Hard or Soft Core CPI is the Question

Tuesday saw us gap down at the open, down 0.34% in the SPY, down 0.23% in the DIA, and down 0.47% in the QQQ.  At that point, all three of the major index ETFs ground sideways for about and hour.  Then we started some modest wave action, mostly to the side in SPY, a bigger swing to the upside in the DIA, and mostly to the downside in the QQQ all until 1:30 p.m.  However, all three then sold off for two hours and then traded sideways in a tight range the last 30 minutes of the day.  This action gave us a white-bodied Inverted Hammer in the DIA, a black-bodied Inverted Hammer, and a black-bodied candle with an upper wick in the QQQ.  All three retested their T-lines (8ema) during the day with QQQ and SPY failing while SPY held up and closed above.  This all happened in well-below-average volume in all three of the major index ETFs (far below in the DIA). 

On the day, six of the 10 sectors were in the red with Technology (-1.35%) way out front leading the rest of the market lower while Energy (+1.81%) was way out front holding up better than any other sector.  At the same time, the SPY lost 0.56%, DIA lost just 0.05%, and QQQ lost 1.11%.  VXX gained slightly to close at 20.93 and T2122 climbed slightly again but remained in the mid-range at 38.02.  10-year bond yields fell a bit to close at 4.272% while Oil (WTI) popped up 1.87% to close at $88.92 per barrel.  So, on balance, it was a bearish day.  However, it was not very decisive, and overall, it felt like the market is still waiting…maybe on the CPI data. 

The major economic news reported Tuesday started with the EIA Short-Term Energy Outlook.  That report projects that global oil output will be 101.2 million barrels per day in 2023 and then rise again to 102.9 million barrels per day in 2024. Meanwhile, global oil demand will reach 101.0 million barrels per day in 2023 and rise to 102.3 million barrels per day in 2024.  This means EIA projects a 0.2 million barrel per day surplus of oil this year and a 0.6 million barrel per day surplus in 2024.  (All of those numbers would be all-time record highs.)  Despite the projected surpluses, somehow, EIA projects a decline of global oil inventories of almost half a million barrels per day for the rest of 2023.  This led them to predict Brent oil averaging $93/barrel in Q4.  The same report said that the US has regained its spot as the world’s largest LNG exporter after the fire-closed Freeport LNG terminal in TX reopened following an eight-month outage. Later, the WASDE Ag Report from the USDA reflected challenging weather conditions (hot and dry in the Midwest) in the last month.  The USDA lowered their expected crop yields for both corn and soybeans (down 1.3 bushels per acre to 173.8 in corn and down 0.8 bushels per acre to 50.1 for soybeans).  This impact was partially offset by a big jump in the number of acres of corn planted this year.  Then after the close, the API Weekly Crude Oil Stocks Report showed an unexpected increase.  The report found a build of 1.174 million barrels on the week (compared to a forecast calling for a drawdown of 2 million barrels and the prior week’s 5.521-million-barrel drawdown).

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In stock news, TSM announced Tuesday that it will invest $100 million into ARM as part of the latter’s IPO.  (TSM is the world’s largest chipmaker and ARM is the major chip design rival to the x86 architecture used by INTC and AMD.)  At the same time, the CEO of LAW announced he will step down from both his CEO and Board Member roles.  LAW announced an existing board member (Scott Hill) as interim CEO.  Later, the CFO of WFC said Tuesday that he expects more layoffs are ahead but gave no timeline for cuts or details on causes. WFC has been cutting for years, having cut more than 40,000 headcount since Q3 of 2020.  However, they still had 233,834 employees at the end of June.  Elsewhere, BA reported that its deliveries decreased in August as it delivered 35 jets (main competitor EADSY delivered 52 in August).  This is well down from BA’s year-to-date average of 43 planes delivered per month.  Later the CEO of WMT told a GS Investor Conference that the company was well-positioned and he actually believes prices will fall in 2024 (at least a bit).  He went on to say that WMT is concerned about inflation in certain categories but is also already seeing “pockets of disinflation” and given the job market and wage increases the company feels “pretty good about where the consumer is in the US.”  In the afternoon, AAPL unveiled their new iPhone 15 line as well as a new Watch.  The phones feature brighter screens and an enhanced camera.  The phones go on sale September 22.  Later, XOS revealed that it has won a contract with the state of CA (and local authorities) to acquire electric step vans and other vehicles for government use in that state.  At the end of the day, PFE / BNTX set its list price for the latest COVID-19 shots at $120/dose while MRNA we tits price at $130/dose.  On Tuesday evening, the CEO of BP resigned (effective immediately) over charges of failing to disclose past personal relationships with colleagues.

