February Payrolls Will Call The Tune

Well, that was a day.  On Thursday stocks gapped modestly higher at the open (up 0.19% in the SPY, up 0.36% in the DIA, and up 0.14% in the QQQ).  We even saw a little positive follow-through in all three major indices for the first half hour of the day.  However, then the bears stepped in taking the whole market on a steady selloff that lasted until 3:25 pm.  Only a very modest bounce in the last half hour kept all three indices from closing on their lows.  This action gave us large, black-bodied, Bearish Engulfing candles in the SPY, DIA, and QQQ.  All three also formed Doji Continuation (Doji Sandwich) patterns, suggesting more downside to come.  The QQQ crossed back below its T-line (8ema) and the two large-cap indices both gave up the support level of the most recent swing low.  SPY and DIA also crossed back below their 200sma.

On the day, all 10 sectors were in the red with Financial Services (-3.48%) leading the way lower (read “getting crushed”) and Consumer Defensive (-1.03%) and Utilities (-1.05%) holding up best.  At the same time, the SPY lost 1.83%, the DIA lost 1.65%, and QQQ lost 1.76%.  The VXX spiked more than 10% to 47.51 and T2122 dropped back deep into the oversold territory at 4.61.  10-year bond yields dropped to 3.905% and Oil (WTI) dropped 1.50% to $75.51 per barrel.  So, Thursday was a very decisively bearish day with the market not seeming to wait on Friday’s February Payrolls data.  This all happened on greater than average volume (the most volume we’ve seen in two weeks).

In economic news, the Weekly Initial Jobless Claims came in higher than expected at 211k (compared to a forecast of 195k and the prior week’s reading of 190k).  However, the main economic news on the day was President Biden’s budget proposal.  This was highlighted by a $3 trillion reduction in the federal deficit over 10 years.  The President proposes paying for this reduction by quadrupling the tax on company stock buybacks (but this only raises it from 1% to 4%).  He also proposed a “Billionaire Tax” on all households worth more than $100 million, which prohibits them from paying less than a minimum rate of 25%.  In addition, he proposed raising the corporate tax rate to 28% (from the current 21%, but still well below the 35% rate in place before the 2017 corporate tax cuts).  The other major plank of the proposal was the shoring up of Medicare by increasing the Medicare Tax on individuals making more than $400k/year from 3.8% to 5%.  The White House claims this would ensure Medicare solvency through 2050.  While there were many other provisions, the most notable was a 3.2% increase in Defense spending and an $800 million increase in border security funding (both Republican favorites).  This budget proposal was simply a political move, pushing the things Biden ran on (and will likely run on again in 2024) while daring the GOP to put forth their own actual counter-proposal.  However, the GOP is restricted by Senate Majority Leader McConnel’s stated desire to increase defense spending, the GOP having jeered the idea of cutting Social Security or Medicare at the State of the Union speech, and there not being nearly enough other spending to cut in order to actually achieve the GOP’s claim that it will pass a balanced budget and reduce the deficit without raising taxes.  However, despite challenges on the GOP side, in truth, President Biden’s proposal was dead on arrival in the GOP-led House as proposed. So, the actual budget is very unlikely to look like what either side wants, particularly if the deficit is going to be addressed.

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In stock news, Reuters reported mid-day that CHRW is in “advanced talks” to name former UPS COO Barber as its new CEO.  Elsewhere, bank stocks were crushed on Thursday after the Wednesday night decision by SIVB to do a multi-billion-dollar equity offering and also to sell tens of billions of dollars worth of securities at a loss in order to shore up its balance sheet.  (SIVB lost over 60% on the day while, in sympathy, USB lost 7.01%, BAC lost 6.2% WFC lost 6.18%, JPM lost 5.41%, and C lost 4.1%.) In other news, under pressure from GOP Attorneys General, MA, V, and AXP announced a decision to “pause” a plan to implement unique transaction codes for guns and ammunition in the way that other product category sales are differentiated.  Meanwhile, BYDDY followed in the footsteps of TSLA by offering new discounts on certain models purchased by the end of March.  At the same time, GM announced Thursday that it has offered buyouts to most salaried employees and expects to take a pre-tax charge of up to $1.5 billion to cover the costs.  In better news, CAT announced that it is seeing strong construction equipment demand in North America.  As a result, CAT CFO Bonfield said Thursday that he believes the US will avoid a recession.  After the close, the AAL pilot’s union said it has set a strike authorization vote for April.  Also after the close, Reuters reported that DIS CEO Iger said the mouse house will consider making content for other companies (platforms), similar to the HBO model.

