GS Cuts 3200 With CPI and Earnings Ahead

Markets gapped higher at the open (up 0.83% in the SPY, up 0.88% in the DIA, and up 0.66% in the QQQ).  However, price then immediately reversed and faded the gap to trade back below Thursday’s close before reversing again.  At about 9:50 am, a steady rally began that lasted all the way into 3:15 pm when a small pullback took us into the close.  This action gave us large, white-bodied candles, with larger lower wicks and smaller upper wicks, that caused all three major indices to cross above their T-lines (8ema) and pop up out of the 3-week long consolidation range.  DIA has also crossed back above its 50sma and SPY is about to retest its own 50sma from below.

On the day, all 10 sectors are in the green with the Basic Materials (+3.29%) leading the way higher as Healthcare (+0.99%) lagged way behind the other sectors.  At the same time, the SPY was up 2.24%, the DIA was up 2.14%, and the QQQ up 2.76%.  Volume was slightly above average (for the first time in a long time).  Meanwhile, the VXX was down 2.33% to 13.40 and T2122 spiked back up into the overbought territory at 92.18.  10-year bond yields plunged down to 3.565% and Oil (WTI) was flat at $73.76 per barrel.  So, overall, it was a bullish day that finally broke out of the long consolidation, oddly on economic data that may cause the Fed to stay Hawkish.

In economic news, December Nonfarms Payrolls came in above expectations at +223k (compared to +200k forecasted but less than November’s +256k number).  This took the December Unemployment Rate down to 3.5% (versus the forecast of 3.7% and the November rate of 3.6%).  The December Participation Rate also increased slightly to 62.3% (from the November value of 62.2%).  However, the December Average Hourly Earnings came in lower than expected at +4.6% year-on-year (versus the forecast of +5.0% and less than the November reading of +4.8%).  This might indicate lower inflationary pressure on wages.  Later in the day, November Factory Orders showed a larger drop than forecast at -1.8% (compared to an expectation of -0.8% and an Oct. value of +0.4%).  Then, finally, ISM Non-Mfg. PMI came in significantly lower than expected at 49.6 (versus a forecast of 55.0 and a November value of 56.5).  So, most of this showed a stronger economy than was projected with less inflationary pressure than anticipated, but also a slightly contracting forward outlook in the Services sector. 

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In stock news, on Friday, TLSA announced it will cut prices on various Model 3 and Model Y cars.  Elsewhere, LUV said that it expects to post a loss for Q4 after canceling 17,000 flights in December.  Meanwhile, Reuters reported that China is in talks with PFE to secure licenses to allow its domestic drugmakers to produce a generic version of the antiviral drug Paxlovid.  At the same time, the FDA approved a new Alzheimer’s drug that was co-developed by BIIB.  In other FDA news, the agency announced that the AZN antibody cocktail Evusheld likely does not provide protection to the latest and most prevalent variant of covid.  Later in the afternoon, Reuters reported that MCD is planning corporate layoffs and a shift in emphasis toward building more restaurants according to leaked internal memos. 

In miscellaneous news, Congress finally elected Kevin McCarthy as Speaker of the House.  It took 15 rounds of voting over 4 days (the longest Speaker election in 164 years) and nearly came to blows between Republicans after the 14th round as a single extremist held the rest of the GOP (and Congress) hostage.  All the while, not a single Democrat crossed the aisle to resolve the matter.  However, in the end, the holdouts were persuaded by major concessions which allow more debate, allow easier amendments, divide the government funding into 12 different bills, give the House ability to defund the salary of any/all government officials, prohibit voting on increasing the debt ceiling without also cutting domestic spending, and finally allow any member of the House to individually call a vote to remove the Speaker at any time. This sets the stage for what will almost certainly be a more contentious, obstructive, and drama-filled two years than has been the case in a long time.  (And that’s saying something.)  Elsewhere, (and in better news) Natural Gas fell 17.1% last week (February contract), making it the third weekly decline in a row.  Meanwhile, Oil closed Friday flat, ending the week lower despite a healthy drop in the Dollar (which raises commodity prices).  Across the pond, Euro-area inflation fell back to single digits in December for the first time since August.

Over the weekend, Bazil suffered an even worse attack than the US suffered on January 6, 2021, putting the current US political problems into perspective. Thousands of supporters of the Trump-esque defeated ex-President Bolsanaro attacked, ceased, and briefly occupied the Brazilian Congress, Presidential Palace, and Supreme Court. Interestingly, in Brazil, it did not take a lying leader with the megaphone of major mass-media organizations behind him to whip the ignorant masses into rioting. There, it was accomplished in a much lower-tech manner. At any rate, the Brazilian military eventually drove the mobs away, but the damage was done. Xenophoia, tribalism, and “kicking down” politics had assaulted democracy. Perhaps more importantly to us, Brazilian business, and grain exports were temporarily halted by the national turmoil.

Overnight, Asian markets were green across the board.  Taiwan (+2.64%), South Korea (+2.63%), and Hong Kong (+1.89%) led the region higher.  Meanwhile, in Europe, we see nearly the same picture at midday.  Only the FTSE (-0.10%) is in the red, while the DAX (+0.50%), and CAC (+0.23%) lead that region higher in early afternoon trade.  As of 7:30 am, US Futures are pointing toward a green start to the day.  The DIA implies a +0.30% open, the SPY is implying a +0.40% open, and the QQQ implies a +0.45% open at this hour.  At the same time, 10-year bond yields are up a bit to 3.593% and Oil (WTI) has spiked 3.35% to $76.24/barrel in early trading.

There are no major economic news events scheduled for Monday.  The major earnings reports scheduled for the day are limited to AYI and CMC before the opening bell.  Then after the close, JEF reports.

In economic news later in the week, on Tuesday, Fed Chair Powell speaks and the API Weekly Crude Oil Stocks are reported.  Then Wednesday, we get EIA Crude Oil Inventories.  On Thursday, December CPI, Weekly Initial Jobless Claims, the WASDE Ag Report, and the December Federal Budget Balance are reported. Finally, on Friday, we get December Import/Export Prices, Michigan Consumer Sentiment, and hear from Fed member Harker.

In terms of earnings, on Tuesday, ACI and SNX report.  Then Wednesday, we hear from BSX and KBH.  On Thursday, there are no major earnings reports.  However, on Friday, earnings season kicks off again as we hear from BAC, BK, BLK, C, DAL, FRC, JPM, UNH, WFC, and WIT report.

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Finally, GS announced early this morning that it will be cutting 3,200 jobs later this week after completing an internal cost-cutting review. Bloomberg reports that when GS reports Friday it will unveil a new unit (which will house all of the GS credit card and installment-lending business) and that new unit will show a $2 billion pretax loss. Elsewhere, the Dollar is trading near a seven-month low today. This gives a boost to all commodities in early trading.

With that background, it looks like all three major indices are looking to follow Asia and Europe higher (at least as of premarket). The follow-through on Friday’s strong candle has the SPY retesting its 50sma and resistance from previous price action. All three of the major indices are above their T-line (8ema), but over-extension is not yet a problem in any of them. With CPI and Fed speakers ahead later in the week, do not be surprised to see a move but hen a rest as the market then hopes for a clue as to how the Fed will act at the end of the month.

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.


Swing Trade Ideas for your consideration and watchlist: TSLA, AAPL, AMZN, META. 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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