In stock government, legal, and regulatory news, EU antitrust regulators asked MSFT competitors and customers for comments on the impacts they may experience if the MSFT-proposed remedies (to gain approval for the ATVI acquisition) are approved. No formal EU investigation of the remedies has been launched.  So, this may just be a precaution or it could signal the EU is waiting for the UK Competition Authority’s final decision before taking another step itself.  Elsewhere, the US Dept. of Defense signed a $21 million deal with a subsidiary of TLOFF (Canadian metal miner) to increase US nickel production by exploring the possibility of a mine in MN.  At the same time, US House Republicans held a hearing of their Chinese Communist Party Committee, hearing from several witnesses.  Interestingly, the party of “less regulation” supported the call from former Trump SEC Chair Clayton’s call for all companies over $50 billion (or with China-based revenue over $10 billion) to report on the company’s exposure to China. (I suppose they believe they can spin it that this is good additional reporting while also opposing climate risk reporting as too onerous but that logic illudes me.) At mid-afternoon, the FDA ruled that the active ingredient in many over-the-counter cold and allergy medicines is not effective.  New research found the active ingredient gave no better results than placebo.  (The next step is for the FDA to decide whether the medicines based on this ingredient need to be removed from sale.)  Later, HYMTF (Hyundai) and Kia asked a US judge to reject lawsuits filed by 17 cities for a failure to install anti-theft technologies in millions of their vehicles.  (A TikTok-inspired crime has led to millions of HYMTF and Kia vehicle thefts burdening police and leading to dozens of crashes and 10 deaths, as of February.)   The automakers responded that the real cause was lax policing by the cities rather than easy-to-steal cars.  (96% of all new vehicles sold since 2015 have had immobilizers, which would stop/limit this type of theft.  However, only 26% of HYMTF and Kia cars contain those devices.)  Meanwhile, a federal “Interagency Working Group on Mining Laws” issued a 168-page report that among other things called on Congress to introduce royalties on US hard rock mining and graduating (increasing over time) mining fees to encourage more and faster development of US mines for materials like lithium, cobalt, and nickel.  After the close, the CDC Advisory Panel voted 13-1 in favor of widespread use of the new COVID-19 vaccines for anyone 6 months of age and older.  In the evening, the SEC filed suit against VIRT (broker) for misleading investors/traders into believing it properly safeguarded confidential information when in reality anyone working for the company in 2018-2019 could access all information with just common usernames and generic passwords shared amongst the broker’s offices.  This allowed their proprietary traders to access holdings, prices, and volumes to aid in their own trading.  Finally, the FDA warned CVS and WBA against manufacturing and selling unapproved eye products (some of which were being illegally marketed for treating medical conditions like cataracts, glaucoma, and conjunctivitis).

In Autoworker contract talks or strike news, auto industry and stock analysts’ notes are coming hot and heavy as the current contract end nears.  BCS said their sources tell them the talks are proceeding very slowly and there is now a high likelihood of a strike.  At the same time, Third Bridge says their analysis finds F the most vulnerable to a strike of the Big 3.  (They say this is based on F’s reliance on just a few high-value models to make their numbers…including the F-series pickups.) 

