Monday saw a knee-jerk gap lower at the open in fears generated by the Israel vs Hamas “war.”  This caused a 0.46% gap down in the SPY, a 0.35% gap down in the DIA, and a 0.67% gap down in the QQQ.  At that point, all three major index ETFs chopped sideways until about 11:00 a.m., when the Bulls started a strong rally that lasted until about 2:45 p.m.  The rest of the day saw a very modest drift lower with a slight rally back the last 15 minutes of the day.  This action gave us gap-down, strong white candles with small wicks on both ends across the SPY, DIA, and QQQ.  All three also retested their T-line (8ema) and passed that test (held support) on the day.  (It is worth noting that QQQ is now back up to and about to test its 50sma).  This happened on above-average volume in the DIA and just below-average volume in both the QQQ and SPY.

On the day, nine of the 10 sectors were in the green again with Energy (+3.54%) way out front (by 2.25%) leading the way higher.  Meanwhile, Healthcare (-0.01%) was the only sector in the red (barely), lagging behind the other sectors.  At the same time, the SPY gained 0.64%, DIA gained 0.60%, and the tech-heavy QQQ gained 0.51%.  VXX fell 1.52% to close at 23.28 and T2122 climbed to the center of its mid-range to close at 52.27.  Bond markets were closed for Columbus Day, so 10-year bond yields remain at 4.795% while Oil (WTI) spiked a massive 4.28% on the day on Israel-Hamas news to close at $86.32 per barrel. So, the knee-jerk reaction at the open was met with some re-evaluation and then the Bulls took over.  Most of the day was spent confirming the Friday move, which now looks a little less like “just short-covering.”  However, Absolute Breadth diverged from other market breadth indicators like McClellan, Zweig, and Adv/Decline. 

There was no major economic news reported Monday, in part because it was a holiday for the Fed and Federal government.

In Autoworker contract talks and strike news, on Monday UAW workers began striking Mack Truck plants after its 4,000 employees rejected (by 73% to 27%) a five-year contract proposal from Mack owned by VLVLY (Volvo).  The rejected deal called for a 19% pay increase over the next five years.  On the company side, STLA laid off 570 more workers, GM laid off 200 additional workers, and F added 70 employees to its layoffs (all blamed on the impacts of the UAW strike).

In stock news, BMY announced Sunday night that it is acquiring MRTX for $5.8 billion.  BMY was volatile but closed little changed on Monday after this news.  On Monday morning, GOOGL announced that it is significantly reducing the size of its recruiting team after 12,000 layoffs back in January.   At the same time, the Wall Street Journal reported that MSFT is losing an average of $20/user/month on one of its first AI products.  In retail news, AMZN is holding its second “Prime Deal Days” of the year today and tomorrow.  AMZN is obviously hoping to get a jump on Black Friday and “steal” sales from brick-and-mortar stores ahead of that day.  However, retail industry analysts are suggesting consumers wait until the traditional Black Friday and Cyber Monday for better deals.  Elsewhere, in a blow to non-union TSLA, Reuters reports that a significant number of its German workers have joined the IG Metall union.  The move seems to be over health, safety, and required overtime concerns at the German TSLA “giga factory”.  At the same time, Investing.com reports that a 2-year holding period on a significant portion of QSR stock ends today.  Later, Reuters reported the NWLI has agreed to buy AEL for $1.9 billion (a 20% premium over Friday’s close).  In banking news, C has sold its Chinese consumer wealth portfolio to HSBC for $3.6 billion in a deal that is expected to close in the first half of 2024.  (There was no word on C’s cost basis in that unit.)  Meanwhile, in the midst of XOM’s late-stage negotiations to buy PXD, it was reported that the head of XOM’s shale oil and gas unit (which is what PXD is) was arrested on charges of sexual assault.  Late in the day, HYMTF (Hyundai) cut the asking price of its Chinese manufacturing plant (300k cars/year capacity) by a whopping 30%, down to $353 million.  At the same time, EADSY (Airbus) confirmed it delivered 55 jets in September.  This brought their 9-month total to 488 jets delivered.

In stock government, legal, and regulatory news, EU antitrust regulators asked users (specifically MSFT and AAPL users) whether tough new rules should apply to MSFT Bing and Edge as well as AAPL’s iMessage.  This was done via a survey those users had 5 days to complete.  A decision on the matter is due within five months.  Later, the Financial Times reported that EU competition regulators had ordered ILMN to sell its Grail unit after the company closed the $8 billion deal without EU approval in 2021.  (The EU has already fined ILMN $445 million over closing the deal without approval.)  ILMN plans to appeal.  At the same time, the US Supreme Court has postponed the GOOGL antitrust case (brought by Indian competition regulators) hearing until January.  In Chip news, two South Korean companies were given indefinite waivers on supplying chip-making equipment to their Chinese factories.  Samsung and SK Hynix will be allowed to continue sending such equipment without individual waivers for each shipment.  (Samsung makes 40% of its NAND memory in China and Hynix makes 40% of its DRAM memory in that country too.  Together those companies control 70% of the DRAM market and 50% of the NAND market globally.)

