Markets gapped higher at the open Thursday (up 0.66% in the SPY, up 0.54% in the DIA, and up 0.77% in the QQQ). However, for the large-cap indices, this was a bull trap as the DIA immediately began selling and the SPY waited an hour and then began selling off. Both maintained a steady bearish pace once the selling began. For its part, the QQQ ground sideways and even had a slightly bullish trend until 11:15 am. At that point, it too began a steady selloff. DIA reached its low of the day (back below the Wednesday close) at 12:50 pm. Meanwhile, SPY and QQQ reached their low (still in the gap) at 1:50 pm. From that point, the bulls stepped in for a slow steady rally that lasted into the close. This action gave us gap-up candles with the SPY and QQQ both printing Doji and the DIA printing a black-bodied Hanging Man candle. DIA is also testing a resistance level.
On the day, nine of the 10 sectors were in the green with Consumer Cyclical (+0.97%) leading the way higher while Financial Services (-0.18%) lagged behind other sectors. At the same time, the SPY gained 0.59%, the DIA gained 0.44%, and QQQ gained 0.95%. VXX was dead flat at 45.11 and T2122 was also flat, staying in the overbought territory at 88.03. 10-year bond yields fell slightly to 3.553% while Oil (WTI) rose almost 2% to $74.39 per barrel. So, on Thursday we saw signs of indecision with all three major indices giving us candles with a lot of wick and very little body. We did move a little further from the T-line (8ema) and there are signs that the bulls are a little tired or at least tepid going into Friday (the last day of the month and quarter). We also saw a divergence in volumes as DIA had very low volume, QQQ was close to average and SPY was in between the other two major indices.
In economic news, the Final Revision of Q4 GDP came in just shy of forecast at +2.6% (compared to a forecast of +2.7% and a Q3 reading of +3.2%). At the same time, the Final Revision of Q4 GDP Price Index came in just as expected at +3.9% (versus the forecast of +3.9% and down from the Q3 reading of +4.4%). So, this confirms that economic growth was slowing in Q4…especially when you consider the inflation factor was above the growth rate. However, that inflation was also declining. Both of these are what the Fed hopes to hear and wants to occur. The only argument, then, is over how fast the slowing of growth and decreasing of inflation are happening. Elsewhere, the Weekly Initial Jobless Claims were slightly above the forecasted value at 198k (versus an expected 196k and also above the prior week’s 191k reading). Still, those layoffs are not high enough to significantly impact the labor market.
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In stock news, on Thursday, VLCN announced it has launched two new models of electric motorcycle, one designed for on road and one for off-road driving. In other electric vehicle news, F reopened order reservations for its F-150 Lightning trucks at a new $4,000 higher price ($20,000 higher than when the truck was launched in April 2022). Meanwhile, a bi-partisan group of US Senators introduced a bill aimed at META, GOOGL, AMZN, and AAPL. The bill would restrict companies selling more than $20 billion in digital advertising from owning more than one part of the stack of services that connect advertisers with the companies who have digital ad space for sale. After the close, Reuters reported that BA will increase production of its 737 MAX to exceed the current 31 planes per month. Elsewhere, JD announced after the close that it will spin off its property and industrial units and list those entities on the Hong Kong Stock Exchange. This appeared to be a counter move to BABA (JD rival) plans to split into six businesses. After the close, Reuters reported that TSLA “solar roof” installation target were only 2% of CEO Elon Musk’s goals. (Musk’s 2021 forecast was for an average of 1,000 installations/week in 2021. However, the 2022 average was only 21 installations per week.) This miss was due to competitors getting the business. Finally, after the close it was reported that VORB has failed to secure funding. As a result, it will cease operations “for the foreseeable future” and will eliminate 85% (675) of the company’s positions.
In stock legal and regulatory news, META announced that beginning next Wednesday, it will allow European users to opt-out of targeted ads on its Facebook and Instagram services. The move comes in the wake of the December EU privacy order that began fining META $423 million. Elsewhere, a tech ethics group has asked the US FTC to stop OpenAI from issuing new commercial releases of its ChatGPT-4. MSFT, which has closely integrated OpenAI into its product offerings, as well as other companies are expected to fight any such move by the FTC. (A similar request is likely to follow for GOOGL’s Bard and other AI platforms.) At the same time, the US Consumer Financial Protection Bureau has ruled that lenders must begin collecting demographic and geographic data on loans to small businesses. The loan census data will be used to identify patterns of discrimination. Meanwhile, WFC will pay another $98 million for poor oversight and failing to comply with US sanctions against Iran, Syria, and Sudan. Late in the day, F withdrew its petition to the NHTSA which had sought approval to deploy 2,500 self-driving vehicles annually. A similar petition from GM is still pending approval. After the close, President Biden urged the Supreme Court to hear a case after the US Court of Appeals ruled TEVA had infringed a GSK patent by using a so-called “skinny label.” If the case were heard and the ruling was in TEVA’s favor, generic drugs would likely be more widely available.