Overnight, Asian markets were mixed but leaned bearish.  Shenzhen (-1.14%) was by far the biggest loser followed by Australia (-0.74%), and Thailand (-0.66%).  On the plus side, New Zealand (+0.52%) and India (+0.38%) were the leading gainers.  In Europe, things are much more on the red side at midday.  There are only two very modestly green bourses while the CAC (-0.90%), DAX (-0.91%), and FTSE (-0.47%) lead the region lower in early afternoon trade.  In the US, as of 7:30 a.m., Futures are pointing toward a modestly lower open.  The DIA implies a -0.14% open, the SPY is implying a -0.11% open, and the QQQ implies a -0.11% open at this hour.  At the same time, 10-year bond yields are up a bit to 4.30% and Oil (WTI) is up another two-thirds of a percent to $89.40 per barrel in early trading.

The major economic news scheduled for Wednesday includes August Year-on-Year CPI and August Month-on-Month CPI (at 8:30 a.m.), EIA Weekly Crude Oil Inventories (10:30 a.m.), and Federal Budget Balance (2 p.m.).  The major earnings reports for the day include CBRL and REVG before the open.  There are no major reports scheduled for after the close. 

In economic news later this week, on Thursday, we get August Month-on-Month PPI, Weekly Initial Jobless Claims, August Retail Sales, July Business Inventories, July Retail Inventories, and the Fed Balance Sheet. Then Friday, August Export Price Index, August Import Price Index, NY Empire State Mfg. Index, August Year-on-Year Industrial Production, August Month-on-Month Industrial Production, Michigan Consumer Sentiment, Michigan Consumer Expectations, Michigan Consumer 12-month Inflation Expectation, and Michigan Consumer 5-Year Inflation Expectations are reported.

In terms of earnings reports later this week, on Thursday, we hear from ADBE, CPRT, and LEN.  Finally, on Friday, there are no major earnings reports scheduled again.

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In miscellaneous news, Reuters reports that unless the current regional drought ends, the Panama Canal will further reduce the maximum number of daily vessel transits.   Many ships already need to reduce loads (containers or bulk) for the transit and then wait to reload on the other side.  (Currently 32 ships per day can transit, down from 36, and the maximum draft has been reduced from 50 feet to 44 feet.)  The canal uses 50 million gallons of fresh water for every ship it transits and the lakes feeding the canal system are drying up due to prolonged drought.  Elsewhere, just ahead of its auction, Citgo (Venezuela-owned and US seized oil refiner) was valued at between $32 and $40 billion.  (The refiner was seized to satisfy $23 billion in claims against Venezuela.)  Citgo is the seventh-largest US oil refiner.  Finally, the US Census Bureau reported that average US individual income fell for the third straight year to a median $74,580.  Similar declines have historically led to recessions.  However, those recessions have usually come at the beginning of the declines, not after the third year.  At the same time, the agency reported that the number of Americans living in non-metro areas outgrew urban populations for the first time in three decades in 2021.

In late-breaking mortgage news, the Mortgage Brokers Association released their weekly data.  This week the national average 30-year, fixed-rate, conforming loan rate increased to 7.27% (up from 7.21%).  As a result, overall demand for mortgages dropped 0.8% from the previous week (and was 31% lower than the same week in 2022).  This included a 5% week-over-week drop in refinance loan applications and a 1% increase in applications for new home purchase loans.

With that background, it looks like markets are waiting on the CPI data today. All three of the major index ETFs are giving us very small premarket candles so far. The DIA is still slightly above its 8ema while the SPY remains slightly below its own T-line. QQQ is the furthest below its T-line but that is not far and it is giving us the best-looking candle this morning. QQQ is also retesting its 50sma, sitting right on that level at the moment. We are likely to see a reaction to CPI (either bullish or bearish). So, expect volatility as we get closer to the open and shortly after the opening bell. The very short-term and mid-term trends remain bullish, but only just so in the short-term. (The previous short-term downtrend has been broken, but we have not yet proven we can hold above that line. So, it is really just a presumed resumption of the mid-term uptrend as of now.) In terms of extension, none of the major index ETFs are very far from their T-line and the T2122 indicator is still sitting in the lower end of its mid-range. So, there is plenty of slack for either the Bulls or the Bears to make a move. Again, it’s a matter of finding the buyers or sellers to get the move started and the CPI data may help with that…one way or the other.

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

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🎯 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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