Fed Gives Pause Doubt and TGT Mixed ER

On Tuesday, markets saw a modest gap lower at the open (down 0.27% in the SPY, down 0.30% in the DIA, and down 0.21% in the QQQ).  However, those three major indices diverged at the point, with the QQQ immediately rallying (recrossing the gap within 5 minutes and continuing higher at 1 pm), the SPY trading sideways along its opening level, and the DIA selling off until 10:15 am and then trading sideways until about 1 pm.  At about 1 pm, all three got back in sync by starting a wavy selloff that lasted into the close.  This action gave us a white-bodied candle with a large upper wick in the QQQ, a black-bodied candle with a significant upper wick in the SPY, and a large-bodied black candle in the DIA.  The SPY fell down through its T-line (8ema) while the DIA failed a retest of its 50sma after holding up above the previous three days.

On the day, all 10 sectors were in the red with Utilities (-2.11) leading the way lower as Technology (-0.25%) held up significantly better than any other sector.  At the same time, the SPY lost 0.67%, DIA lost 1.02%, and QQQ gained 0.11%.  VXX was up more than 3% to 37.61 and T2122 climbed dropped back down into the oversold territory at 14.79.  10-year bond yields spiked up to 3.541% while Oil (WTI) fell 0.76% on the day to end at $70.57 per barrel.  So, Tuesday was a divergent day that saw the mega-cap DIA fall out of its recent range, large-cap SPY stay at the lower end of its recent range, and QQQ stay inside the top of its recent range.  This came on very divergent moves in the QQQ as AMD, AMZN, and GOOGL essentially held up that index on their own.  Once again, this happened on well less-than-average volume across all three of the major indices.    

In economic news, April Retail Sales came in much lower than was expected at +0.4% (compared to a forecast of +0.8% but also far better than the March reading of -0.7%).  Later, April Industrial Production month-on-month came in much better than expected at +0.5% (versus a forecast of -0.1% and the March reading of +/- 0.0%). On an annual basis, Industrial Production was up 0.24% (and last year had been up 0.07% versus the 2021 reading). March Business Inventories were a bit lower than expected at -0.1% (compared to the forecast of +0.1% and the February value of +0.2%).  In addition, March Retail Inventories also grew less than expected at +0.3% (versus the forecast and February reading which were both +0.4%).  Finally, after the close, the API Weekly Crude Oil Stocks report showed a 3.690-million-barrel inventory build (compared to an expected drawdown of 1.300-million-barrels but in line with the prior week’s value of a 3.618-million-barrel inventory build).

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In Fed talk, Cleveland Fed President Mester said Tuesday that she does not think the FOMC is at a point where it can hold rates steady for a period of time.  Specifically, she said, “Have we gotten to that rate yet? At this point, given the data we’ve gotten so far, I would say no.”  Later Richmond Fed President Barkin told Bloomberg “I do want to learn more about what’s happening with all these lagged effects.  But I also want to reduce inflation…and if more increases are what’s necessary…I’m comfortable doing that.”  However, NY Fed President Williams told a university audience he was more comfortable with a “pause and see” approach, telling them “We know it takes a while for our decisions to fully affect the economy” … “We’ve got to make our decisions and then watch what happens, get that feedback, see how the economy’s behaving.”  Then Dallas Fed President Logan told a Fed conference “(Changing rates in) smaller, less frequent steps can make it less likely that FOMC monetary policy causes US financial instability.”

In stock news, CNBC (citing sources) reported that CMCSA is likely to sell its 33% stake in the Hulu streaming platform to DIS between now and early next year.  Later, an investing consortium including BX and TRI released a term sheet stating that it is going to sell $3 billion worth of stock in the London Stock Exchange, which would be approximately 5.5% of the exchanges voting shares.  Mid-day, the CEO of OpenAI (creator of ChatGPT) and IBM both told US Senators that artificial intelligence needs to be heavily regulated…but also that we shouldn’t stifle innovation or the great benefits AI could offer.  Testimony from the two raised fears of AI spreading misinformation, influencing elections, infringing copyrights, and upending the economy by replacing swaths of jobs.  (Needless to say, MSFT, GOOGL, and many others companies that have gone “full speed ahead” on AI were likely not pleased by the news.)  Also in the afternoon, a German Automobile Club study found that TSLA Model 3 vehicles dominated its internal combustion engine competitors in terms of reliability for cars older than three years finding that just 1.1 out of every 1,000 2020 TSLA Model 3 broke down annually.  (6.9 breakdowns per 1,000 was the average for gas vehicles and 4.9/1000 was the EV average.)  Elsewhere, after the close, NYCB announced that the FDIC is selling shares of the bank that were acquired during the seizure of SBNY in what amounts to a secondary share offering.  Meanwhile, NOW announced its first-ever stock buyback program of up to $1.5 billion.  Finally, it was announced that the new entity created by the combination of WWE and EDR will trade under the ticker TKO (TKO Group).

