Stocks started the day modestly higher as SPY opened 0.09% higher, DIA opened 0.05% higher, and QQQ opened 0.10% higher.  From that point, all three major index ETFs rallied until 11:30 a.m. and then spent the rest of the day grinding sideways in a fairly tight range.  All three then rallied the last 10 minutes of the day, going out very near the highs.  This action gave us large-body, white candles with very small upper wicks.  As a result, DIA and QQQ closed at another new all-time high close while SPY closed less than half of a percent shy of an all-time high close.  All three remain well above their T-line (8ema) with at least QQQ getting stretched.  This all happened on slightly below-average volume in DIA, below-average volume in the QQQ, and well below-average volume in the SPY.

On the day, all 10 sectors were in the green with Healthcare (+1.70%) and Basic Materials (+1.67%) out front leading the way higher while Communication Services (+0.58%) lagging behind the other sectors.  At the same time, the SPY gained 0.61%, DIA gained 0.68%, and QQQ gained 0.51%. The VXX gained 1.48% to close at 16.42 and T2122 spiked up to the top of its overbought territory to close at 96.25.  10-year bond yields fell slightly 3.933% and Oil (WTI) gained 1.53% to close at $73.58 per barrel.  So, the Bulls said “not so fast” to the chorus that had observed how far the rally had run and concluded the market had to pull back. 

There was no major economic news reported Tuesday including November Building Permits, which came in below expectations at 1.460 million (compared to a forecast of 1.470 million and the October 1.498 million).  This was a 2.5% decrease month-on-month.  At the same time, November Housing Starts came in significantly higher than predicted at 1.560 million (versus a forecast of just 1.360 million and an October value of 1.359 million).  This amounted to a 14.8% increase month-on-month.  Later the Oct. TIC Net Long-Term Transactions were reported as dramatically lower than anticipated at +$3.3 billion (compared to a forecast of +$45.8 billion and a September reading of +0.9 billion).  Finally, after the close, the API Weekly Crude Oil Stocks report showed oil inventories surprisingly increased by +0.939 million barrels (versus a forecast calling for a 2.233-million-barrel drawdown and the prior week’s 2.349-million-barrel drawdown).  This must mean oil production is higher than ever since oil exports are also at all-time highs (5+ million barrels per day).

After the close, SCS reported a miss on revenue while beating on earnings.  At the same time, WOR beat on revenue while missing on earnings.  However, FDX missed on both the top and bottom lines. (FDX, in particular, sold off hard in post-market trade and influenced the entire market lower.)

In stock news, MBGAF (Mercedes), STLA, and VLKAF (Volkswagen) have increased their own subsidy programs (lowered prices) following the termination of the German subsidies for EV purchases.  (The program was ended due to drastic budget cuts when a court ruled the German government could not use unused COVID funding for other purposes.)  The move will cost the car-makers about $5k per electric vehicle sold in 2024.  At the same time, BA announced Lufthansa had ordered 40 BA 737 MAX 8 planes with the option to buy 60 more later.  (EADSY also announced the airline ordered 40 Airbus A220-300 planes with Lufthansa having the option to buy 20 more later.)  Later, XPEV announced that it would cut prices on its electric SUV by 5%.  (The move follows competitor BYD cutting prices by 8% on December 1.)  At the same time, ADM announced a second acquisition in two days, purchasing UK-based flavor and ingredient firm FDL for an undisclosed amount.  (FDL is set to book about $120 million in sales for 2023.)  Reuters reported AFRM has begun offering “buy now, pay later” loans at WMT self-checkout kiosks in 4,500 WMT stores.  The loans only apply to purchases of more than $144 and up to $4,000 and exclude grocery purchases.  The term of the loans is three payments over 24 months.  Elsewhere, MULN announced a 1-for-100 reverse split effective at 12:01 a.m. on December 21.  (The move is intended to help the company come back into compliance with NASDAQ rules requiring a price above $1.00.)  Late in the day, China auto industry analysts said that TSLA saw an impressive 18.83% increase in car registrations last week in China.  This amounted to 18,000 new vehicle registrations.  At the close, LUV announced it reached an agreement in principle with its Pilot’s union.  The new 5-year contract would be worth $12 billion under the terms of the tentative deal.  (The union board still needs to accept and send the contract to union members for approval.) After the close, GOOGL said it would restrict the types of election-related queries to its Bard AI chatbot.  On Tuesday evening, TSLA canceled its annual merit-based stock awards according to Bloomberg.  However, the automaker did give modest cost-of-living increases as an adjustment to base salary. Finally, Tuesday night, CNBC reported that TGT has been lying and making excuses. The financial outlet reported that when the retailer closed nine stores in NY, Portland, and San Francisco it had claimed that theft and violence were driving factors in the decision. However, CNBC reporting found that theft and violence were higher at stores in those areas that were not closed. So, the company was just latching onto a political (GOP) narrative as reasoning to hide otherwise poor performance (in merchandising, marketing, and service).

