Good Earnings Lead Market Up, DIS Popping

The rally was back on Wednesday across the market.  SPY gapped up 0.46%, DIA gapped up 0.33%, and QQQ gapped up 0.63%.  At that point, all three major index ETFs pulled back into the top of their gap area to bide time for half an hour.  Then all three rallied sharply for 30 minutes.  From there, all three drifted sideways within a fairly tight range the rest of the day.  This action gave us white-bodied candles with larger lower and smaller upper wicks.  SPY and QQQ could be said to have printed white-bodied Spinning Top candles while DIA gave us a White Doji-like candle.  All three printed new all-time high closes while SPY and QQQ also gave us new all-time highs.  This happened on less-than-average volume (especially in the DIA).

On the day, five of the 10 sectors were in the green as Technology (+1.25%) was way out front leading the market higher.  At the same time, Communications Services (-1.18%) lagged very far behind the other sectors.  Meanwhile, the SPY gained 0.83%, the DIA gained 0.41%, and QQQ gained 1.03%.  VXX fell slightly to close at 14.00 and T2122 dropped a bit but remained in the center of its mid-range to 51.95.  10-year bond yields climbed to 4.115% and Oil (WTI) rose 1.05% and close at $74.08 per barrel. So, once again strong earnings led to a pop at the open.  From that point, it felt like a game of “wait and see” with traders looking for the next news event on the horizon.

The major economic news released Wednesday included Dec. Exports, which were up to $258.20 billion (compared to November’s $254.30 billion value).   At the same time, Dec. Imports were also up to $320.40 billion (versus the Nov. $316.20 billion reading). This gave us a December Trade Balance of $62.20 billion, which was in line with the $62.20 billion forecast and the November $61.90 billion value.  Later, Weekly EIA Crude Oil Inventories showed a much higher build than expected at +5.520 million barrels (compared to the +1.700 million barrels forecast and the prior week’s +1.234 million barrels build).  Later, the Dec. Outstanding Consumer Credit number was dramatically lower than anticipated at $1.56 billion.  Compare this to a $14.90 billion forecast and the massive $23.48 billion November reading.  (However, remember that Consumer Credit numbers are often subject to big revisions.)

In Fed news, the NY Fed released a report showing that wealth inequality continues to grow.  The report covered the period from 1/1/19 to 9/30/23.  It showed white family’s net worth rose 28% over the period while the Hispanic family’s net worth increased 20%. However, black family net worth actually decreased by 1.5% over the period.  Elsewhere, Boston Fed President Collins said if the economy meets her expectations, the FOMC will be able to lower rates “at some point this year.”  Collins said, “The unexpected strength in recent GDP and labor market data exemplifies the ongoing resilience of demand, and highlights that the anticipated slowdown in activity may take some time.”  She continued, “I believe it will likely become appropriate to begin easing policy restraint later this year.” Collins also said that the Fed does not need to wait until the Fed’s 2% inflation target is met, saying she “totally agrees” that if they wait until then, “that’s waiting too long.”  Later, Fed Governor Kugler said she was optimistic that inflation will continue to decline.  She went on to agree with the recent statements of Fed Chair Powell, saying, “The job is not done yet.”  However, she also said, “March, May, June — every meeting from now until the end of the year and moving forward will be live (for rate cuts).”  Meanwhile, on CNBC, Minneapolis Fed President Kashkari said, “Sitting here today I would say two to three cuts would seem to be appropriate for me right now…that’s my gut based on the data we have so far.”

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After the close, NLY, ARM, ASGN, CENTA, CENT, CPA, CXW, COTY, EHC, EFX, GL, MMS, MCK, MKSI, MOH, NWSA, OSCR, PYPL, SGU, STE, SLF, UVV, DIS, and WYNN all reported beats on both the revenue and earnings lines.  Meanwhile, ALL, BKH, ENS, EG, MAA, MUSA, ORLY, and RRX missed on revenue while beating on earnings. Unfortunately, NVST, FAF, FLT, MAT, and UHAL missed on both the top and bottom lines.  It is worth noting that ARM, MPWR, OSCR, and DIS raised their forward guidance. However, ENS, EFX, MAA, PYPL, and RRX lowered their guidance.