In stock legal and regulatory news, the FTC announced it is exploring a probe of META and GOOGL (among a total of 8 social media firms) for deceptive advertising on their platforms.  (The final vote on whether to go ahead with the investigation will happen next week.)  As reported yesterday, CS has delayed the release of its annual report.  We now know the late-night call from the SEC was about previous “revisions” CS had made to its consolidated cashflow reports for 2019 and 2020.  Elsewhere, FINRA has fined broker Webull $3 million for failing to exercise due diligence before approving its customers to trade options as well as poor response to customer complaints.  After hours, the FTC announced it had unanimously voted to take action to block ICE from acquiring mortgage data vendor BKI (in a deal for $13.1 billion).  Meanwhile, US Senator Rubio has introduced legislation aimed at blocking the F deal with Chinese battery company CATL.  (The bill would void tax credits for EVs using batteries from that plant.  This bill is a layup for Rubio because the plant is not in his state, it targets a Chinese firm, and “green projects” are not something his party’s base supports.)  Finally, the SEC is set to vote on March 15 on 3 new rules that will dictate how brokers, clearing houses, and other financial companies handle the risk of hacking, respond to customer data theft, and disclose cybersecurity events to them and the public.  In a perhaps-related story, BLKB was fined $3 million by the SEC Thursday after the close for misleading disclosures related to a 2020 ransomware attack the company suffered.

After the close, ULTA and DOCU reported beats on both the revenue and earnings lines.  Meanwhile, TKC and ORCL both missed on revenue while beating on earnings.  On the other side, MTN beat on revenue while missing on earnings.  Unfortunately, HVRRY, GPS, and QFIN missed on both the top and bottom lines.  It is worth noting that ORCL, ULTA, and DOCU all raised their forward guidance.  However, GPS and MTN both lowered forward guidance.

Overnight, Asian markets were deeply red across the board.  Hong Kong (-3.04%), Australia (-2.28%), and Japan (-1.67%) led the way, but the “best” showing in the region was New Zealand (-0.84%).  Meanwhile, at midday, Europe is following Asia lower with red across all exchanges.  The FTSE (-1.68%), DAX (-1.20%), and CAC (-1.10%) lead the way on volume as usual but the entire region is well into red territory with the best early afternoon performance coming from Norway (-0.40%).  As of 7:30 am, US Futures are pointing toward a mixed start to the day not far on either side of the flat line.  The DIA implies a -0.22% open, the SPY is implying a -0.10% open, and the QQQ implies a +0.08% open at this hour.  At the same time, 10-year bond yields plummeted to 3.825% and Oil (WTI) is down more than a percent to $74.95/barrel in early trading.

The major economic news events scheduled for Friday include February Avg. Hourly Earnings, Feb. Nonfarm Payrolls, Feb. Participation Rate, and Feb. Unemployment Rate (all at 8:30 am), and Feb. Federal Budget Balance (2 pm).  The major earnings reports scheduled for the day include ERJ before the opening bell.  There are no reports scheduled for after the close.      

So far this morning, JKS and BKE have reported beats on both the revenue and earnings lines.  Meanwhile, KT missed on both the top and bottom lines.  (ERJ has not reported yet.)

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In late-breaking news, SIVB is scrambling to avoid a “run on the bank” after many funds advised clients to pull their cash out of that bank. It looks like, after yesterday’s 60% drop, SIVB is poised to gap down another 45% this morning. Meanwhile, crypto got crushed Thursday following the collapse of SI. It looks like there is more follow-through on that move again this morning. Elsewhere, US-China economic tensions continue to increase as more countries got on board with President Biden’s export-to-China restrictions Thursday. For their side, all week Chinese officials have called out US policies as showing the US is nakedly trying to “hem in” China rather than compete economically. However, regardless of all other news, the US market tune is going to be called by February Payrolls data at 8:30 am. After last month’s massive and unexpected jobs creation and historic drop in unemployment, the market greatly fears another strong number will push the Fed into an unexpectedly large rate increase the week after next.

With that background, it looks like the market is recovering from a push lower overnight. As of this moment, all three major indices seem to be roughly flat and waiting for the Payroll data. The short-term trend remains bearish as the DIA and SPY will try to climb back above the 200sma that was given up yesterday and the QQQ retested the convergence of 50sma and 200sma overnight (which happens to coincide with the most recent QQQ swing low). Extention is starting to get a little large in terms of the T-line (8ema). However, the T2122 indicator shows the market deep into the oversold (reversal) territory. As I see it, SPY has some support right where it closed Thursday, but DIA still has a good way to fall before it finds a support level as of now. The QQQ has potential support at the most recent swing-low of 288.50-ish. Expect volatility today, particularly after 8:30 and then shortly after the open.

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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