In stock government, legal, and regulatory news, a US district judge granted a motion from KVUE to exclude expert testimony on whether the active ingredient in Tylenol causes Autism or ADHD in a class-action suit against KVUE.  At the same time, Reuters reported that TSLA prevailed in a lawsuit from a woman who alleged TSLA continued to give her abusive husband access to vehicle location data despite a court order of protection.  The court ruled that TSLA was not liable despite prior knowledge of the threat and the protective order since his name was listed as a co-owner on the vehicle title.  Later, TSLA asked a US judge to halt a trial brought by the EEOC alleging the company severely harassed black workers at a CA plant.  TSLA said that two similar cases should “play out” before the EEOC suit goes forward. Elsewhere, Reuters reported that the FAA has no “specific timetable” in mind for the certification of the BA 737 MAX 7 in an article citing the FAA’s top official.  (BA previously said it expects the certification to come this year.  However, the public comment period on a proposed exemption for certification for engine inlet and anti-icing system does not end until December 26.  The largest BA 737 MAX 7 customer, LUV, says it expects FAA to certify the plan by April.  At the same time, USB agreed to pay $36 million to settle allegations the bank illegally blocked unemployed consumers from accessing their unemployment benefits during the COVID-19 pandemic.  (USB has contracts with 19 states and the District of Columbia to deliver unemployment benefits.)  Tuesday night, major automakers GM, TM, and VOLKAF (Volkswagen) opposed a bid by the NHTSA to force a recall of all 52 million airbag inflators produced by ARC Automotive (as opposed to just the millions already recalled).

Overnight, Asian markets were mixed.  Shenzhen (-1.41%), India (-1.41%), and Shanghai (-1.03%) paced the losses.  Meanwhile, South Korea (+1.78%), Japan (+1.37%), Hong Kong (+0.66%), and Australia (+0.65%) led the gainers.  In Europe, we see a similar picture taking shape at midday with seven of 15 bourses in the red, seven in the green, and one unchanged.  The CAC (+0.08%), DAX (-0.07%), and FTSE (+0.56%) lead the region on volume as usual.  In the US, as of 7:30 a.m., Futures are pointing toward a red start to the day.  DIA implies a -0.18% open, the SPY is implying a -0.20% open, and the QQQ implies a -0.26% open at this hour.  At the same time, 10-year bond yields are down to 3.879% and Oil (WTI) is up 1.37% to $74.94 per barrel in early trading.

The major economic news scheduled for Wednesday includes Q3 Current Account (8:30 a.m.), Conf. Board Consumer Confidence and Nov. Existing Home Sales (both at 10 a.m.), and EIA Crude Oil Inventories (10:30 a.m.).  The major earnings reports scheduled for before the open include GIS, TTC, and WGO.  Then, after the close, MU and MLKN report.

In economic news later this week, on Thursday, we get Weekly Initial Jobless Claims, Weekly Continuing Jobless Claims, Q3 GDP, Q3 GDP Price Index, Philly Fed Mfg. Index, and the Fed Balance Sheet.  Finally, on Friday, Nov. PCE Price Index, Nov. Core PCE Price Index, Nov. Durable Goods, Nov. Personal Spending, Michigan Consumer Sentiment, Michigan Consumer Expectations, Michigan 1-year Inflation Expectations, Michigan 5-year Inflation Expectations, and Nov. New Home Sales are reported.

In terms of earnings reports later this week, on Thursday, KMX, CCL, CTAS, PAYX, AIR, NKE and WS report.  There are no earnings reports on Friday.

In miscellaneous news, the Fed’s Bank Term Funding Program (BTFP) has become increasingly popular in the last week.  The program which loans to banks against their Treasury and agency debt for up to one year at a rate slightly above Fed Funds swaps price has increased nearly 25% in size since the Fed meeting last week.  The reason is that Fed swaps are now pricing in (indicating) that the market expects 1.40% of rate cuts in 2024.  This means the BFTP loan rate is 4.96%, which is more than half a percent lower than the Fed discount window rate of 5.5%. So now $124 billion of BTFP loans are on the Fed balance sheet compared to $100 billion prior to the last Fed meeting.  In essence, the market has cut the Fed rates by half a percent already, even as the FOMC stands pat.

In China news, Reuters reported the Chinese economic analysts have noted disturbing strategy shifts by that country’s retailers, that risk entrenching deflation in the economy.  The shift by retailers is toward carrying only or primarily lower-priced goods and services.  This is seen in a proliferation of bargain stores and major companies offering primarily (or only) cheaper scaled-down versions of their products and services.  This move en masse is drawing comparisons to Japan, which suffered “lost decades” due to deflationary trends.  (As company revenues fall, they cut costs by reducing payrolls and offer cheaper price.  This lowers consumer price expectations and makes it ever harder to sell premium products or raise prices.)  The Reuters report cited many examples and quoted several analysts all predicting a painful economic spiral unless there is massive stimulus or other unforeseen economic good news.

In late-breaking news, inflation in the UK came in softer than expected at 3.9%, which boosted British trader’s hopes for a rate cut soon.  Before that, Richmond Fed President Barkin suggested the Fed would cut rates if progress on inflation continued.  (That was what markets wanted to hear as opposed to other Fed members who have pushed back on speculation that the FOMC will cut rates soon.)  Elsewhere, demand for mortgages in the US fell slightly, despite another decrease in loan rates. This may be due to homebuyers (as well as traders) anticipating better rates in the new year.  The rate for a 30-year, fixed-rate, conforming loan fell from 7.07% to 6.83% last week.  Despite this, demand for refinance loans fell 2% and applications for new home purchase loans were down 1% versus the prior week.

With that background, it looks like the Bears are in control of all three major index ETFs so far in the premarket action. All three opened the early session flat to slightly lower and are giving us larger, black-bodied candles so far in the early session. All three remain well above their T-line (8ema) this morning. So, overall, the Bulls remain well in control of both the longer-term trend and the short-term trends. However, the Bears seem in control of premarket trading. In terms of extension, the three major index ETFs were too far extended above their T-lines last night. However, the early morning move (possibly in reaction to FDX) is taking them back into a less extended state. At the same time, the T2122 indicator is now in the upper part of its overbought range. So, strictly speaking, both the Bulls and Bears have some room to run if they gather the momentum to do it, but the Bears have much more slack to work with if they get going.

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.

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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