In stock legal and regulatory news, the FTC said Tuesday that it will sue to prevent the proposed AMGN $27.8 billion purchase of HZNP which would give AMGN monopoly positions in the treatments in certain diseases.  Meanwhile, the NHTSA announced that STLA is recalling 219,000 2014-2016 Jeep Cherokee SUVs over fire risks due to electrical shorts in the power liftgate.  Later in the day, Reuters reported that WFC has agreed to pay $1 billion to settle a lawsuit that accused the company of defrauding shareholders by misinforming them about its progress in recovering from a series of scandals.”  A US District judge has granted preliminary approval to an all-cash settlement of the suit, but the deal will not be final until a hearing in early September.  Elsewhere, Reuters reports that JNJ has set aside $400 million in a separate fund to resolve State AGs claims that it violated state unfair business practices and consumer protection laws as part of its second attempt to settle 38,000 lawsuits over talc product liability.  (JNJ’s second bankruptcy plea offered $8.9 billion to settle the 38,000 cases.)  At the same time, a US Appeals Court has ruled in favor of GE, HD, and Ikea and against the University of CA, which had sought to ban the import of light bulbs that infringe on the university’s patents. (Lawsuits against AMZN, WMT, and TGT had also  been paused waiting on the outcome of this ruling.)   After the close, MAR settled with the state of TX and agreed to “prominently display all resort fees” to increase price transparency.  This comes a day after the TX State AG filed suit against H for misleading consumers with marketing and hidden fees. 

Overnight, Asian markets were mixed but leaned toward the red side.  Hong Kong (-2.09%) and Thailand (-1.25%) were by far the biggest losers while Taiwan (+1.60%), Japan (+0.84%), and South Korea (+0.58%) were the only appreciable gainers on the day.  Meanwhile, in Europe, the bourses lean heavily to the red side at midday.  The DAX (+0.43%) is an outlier while the CAC (-0.01%) and FTSE (-0.07%) are typical of the small losses being registered across most of the region in early afternoon trade.  In the US, as of 7:30 am, Futures are pointing toward a green start to the day.  The DIA implies a +0.41% open, the SPY is implying a +0.37% open, and the QQQ implies a +0.23% open at this hour.  At the same time, 10-year bond yields are back down to 3.519% and Oil (WTI) is up a half of a percent to $71.23/barrel in early trading.

The major economic news events scheduled for Wednesday are limited to April Building Permits and April Housing Starts (both at 8:30 am), and EIA Crude Oil Inventories (10:30 am).  The major earnings reports scheduled for the day include ARCO, TGT, and TJX before the open.  Then, after the close, SQM, CSCO, STNE, SNPS, TTWO, VSAT, and ZTO report.   

In economic news later this week, on Thursday we get Weekly Initial Jobless Claims, Philly Fed Mfg. Index, April Existing Home Sales, Fed Balance Sheet, and Bank Balances with the Fed.  Finally, on Friday, we hear from two Fed speakers (Chair Powell and Williams).

In terms of earnings reports later this week, Thursday, WMS, BABA, BBWI, CSIQ, DOLE, GRAB, BEKE, MSGE, WMT, AMAT, CVCO, DXC, FTCH, FLO, GLOB, and ROST report.  Finally, on Friday, we hear from DE and FL.

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After the close, KEYS and KD both reported beats to both the revenue and earnings lines.  It is worth noting that KEYS raised its forward guidance while KD lowered it own guidance.  So far this morning, TCEHY and ARCO have reported beats to both the revenue and earnings lines.  Meanwhile, TGT and TJX both missed on revenue while beating on earnings.  (This includes a 50% upside earnings surprise from ARCO and an 18% upside earnings surprise by TGT.)

With that background, it looks like the SPY is retesting its T-line and the QQQ continues its march higher, at least as of the premarket. Even DIA is trying to climb back above its 50sma (and back into the recent trading range). Over-extension is not a problem yet in terms of distance from the T-lines. However, the T2122 indicator is back in the oversold region. Be careful of the chop and watch for rotation given the divergence of short-term attitudes of the SPY, DIA, and QQQ. We still do not have a nicely trending market anywhere except the QQQ.

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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