In stock news, PRU announced it has taken over the $4.9 billion pension risks of SHEL as part of its deal to manage the pension benefits.  At the same time, Bloomberg reported that only a single TSLA was sold in South Korea in January due to various safety concerns, high prices, and inadequate charging infrastructure. Later, FOX reported a 20% decline in revenue, citing a fall in political ad sales.  At the same time. MSFT announced it has launched its Microsoft 365 Copilot internally in an attempt to boost AI adoption by its programmers.  Later, MPWR announced it will acquire Axign (a Netherlands-based fabless semiconductor maker).  At the same time, DIS told CNBC it will be taking a $1.5 billion minority stake in Epic Games (Fortnite publisher).  Later, ADESY (Airbus) announced it delivered 30 jets in January (up 50% from the same month in 2023).  The company also recorded 31 jet orders during the month.  Elsewhere, BA said that the FAA investigation findings will likely cause delays in the production schedule of its 737 jets.  Later, SPXC announced the acquisition of Ingenia (a Canadian firm) for $300 million, which included acquired real estate.  Meanwhile, after the close, TSLA asked its managers to define which of their employees are critical to operations, stoking fears of layoffs to come.

In stock legal, governmental, and regulatory news, the FDA put a hold on trials of a GILD blood cancer drug, citing an increased risk of death in some previous studies.  Later, a German court ruled against INTC in a patent dispute with tiny CA-based R2 Semiconductors.  At the same time, GCI was ordered to pay $25 million in damages after losing a defamation lawsuit.  Later, GOOGL’s Waymo autonomous driving unit was hit with a notice of regulatory review by the CA Dept. of Motor Vehicles after one of its driverless cars hit a cyclist, on Tuesday, causing minor injuries.  At the same time, Reuters reported that MSFT is in negotiations with a trade group (CISPE), which does include AMZN which is a direct competitor, in an attempt to end the group’s complaint filed with the EU’s antitrust regulators over MSFT cloud computing licensing practices.  In other MSFT news, the FTC clammed MSFT on Wednesday for violating its promises by laying off 1,900 gaming employees after saying no such layoffs would happen when it was seeking approval for its acquisition of ATVI (which the agency is still appealing to block).  Later, a US court nullified EPA approval of certain agricultural weedkillers from BAYRY (Bayer) and BASFY (BASF) used on soybean and cotton crops.  Elsewhere, the NHTSA announced it had closed its investigation into 3 million vehicles from HYMTF (Hyundai) and Kia related to potential engine fires. The agency determined the companies had issued eight recalls that addressed the issues that had caused the fires prompting the investigation.  At the same time, META filed a challenge to an EU “supervisory fee” aimed at deferring the regulator’s costs for monitoring compliance with EU content laws.  The fee amounts to 0.05% of META’s global net income and the fee amount is related to a social media’s average monthly active users.  The fee also applies to GOOGL, AAPL, and other social network giants.  Meanwhile, AAPL won the dismissal of a shareholder lawsuit that alleged the company had overpaid CEO Cook by tens of millions of dollars.  After the close, CVS was fined $250k by the state of OH for understaffing the pharmacy of one of its stores risking employee safety, and causing extreme delays for patients seeking prescriptions.  (The case stems back to a 2021 investigation.)

Overnight, Asian markets were mixed but leaned toward the green.  Japan (+2.06%), Shenzhen (+1.29%), and Shanghai (+1.28%) led the region higher while Hong Kong (-1.27%), India (-0.95%), and Thailand (-0.82%) lagged.  In Europe, we see a similar mixed picture at midday with 5 of the 15 bourses in the red.  The CAC (+0.62%), DAX (+0.36%), and FTSE (+0.01%) lead the region higher in early afternoon trade.  In the US, as of 7:30 a.m., Futures are pointing toward a start just on the red side of flat.  The DIA implies a -0.01% open, the SPY is implying a -0.14% open, and the QQQ implies a -0.15% open at this hour.  At the same time, 10-year bond yields are up to 4.139% and Oil (WTI) is up another percent to $74.65 per barrel in early trading.

