FCNCA Got A Deal on SIVB Assets

Markets gapped down modestly on Friday (down 0.34% in the SPY, down 0.43% in the DIA, and down 0.21% in the QQQ).  This came as DB had put a shock into markets globally on default risks.   After that open, all three major indices wandered around the open level for 90 minutes.  However, about 11:15 am, the bulls stepped in to lead a long, steady rally that lasted the rest of the day, closing very near the highs.  This action gave us white-bodied candles with larger lower wicks, including a Hammer in the QQQ.  This happened on slightly less than average volume on SPY and QQQ as well as a bit heavier than average volume in the DIA.

On the day, eight of the 10 sectors were in the green with Utilities (+2.83%) leading the way higher while Technology (-0.26%) lagging behind the other sectors.  At the same time, the SPY gained 0.64%, the DIA gained 0.44%, and QQQ gained 0.37%.  VXX fell more than 4% to 49.74 and T2122 climbed up out of the oversold territory into the mid-range at 31.67. 10-year bond yields dropped again to 3.374% while Oil (WTI) fell 1% to $69.20 per barrel.  So, Friday saw a gap down, about 1.5 hours of reconsideration, and then a modest rally that lasted the entire rest of the day.

In economic news, February Durable Goods Orders came in lower than expectations at -1.0% month-on-month (compared to a forecast of +0.6% but far better than the January reading of -5.0%).  Later in the morning, Manufacturing PMI was reported to be above the forecast at 49.3 (versus an expected 47.0 and February’s 47.3 value).  The Services PMI also beat expectations at 53.8 (compared to a forecast of 50.5 and even compared to the February reading of 50.6).  At the same time, the S&P Global Composite PMI also beat expectations with a value of 53.3 (versus the forecast of 47.5 and the February value of 50.1).  In Fed talk, St. Louis Fed Pres. Bullard (uber hawk) largely stuck to his guns, telling reporters that the Fed policy rate will likely need to continue rising to higher-than-expected levels once the banking sector stress eases.  (Bullard’s terminal rate forecast is a half percent higher than most Fed members at 5.50% – 5.75%.)  Later, Richmond Fed President Barkin (also a hawk) told CNN that he had no second thoughts on the Fed’s 25-basis-point hike Wednesday.  He went on to say that by the time the FOMC voted, the banking system “felt very stable…So, the conditions were right to do monetary policy the way we want to…”  Meanwhile, Atlanta Fed President Bostic (neutral to dovish) told NPR that “There was a lot of debate.  This wasn’t a straightforward decision, but at the end of the day, we decided there were clear signs that the banking system is sound…(and) inflation is still too high.”

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In stock news, TSLA rolled out version 2.0 of its Full Self-Driving software that makes the feature only available to drivers who achieve a 100/100 safety score (as scored by TSLA sensors and other proprietary factors).  In other auto news, F announced its new Tennessee factory (BlueOval City) is scheduled to build 500k electric vehicles per year.  This is part of the F plan to be producing 2 million electric vehicles per year by 2026.  The BlueOval plant will begin production in the fall of 2025.  Elsewhere, the Wall Street Journal reported that MO is considering expansion of its non-nicotine product lines over the next 12 months.  At the same time, AAL said it would suspend its Philadelphia to Madrid route for about a month (in May to June) due to delivery delays of BA 787 Dreamliner jets.  Over the weekend, according to the Financial Times, the CEOs from PG, PFE, and AAPL are among the very few US-listed company leaders to attend the Chinese Development Forum in Beijing.

In stock legal and regulatory news, late in the day Friday, the US FDA approved a PHAR treatment for weakened immune systems.  (PHAR jumped 22% on the news.)  Meanwhile, Reuters reported that the US Dept. of Justice (and outside lawyers) are investigating TSN over the antitrust law aspects of its announced closure of a Virginia Chicken processing plant.  TSN gave suppliers two months’ notice while antitrust and the Packers and Stockyards Act laws require 90 days’ notice.  Elsewhere, FRBK said Friday that it expects to file its annual report with the SEC much later than the March 30 deadline.  The bank hopes to report by May 1.  The US Dept. of Transportation has rejected an application from JBLU and SAVE that the two be allowed to operate under common ownership.  The DOT cited the pending US Dept. of Justice lawsuit seeking to block the acquisition.

Overnight, Asian markets were mixed.  Hong Kong (-1.75%) was by far the biggest mover with Taiwan (-0.53%) and Shanghai (-0.44%) rounding out the group that paced the losers.  Meanwhile, Singapore (+0.82%), Japan (+0.33%), and New Zealand (+0.28%) led the gainers.  However, in Europe, the bourses are strongly green across the board at midday.  The DAX (+1.40%), CAC (+1.17%), and FTSE (+0.98%) are leading the region higher in early afternoon trade.  As of 7:45 am, US Futures are pointing toward a gap higher to start the day.  The DIA implies a +0.66% open, the SPY is implying a +0.67% open, and the QQQ implies a +0.39% open at this hour.  At the same time, 10-year bond yields are higher to 3.466% and Oil (WTI) is up 1.3% to $70.15/barrel in early trading.

There are no major economic news events scheduled for Monday.  The major earnings reports scheduled for the day are limited to BTNX and CCL before the opening bell.  Then after the close, PVH reports. 

In economic news later this week, on Tuesday, we get Feb. Trade Goods Balance, Feb. Retail Inventories, Conf. Board Consumer Confidence, and the API Weekly Crude Oil Stocks report.  Then Wednesday, Feb. Pending Home Sales and EIA Weekly Crude Oil Inventories are reported.  Thursday, we get Q4 GDP, Q4 GDP Price Index, Weekly Initial Jobless Claims, and Treasury Sec. Yellen speaks.  Finally, on Friday, Feb. PCE Price Index, Feb. Personal Spending, Chicago PMI, and Michigan Consumer Sentiment are reported as well as Fed Member Williams speaking.

In earnings later this week, on Tuesday, CNM, ESLT, IHS, MKC, SNX, WBA, CALM, PLAY, JEF, LULU, and MU report.  Then Wednesday, we hear from CTAS, PAYX, UNF, CNXC, FUL, and RH.  On Thursday and Friday, there are no major earnings reports scheduled.

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In late-breaking news, the fallout from the banking crisis continues.  In the US, FCNCA announced it has reached a deal to acquire the deposits and loans of SIVB from the FDIC.  The deal includes $72 billion in assets acquired at a discounted price of $16.5 billion. In Europe, the top managers of CS are facing an investigation and potential disciplinary action from the Swiss Banking Regulator.  Meanwhile, in the Persian Gulf, the head of the Saudi National Bank (whose public refusal to buy more of CS caused that bank’s depositor run) has resigned “for personal reasons.”  Elsewhere, the UAW has elected a reformer as union President.  This may mean trouble for automakers as the new President ran on promises to take tougher negotiating stances in upcoming negotiations.

With that background, it looks like the bulls are going to gap the major indices (large caps) back up above their T-line (8ema). The DIA will also be retesting its 200sma from below at the open. Overextension from the T-line is not an issue in any of the big indices, nor is the T2122 which is back in its mid-range. With no economic news scheduled, the FOMC decision off the table, and banking problems somewhat subsiding, I suspect that the bulls will have a little room to run this morning. This doesn’t necessarily mean any market trend change. It just means the bulls have momentum in the premarket and there is no known obstacle to them stretching their legs in the short-term.

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.


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