In energy news, Natural Gas continues its historic slide. The front-month natty fell another 4% Thursday with the low of the day coming at $2.082/mmBtu. This leaves natural gas at the lowest price since mid-July 2020. And, unless there is a strong rally Friday, the first quarter will book more than a 50% decline in natural gas prices, which would be the largest quarterly drop in history. Thursday’s move came after the EIA reported a weaker-than-forecasted drawdown of inventories. The report cited a withdrawal of 47 billion cubic feet for the week (compared to a forecasted drawdown of 54 billion cubic feet). This leaves inventories 31% higher than the same time in 2022 and up 21% from the 5-year average inventory. Obviously, UNG reflects the same story, down 53% for the quarter as of Thursday’s close.
In miscellaneous news, the big story for Friday is likely to be ex-President Trump’s indictment by a New York Grand Jury. This Grand Jury found Trump should stand trial on multiple charges, including at least one felony, related to fraudulent reporting of a hush money payment and it then being claimed as a legitimate business expense for tax purposes. Apparently, surrender and arraignment has been negotiated to happen next week. The other big non-economic news is also political but does involve a major corporation. This one is the story of how DIS outwitted Florida Governor DeSantis’ (and that state’s GOP legislators’) move to punish the company for opposing Florida cultural issue legislation. DIS, legitimately and in public session, made a minimum 30-year contract (which could actually extend more than 100 years) with the (old) board that governs the Reedy Creek district. (That district board has jurisdiction over Disney World and related properties.) The contract gives DIS the exclusive right to decide on building high-density projects or buildings of any height or size or to assign those rights to anyone else DIS chooses. It also bans the new board from using the Disney name or characters in any way (like advertising). This contract was approved prior to the state taking over the district and DeSantis appointing his own new board. As a result, the move takes away most of the power of the new board and makes the DeSantis power move largely irrelevant. Obviously, DeSantis and the Florida GOP are furious and threaten action. However, multiple legal experts have reported that the contract is legal and binding.
Overnight, Asian markets were heavily green. Only New Zealand (-0.41%) and Malaysia (-0.14%) were in the red. Meanwhile, India (+1.63%), South Korea (+0.97%), and Japan (+0.93%) led the rest of the region higher. In Europe, we see the same picture taking shape at midday. Only Russia (-1.37%) and Denmark (-0.19%) are in the red. Meanwhile, the CAC (+0.56%), DAX (+0.42%), and FTSE (+0.20%) lead the region higher in early afternoon trade. In the US, as of 7:30 am, Futures are pointing toward a start to the day just on the green side of flat. The DIA implies a +0.21% open, the SPY is implying a +0.18% open, while the QQQ implies a dead flat open at this point. At the same time, 10-year bond yields are lower to 3.543% and Oil (WTI) is up more than three-quarters of a percent to $74.96 in early trading.
The major economic news events scheduled for Friday include Feb. PCE Price Index, and Feb. Personal Spending (bot hat 8:30 am), Chicago PMI (9:45 am), and Michigan Consumer Sentiment (10 am). We’ll also hear from Fed Member Williams at 3:05 pm. There are no major earnings reports scheduled for the day.
With that background, it looks like the markets are waiting on the Fed’s favorite inflation measure at 8:30 am. As of now, all three major indices are just on the bullish side of flat with 100 minutes left before the open. With today being month and quarter end, there may be some more window dressing activity. Also bear in mind that next week is a short week (Markets are closed Friday for “Good Friday”). Overextension is not a huge issue, but we are getting a little far from the T-line (8ema) and T2122 also shows markets a bit stretched. With the big legal news and so many people who feel they will need to weigh in on the topics, we might see a sleepy day in the market. However, that PCE Inflation gauge and quarter end are likely to call the market tune today.
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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