we are in place where the risks are in balance.”
After the close, MLKN and SCS reported beats on both the revenue and earnings line. Meanwhile, MU missed on revenue while beating on earnings. On the other side, WS beat on revenue while missing on earnings. However, LEN missed on both the top and bottom lines.
Overnight, Asian markets were mostly red in sympathy with the US. Shenzhen (+0.61%) was the only appreciable gainer (Malaysia at +0.03% did also hang onto green). On the other side, South Korea (-1.95%), Australia (-1.70%), and Thailand (-1.53%) led the broad-based losses. In Europe, we see a similar picture taking shape at midday. Only Portugal (+0.33%) is in the green as 13 of the 14 bourses are red at midday. The CAC (-1.54%), DAX (-1.22%), and FTSE (-1.39%) lead the region lower in early afternoon trade. Meanwhile, in the US, at of 7 a.m., Futures are pointing toward a modest rebound to start the day. The DIA implies a +0.32% open, the SPY is implying a +0.35% open, and the QQQ implies a +0.23% open at this early hour. At the same time, 10-Year Bond yields continue to run higher at 4.534% while Oil (WTI) is off 0.21% to $70.43 per barrel in early trading.
The major economic news scheduled for Thursday includes Weekly Initial Jobless Claims, Weekly Continuing Jobless Claims, Q3 Core PCE Price Index, Q3 GDP, Q3 GDP Price Index, Philly Fed Mfg. Index, and Philly Fed Mfg. Employment (all at 8:30 a.m.), Nov. Existing Home Sales and Nov. US Leading Economic Indicator Index (both at 10 a.m.), Oct. TIC Net Long-Term Transactions (4 p.m.), and the Fed’s Balance Sheet (4:30 p.m.). However, the major earnings reports scheduled for before the open include ACN, KMX, CTAS, CAG, DRI, FDS, LW, and PAYX. Then, after the market, BB, FDX, AVO, NKE, and SCHL report.
In economic news later this week, on Friday, November Core PCE Price Index, Nov. PCE Price Index, Nov. Personal Spending, Michigan Consumer Sentiment, Michigan Consumer Expectations, Michigan 1-Year Inflation Expectations, and Michigan 5-Year Inflation Expectations are reported.
In terms of earnings reports later this week, on Friday, CCL and WGO report.
So far this morning, ACN beat on both the revenue and earnings lines. However, LW missed on both the top and bottom lines.
With that background, the market seems to be trying to bounce off of the huge drops on Thursday. However, this is a very indecisive bounce with all three major index ETFs giving a premarket modest gap up, but then printing mostly wicks and little body in the early session candles. After Thursday, all three are far below their T-line (8ema). That being the case, the short-term trend is bearish. However, looking further out, the mid-term and longer-term trends remain bullish. In terms of extension, SPY and especially DIA are stretched below their T-line at this point. (Having been the strongest prior to Thursday’s move, QQQ is not quite as stretched.) Meanwhile, T2122 is deep in its oversold territory. (Less than a point from that indicator’s theoretical oversold limit.) So, the Bulls certainly have room to run today. However, coming off the Fed reduction in predicted future cuts, the Bears have the momentum. In terms of the 10 Big Dogs, nine of the 10 are in green numbers at this point of the morning. TSLA (+2.43%) and NVDA (+1.92%) are leading the group higher. On the other end, AAPL (-0.21%) is the laggard in the bounce. Once again, TSLA is the leader in terms of dollar-volume traded by about 3 times over NVDA (with the next closest 8 times less in dollar-volume than NVDA).
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.
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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