Good Earnings Continue With GDP Ahead

Markets diverged at the open on Wednesday, as SPY gapped up 0.15%, DIA opened 0.07% higher but QQQ gapped up 1.13% on the strong tech earnings from Tuesday night.  All three major indices then ground sideways for 30 minutes.  Then the whipsaw began.  All three made a 15-minute selloff followed by a rally for an hour and 40 minutes, reaching the highs of the day at about 12:10 and then a protracted selloff that took us to the lows of the day at 3:50 pm before bouncing the last 10 minutes.  This action gave us large, black-bodied candles again but this time with larger upper wicks and smaller lower wicks. And, once again, this happened on less-than-average volume in the SPY, DIA, and QQQ.

On the day, eight of the 10 sectors were in the red with Utilities (-2.06%) leading the way lower and Technology (+0.40%) holding up better than the other sectors.  This is very odd on a down day in the market.  At the same time, the SPY lost 0.42%, DIA lost 0.71%, and QQQ gained 0.58%.  VXX fell 2.5% to 41.22 and T2122 dropped further into the oversold territory at 7.96.  10-year bond yields rose to 3.441% (again, odd for a day when the large-cap indices fell) while Oil (WTI) plummeted another 3.62% to $74.30 per barrel.  So, fear over regional banks (based apparently exclusively on FRC Q1 deposit withdrawals) overrode generally strong earnings by major companies.  The market just seems skittish, perhaps waiting on the Fed’s favorite inflation index PCE Price Index on Friday (ahead of the FOMC meeting next week).     

In economic news, March Durable Goods orders increased far more than expected at +3.2% month-on-month (compared to a forecast of +0.7% and the February reading of -1.2%).  At the same time, the Preliminary March Goods Trade Balance showed a lower-than-expected deficit at -$84.60 billion (versus the forecast of -$89.00 billion and well better than the February value of -$91.99 billion).  In addition, the Preliminary March Retail Inventories grew more than expected at +0.4% (compared to a forecast of +0.1% and a February reading of -0.1%).  Later in the day, the EIA Weekly Crude Oil Inventories reported a much greater-than-expected drawdown of 5.054-million-barrels (versus a forecast for a 1.486-million-barrel drawdown and even more than the prior week’s 4.581-million-barrel inventory reduction).  As with the API report numbers on Tuesday evening, this was the fourth drawdown in the last five weeks.

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In stock news, early Wednesday, the UK officially blocked the MSFT purchase of ATVI.  This caused ATVI to gap down 9% and end the day down 11.45%. Later, STLA offered 33,500 US employees (2,500 salaried and 31,000 hourly) voluntary buyout packages.  At the same time, a Jefferies analyst reported that LOW is revamping its stores in an attempt to focus on rural America.  The refresh is apparently aimed at imitating TSCO.  Elsewhere, Reuters reported that TSN told employees Wednesday it is planning to eliminate 10% of corporate jobs (about 600) and 15% of executive roles.  Just before the close, it was reported that US bank regulators are considering downgrading their assessment of FRC.  This would potentially limit FRC’s ability to borrow from the Fed.  This comes after the FDIC has given the bank weeks to reach private deals to shore up its finances but FRC has been unable to reach such deals.  Meanwhile, after the close, the CEO of BMY stepped down and it was announced he will be replaced with current COO Boerner on November 1.  (BMY reports Thursday.)

In stock legal and regulatory news, an NRLB Administrative Judge ruled Wednesday that TSLA supervisors had broken US Labor Law by ordering employees at a Florida TSLA Service Center not to discuss pay, working conditions, or other complaints with higher-level management.  A “cease and desist” order was immediately filed with any fines to be determined later in the process. Elsewhere, DIS filed a federal lawsuit against Florida Governor DeSantis over his effort to exert control over DIS theme parks in that state. (DeSantis had his hand-picked board vote to throw out a long-term legal contract DIS signed with the prior board, outsmarting the Governor’s effort to take control of the board and punish DIS for speaking out against his cultural agenda.)  Later, UBER won when a panel of US Circuit Court of Appeals judges ruled that UBER drivers are not exempt from a law requiring them to take legal disputes to private arbitration rather than join class-action lawsuits.  (This means UBER drivers around the country cannot join a class-action suit brought charging that they were misclassified as contractors and are due overtime pay and work-related expense reimbursement.)

After the close, META, PXD, AFL, WM, PPC, ORLY, MKL, EBAY, KLAC, LSTR, RHI, NOW, WCN, CACI, CLS, NOV, EW, MTH, TNET, MEOH, AB, MAT, CCS, ALGN, NLY, TROX, PLXS, FIX, TER, IEX, ROKU, ENSG, CMPR, NLY, MYRG, ACHC, AVB, ROL, HELE, EQT, TDOC, SUI, BMRN, WSC, PTC, GGG, SLM, MAA, TYL, CHDN, COLB, FBIN, KALU, MORN, and NEU all reported beats on both the revenue and earnings lines.  Meanwhile, MOH, ACGL, ICLR, AXS, SAVE, STC, ESI, and SNBR all missed on revenue while beating on earnings.  On the other side, RJF, URI, AR, CHE, OII, and AWK all beat on revenue while missing on earnings.  Unfortunately, CHRW, TA, CP, and ASGN all missed on both the top and bottom lines.  It is worth noting that CACI, ALGN, and TER raised their forward guidance.  However, IEX lowered its guidance.