The major economic news scheduled for Thursday includes Weekly Initial Jobless Claims and Weekly Continuing Jobless Claims (both at 8:30 a.m.), WASDE Ag report (noon), and Fed Balance Sheet (4:30 p.m.).  The major earnings reports scheduled for before the open are include WMS, APO, MT, ARES, ARW, ABG, AXTA, BAX, BCE, BDC, BWA, CCJ, CX, CIGI, COP, DTE, DUK, GTES, HOG, HSY, HMC, NSP, ICE, IPG, ITT, K, KVUE, LNC, MAS, MDU, NFG, PATK, BTU, PM, RL, RXO, SPGI, SNA, SPB, SAVE, TROW, TPR, TPX, THC, TRI, TDG, UA, UAA, WMG, WEX, and ZBH. Then, after the close, AFRM, ATR, BYD, CPRI, BAP, DXCM, EXPE, FE, FLO, G, PEAK, ILMN, LEG, MTD, MHK, MSI, NGL, PINS, TTWO, TEX, and TFII report. 

In economic news later this week, on Friday there is no major news planned.

In terms of earnings reports later this week, on Friday, AMCX, CTLT, ENB, FTS, MGA, NWL, PEP, PAA, PAGP, and TIXT report.

So far this morning, WMS, APO, ARES, AXTA, BAX, BCE, BDC, CRARY, HOG, ICE, IPG, ITT, KIM, MAS, RNECY, SPB, TROW, TPR, THC, TDG, WEX, and ZBH all reported beats on both the revenue and earnings lines.  Meanwhile, ABG, CCJ, CIGI, and SPGI beat on revenue while missing on earnings.  On the other side, COP, DTE, GTES, HSY, KVUE, LNC, RXO, SNA, TRI, UA, and UAA all missed on revenue while beating on earnings.  Unfortunately, MT, BWA, DUK, PM, and TPX missed on both the top and bottom lines.  It is worth noting that WMS, CIGI, DT, MAS, TPR, TRI, and ZBH all raised their forward guidance.  However, BWA, HSY, KVUE, KIM, PM, and SPGI all lowered their guidance.

In miscellaneous news, the USDA released its latest forecast Wednesday, saying that it expects a plunge in crop prices (to multi-year lows) along with a surge in production costs. The result is that the agency expects enough of a drop in farm incomes to cause ripples across the broader economy.  Specifically, the USDA forecasts a 25.5% drop in net farm profits in 2024 after a drop in 2023 from the record high in 2022.  Elsewhere, Bloomberg reported that a former Citadel employee has said the fund was one of the clients MS had leaked upcoming trades to when it was punished for the practice.  The names of the recipients had been redacted as part of MS’s $249 million settlement to end the SEC investigation.  Meanwhile, in a surprise move, China replaced the head of its securities regulator in a move meant to help restore confidence in the markets.  (The man replaced had gained the nickname “the broker butcher” for cracking down on traders.)

With that background, it looks like all three major index ETFs are undecided in the premarket. All three are giving us small candles with DIA printing an early session white body and both SPY and QQQ giving us a small red body. None are far removed from Wednesday’s close and all three remain above their T-line (8ema). So, the Bulls remain in control of the trend in both the long and short term. In terms of extension, none of the three is too far from their 8ema yet and the T2122 indicator remains in the center of its midrange. This means the market has plenty of slack to work with if either side of the market gains traction. As I have been saying for a long time, keep an eye on those 10 huge tech stocks. On Wednesday it was META, NVDA, MSFT, AMD, and TSLA leading the pack. If they walk in lock-step, whatever direction they decide to go is very likely to call the tune for the rest of the market.

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 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 gains are 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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