So far this morning, PEP beat on both the revenue and earnings lines.  Those numbers were also a 6.7% quarter-on-quarter increase and resulted in a modest 3.7% upside surprise.  PEP also raised its earnings guidance for the full year 2023.

Overnight, Asian markets were mostly green on strong moves.  Japan (+2.43%), Malaysia (+1.26%), Singapore (+1.03%), and Australia (+1.01%) led a broad-based rally.  More trouble in the Chinese real estate sector (Country Garden warned it may not be able to repay its debt) and analyst warnings about Korea’s Samsung, caused Shanghai (-0.70%), Shenzhen (-0.56%), and South Korea (-0.26%) to be the only red in the region, far under-performing the other nine exchanges.  In Europe, we see green across the board at midday, like Asia, on strong moves.  The CAC (+1.57%), DAX (+1.71%), and FTSE (+1.58%) lead the region higher.  However, a few of the smaller bourses are up 2% – 4% in early afternoon trade.  In the US, as of 7:30 a.m., Futures are pointing toward a very modest green start to the day, just on the green side of flat.  The DIA implies a +0.16% open, the SPY is implying a +0.10% open, and the QQQ implies a +0.07% open at this hour.  At the same time 10-year bond yields are down sharply to 4.705% and Oil (WTI) is off half a percent to $85.97 per barrel in early trading.

The major economic news scheduled for Tuesday is limited to three Fed speakers (Bostic at 9:30 a.m., Waller at 1 p.m., and Kashkari at 3 p.m.). The only major earnings report scheduled for the day is PEP before the open.  There are no major earnings reports set for after the close.

In economic news later this week, on Wednesday, we get Sept. PPI, EIA Short-Term Energy Outlook, FOMC Meeting Minutes, API Weekly Crude Oil Stocks report.  We also hear from Fed members Bowman at 4:15 a.m. and Waller at 10:15 a.m.  On Thursday, Sept. CPI, Weekly Initial Jobless Claims, EIA Crude Oil Inventories, Federal Budget Balance, and the Fed’s Balance Sheet are reported.  Finally, on Friday, we get Sept. Export Price Index, Sept. Import Price Index, Michigan Consumer Sentiment, Michigan Consumer Expectations, Michigan 1-year Inflation Expectations, and Michigan 5-year Inflation Expectations are reported.  Fed member Harker also speaks at 9 a.m.

In terms of earnings reports later this week, on Wednesday, again there are no reports.  However, earnings season starts again on Thursday, as CMC, DAL, DPZ, FAST, INFY, SVNDY, and WBA report.  Finally, on Friday, we hear from BLK, C, JPM, PNC, PGR, UNH, and WFC all report as earnings season kicks off again.

In miscellaneous news, at mid-afternoon on Monday Reuters reported that Venezuela and the US are in talks to provide sanctions relief to the Central American heavy oil producer.  The Biden Administration is encouraging Maduro to negotiate with political opposition over elections since his 2018 election was widely seen as a sham.  At the same time, such a move would add more “heavy, sour” crude to world markets AND help Venezuela repay its foreign debt.  (As an aside, US refineries are geared toward refining “heavy, sour” like that produced in Canada and Venezuela rather than the light, sweet crude produced in the US.  As a result, regardless of record oil production in the US, gasoline prices are held high in the US by the oil companies.  The talks are aimed at increasing the global “heavy, sour” supply and possibly reducing US gas prices.) Meanwhile, on Monday, Fed Vice Chair Jefferson and Dallas Fed President Logan both noted that higher bond yields are likely to give the FOMC reason to pause any further rate hikes.

In Israeli-Hamas news, the “war” has been over for a day or two.  By this I mean Hamas has been shoved back into Gaza.  The current phase is the Israeli punishment of Hamas phase (more than 1,000 targets bombed) with it widely expected a ground invasion will follow, again aimed at retribution.  The unknown number of hostages Hamas took is at least publicly irrelevant to Israeli action decisions.  Meanwhile, US airlines have suspended flights to Israel over security concerns.  Fertilizer stocks shot higher Monday as the main export port for Israeli potash is just north of Gaza and well within Hamas rocket range.  (Israel accounts for just less than 3% of global potash production.)

With that background, it looks like markets are very tepid this morning. The Bears don’t seem to have strength, but the Bulls have no conviction either despite the big bullish moves in Asia and Europe. All three major index ETFs are printing small, white-bodied, but indecisive candles so far in the premarket. We do have a trio of Fed speakers on tap to potentially change the narrative during the day. However, with no major news or earnings scheduled, it would not be out of the question that markets are drifting while they wait on CPI and/or the resumption of earnings season at week’s end. In terms of extension, none of the three major index ETFs are far above their T-line (8ema) yet and the T2122 indicator is now smack-dab in the middle of its range. So, again we have room to run if either the Bulls or Bears can find energy. Expect potential volatility as Israel almost certainly will invade Gaza soon (which is likely to cause another short-term knee-jerk). However, geopolitical concern will soon return to the much more important Russian invasion of Ukraine.

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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