Overnight, Asian markets were mixed.  Thailand (-0.82%), Singapore (-0.36%), and Australia (-0.32%) paced the losses while Shanghai (+0.67%), India (+0.57%), and Hong Kong (+0.42%) led the gainers.  Meanwhile, in Europe, we see a similar picture taking shape at midday.  The CAC (+0.30%), DAX (+0.09%), and FTSE (-0.02%) lead the region on volume and market cap while the smaller exchanges have made larger moves.  In the US, as of 7:30 am, Futures are pointing toward a gap higher to start the day.  The DIA implies a +0.47% open, the SPY is implying a +0.61% open, and the QQQ implies a +0.93% open at this hour.  At the same time, 10-year bond yields are up slightly to 3.454% and Oil (WTI) is flat at $74.25/barrel in early trading.

The major economic news events scheduled for Thursday include Preliminary Q1 GDP and Weekly Jobless Claims (both at 8:30 am), and March Pending Home Sales (10 am).  The major earnings reports scheduled for the day include AOS, ABBV, MO, AAL, AIT, ARCH, AMBP, AZN, BAX, BFH, BMY, BC, CRS, CARR, CAT, CBRE, CNP, CHD, CMS, CNX, CMCSA, CROX, CRF, DQ, DPZ, DTE, LLY, EME, FIS, FAF, FCFS, FCN, GOL, HOG, HAS, HP, HSY, HTZ, HGV, HON, IP, IPG, IQV, KDP, KEX, LEA, LII, LECO, LIN, LKQ, HZO, MA, MRK, NEM, NOC, ORI, OSK, PATK, PTEN, BTU, PNR, DGX, RS, ROK, ROP, SPGI, SNY, SNDR, SIRI, SAH, SO, LUV, SAVE, SRCL, STM, FTI, TXT, TTE, TSCO, TPH, VLO, VLY, VC, GWW, WST, WEX, WTW, WIT, and XEL before the open.  Then, after the close, ATVI, AEM, ALSN, AMZN, AMGN, ATR, ACA, AJG, BZH, COF, CSL, SS, SINF, COLM, DXCM, DLR, EMN, EHC, ERIE, FLSR, FE, GFL, GILD, HIG, PEAK, HUBG, INTC, LHX, LPLA, MTX, MHK, MDLZ, OLN, PINS, PFG, RSG, RMD, SGEN, SKX, SKYW, SM, SNAP, AWN, SSNC, TMUS, X, WY, and INT report.   

In economic news later this week, on Friday, Q1 Employment Cost Index, March PCE Price Index, March Personal Spending, Chicago PMI, and Michigan Consumer Sentiment.

In terms of earnings reports later this week, on Friday, AON, ARCB, ARES, AVTR, BLMN, CCJ, GTLS, CHTR, CVX, CL, DAN, XOM, FMX, GNTX, IMO, JKS, LAZ, LYB, NYCB, NWL, NHYDY, NVT, POR, SAIA, and TRP report.

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So far this morning, CAT, VLO, MRK, HON, OSTK, HSY, KEX, NOC, AZN, CMCSA, KDP, TAL, OSK, PTEN, SO, AOS, LIN, STM, TXT, IP, CNP, ROP, LII, PNR, CHD, DGX, FCFSCNX, RS, ROK, XEL, CBRE, BC, AIT, TPH, LEA, WEX, LKQ, BFH, CBZ, FIS, WST, TTE, WTW, SRCL, CROX, HOG, SPGI, and BAX all reported beats on both the revenue and earnings lines.  Meanwhile, AAL, BMY, SNY, CMS, FAF, ASX, BCS, NEM, DTE, and MBLY all missed on revenue while beating on earnings.  On the other side, LLY, HAS, IQV, ARCH, VC, FTI, and VLY all beat on revenue while missing on earnings.  Unfortunately, LUV, DQ, TSCO, SAH, and HZO missed on both the top and bottom lines.  It is worth noting that LLY HSY, BAX, ROP, PNR, and WST raised their forward guidance.  However, HZO lowered its forward guidance.

With that background, it looks like the Bulls are going to make a run to start the day. The QQQ seems set to gap up to retest its T-line (8ema) and the DIA is not far behind at this point in the premarket. Over-extension is not a problem based on T-line but we are well oversold according to the T2122 indicator. Interestingly, the Fedwatch tool tells us that confidence in a 0.25% rate hike by the Fed next week continues to fade a bit. We are now down to a 76% probability of that, with the other 24% probability being “no hike.” Right now, the chart tells us the bias has flipped bearish after uptrends were broken. However, we aren’t far from the consolidation range, and with good earnings to give them energy, the bulls are not likely to give in easily.

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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