Fed Hawks Speak, Retail Beats Continue

Markets diverged a bit at the open Wednesday as QQQ gapped down 0.80%, SPY gapped down 0.40%, and DIA gapped down just 0.20%.  From there, the SPY and QQQ ran sideways in waves within a not-too-large range below the open all day while the DIA did the same back and forth back across the prior close level all day.  This action gave us smaller candles today, with the SPY and QQQ printing black-bodied Spinning Top candles while the DIA printed a white-bodied Inverted Hammer-type candle. This action relieved extension from the T-line (8ema) as well. 

On the day, nine of ten sectors were in the red, with the Technology sector (-2.24%) leading the losses while the Utility sector (+0.47%) held up best.  Meanwhile, the SPY lost 0.76%, the DIA gained 0.04%, and the QQQ lost 1.36%.  The VXX fell 2,67% to 16.74 and T2122 dropped back into the mid-range at 67.57.  10-year bond yields fell down to 3.692% and Oil (WTI) fell 1.82% to $85.34 per barrel.  So, overall Wednesday was a rest day where we saw a modest pullback in the bullish trend.

In economic news, October Import Price Index fell by 0.2% (compared to a drop of 0.4% that was forecast and the September drop of 1.1%).  On the other side, October Export Price Index fell 0.3% (compared to a forecast drop of 0.4% and the September drop of 1.5%).  Meanwhile, October Retail Sales grew by 1.3% (much more strongly than the forecast +1.0% and the September dead flat value at +0.0%).  Later, October Industrial Production grew 3.28% showing some slowing compared to the September 4.96% growth.  Elsewhere, September Business Inventories grew less than expected at +0.4% (compared to +0.5% forecasted and the August +0.9% growth).  At the same time, September Retail Inventories fell 0.1% which was exactly what was forecasted and better than the August growth of 0.6%.  Finally, EIA Weekly Crude Oil Inventories followed the API move by having a 5.400-million-barrel drawdown (compared to an expected 440k barrel drawdown and last week’s 3.925-million-barrel build in stocks).

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In stock news, UAL said Wednesday that they expect the busiest travel day since the start of Covid-19 over the Thanksgiving weekend.  They forecast a 12% increase in passengers over the holiday weekend compared to 2021.  Meanwhile, COST says it has reached a deal with activist investors to cut its greenhouse emissions to new meet a new target by the end of next year.  70% of COST shareholders voted in favor of a resolution for COST to cut emissions back in January.  At the same time, a Washington state court has ruled that the $4 billion dividend payment by ACI, scheduled to be paid today will remain on hold pending the close of the KR buyout.  Reuters reports that regulators have said they received “good access” to Chinese firms’ financial records during their 7-week audit in Hong Kong.  BABA and YUMC were among the 200 companies whose records were audited in hope of saving the US listings for those companies.  Elsewhere, TSLA reported 2 new fatal car crashes involving their self-driving systems on Model 3 cars to the NHTSA Wednesday.

In miscellaneous news, despite constant talk of heavy inflation, Coffee prices have been collapsing recently, due in part to great weather in Brazil.   Coffee futures fell from $239 at the end of August to $158 (per 237,000 pounds of beans) currently. This represents a 34% drop in 2.5 months.  Elsewhere, three environmental groups sued the state of LA over its issuing of a permitting exemption to an LNG Terminal run by an unlisted firm.  However, this terminal would impact several listed companies such as KMI, ATO, and XOM.  Finally, in Fed news, San Francisco Fed President Daly said that “a pause is off the table” while Fed Governor Waller said the Fed “has a ways to go” on rate hikes and we will still need increases into next year (although he added that data is making him more comfortable with a 0.50% increase in December).

After the close, CSCO, BBWI, HP, and HI all beat on both the top and bottom lines.  At the same time, NVDA and CPRT beat on revenue while missing on earnings.  On the other side, CPA missed on revenue while beating on earnings. 

So far this morning, BABA, SIEGY, M, KSS, BJ, NTES, and FORTY all posted beats on both the revenue and earnings lines.  Meanwhile, DOLE, BV, and WB all missed on revenue while beating on earnings.  On the other side, PLCE beat on revenue while missing on earnings.  It’s worth noting that BJ and M both raised their forward guidance while KSS removed its forward guidance altogether, citing a volatile retail environment.

Overnight, Asian markets were mostly in the red on modest moves.  South Korea (-1.39%) and Hong Kong (-1.15%) led the region lower while Singapore (+0.61%), Australia (+0.19%), and Malaysia (+0.06%) were the only three exchanges that managed to stay green.  In Europe, exchanges are red across the board as of midday.  The FTSE (-0.53%), DAX (-0.05%), and CAC (-0.71%) are typical of the region with a couple of the smaller exchanges managing to be down more than one percent in early afternoon trading.  As of 7:30 am, US Futures are pointing toward a down start to the day.  The DIA implies a -0.60% open, the SPY is implying a -0.67% open, and the QQQ implies a -0.63% open at this hour.  10-year bond yields are back up to 3.721% and Oil (WTI) is off 1.79% to $84.06/barrel in early trading.

The major economic news events scheduled for Thursday, we get October Building Permits, October Housing Starts, Weekly Initial Jobless Claims, and Philly Fed Mfg. Index (all at 8:30 am).  We also have a few Fed speakers (Bullard at 8 am, Bowman at 9:15 am, and Mester at 9:40 am).  The major earnings reports scheduled for the day are BABA, BJ, BV, DOLE, KSS, M, NTES, and WB before the open.  Then, after the close, AMAT, FTCH, GPS, KEYS, PANW, POST, ROST, WSM and WWD report.

In economic news later this week, on Friday, October Existing Home Sales are reported.  Meanwhile, in earnings reports later this week, on Friday, we hear from FL, JD, and SPB.

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With retail earnings continuing to show strong consumers (last quarter) and some expectations (HD, LOW, WMT, M, BJ) for this quarter, and Hawkish Fed members telling the market not to expect a pause in rate hikes, we get ready for another day in the market. Traders seem cautiously pessimistic in the Premarket. At any rate, retail earnings have shown that there is a clear split between strong management teams (WMT, M, BJ, etc.) and the weak ones TGT (which was punished yesterday).

With this background, what we know for sure is that the trend is bullish continues and it looks like stocks are going to retest the T-line today in all 3 major indices. So, over-extension is no problem at all today. We are also now coming back down into a potential support level for the SPY, DIA, and QQQ. So, continue to be cautious if you are thinking of chasing a move (bearish or bullish).

Be deliberate and disciplined…but don’t be stubborn. Remember it’s 100 times more important to avoid big mistakes than it is to pick big winners. 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 remember the “Legend of the man in the green bathrobe“…in that situation, it is NOT HOUSE MONEY you’re betting, it’s YOUR MONEY! And there is absolutely no reason to keep raising your bet (risk) just because you’ve had a win. Finally, keep in mind that trading is not a hobby. It’s a job. The money is real. So, you have to 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

Swing Trade Ideas for your consideration and watchlist: VALE, CSCO, TLT, DIS, INTC, AAPL, EGHT, AFRM, NAIL, NTR. You can find Rick’s review of tickers on his YouTube Channel here. Trade your plan, take profits along the way, and smart. Also, remember to check for impending earnings reports. Finally, remember that any tickers we mention and talk about in the trading room are not recommendations to buy or sell.

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