Markets opened very modestly higher Monday (up 0.14% in the SPY, up 0.09% in the DIA, and up 0.15% in the QQQ). However, after that open the Bears stepped in to recross the gap and reach the lows of the day at about 10:15 am. From there, the Bulls took the three major indices on a slow, wavy rally that reached the highs of the day at about 1:15 pm. At that point, we took some profits and then ground sideways in a tight range not too far off the highs. This action gave us indecisive candles in the SPY, DIA, and QQQ. The DIA printed a Doji Bullish Harami, the SPY printed a white-bodied Spinning Top Bullish Harami, and the QQQ gave us more of a larger white-bodied Hammer-type candle. The SPY and QQQ remain above their T-line (8ema) while the DIA remains below its own T-line but also remained above its 50sma.
On the day, nine of the 10 sectors were in the green as Technology (+1.30%) led the way higher while Utilities (-0.79%) lagged behind the other sectors. At the same time, the SPY gained 0.33%, DIA gained 0.17%, and QQQ gained 0.54%. VXX was down 2.69% at 36.50 and T2122 climbed back up while remaining in the mid-range at 61.70. 10-year bond yields climbed back to end up to 3.496% while Oil (WTI) gained 1.48% on the day to end at $71.12 per barrel. So, Monday was an indecisive yet overall bull market that nudged a bit higher. This came despite very disappointing economic news prior to the open. And, once again, this happened on well less-than-average volume across all three major indices.
In economic news, the New York Fed Empire State Manufacturing Index came in far below expectations at -31.80 (compared to a forecast of -3.70 and the April value of +10.80). In Fed speak, Chicago Fed President Goolsbee said Monday that his decision to support a quarter-point hike at two weeks ago was a “close call.” He went on to say that the thing which gave him pause on a last hike was the potential impact of a hike on credit conditions. Elsewhere, Atlanta Fed President Bostic told CNBC that if there was a vote Monday, he would vote to hold rates flat. He went on to say “The appropriate policy is really just to wait and see how much the economy slows from the policy actions that we’ve (already) had.” However, at the other end of the spectrum was Minneapolis Fed President Kashkari, who told a conference the Fed probably has “more work to do on our end, to try to bring inflation back down.” He is joined on that side by Richmond Fed President Barkin who told Reuters “You could tell yourself a story where inflation comes down relatively quickly … with only a modest economic slowdown (but) I’m not yet convinced … I do wonder whether we’re not going to need more impact on demand to bring inflation down to where we need to go.”
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In stock news, Reuters reported Monday that WDC and Kioxia (formerly Toshiba’s Memory Business Unit) are speeding up their merger talks in a very tough business environment for computer memory makers. If agreed, the deal would likely face tough antitrust challenges since the two are the #2 and #4 flash memory makers in the world. WDC closed up 11.26% on the story Monday. Elsewhere, STLA has stopped the work on construction of a $3.74 billion battery plant in Windsor CA over a disagreement on subsidies. (STLA is now demanding that the CA government give it the same subsidies and grant very recently offered to VWAGY (Volkswagen) in order to get them to commit to building a battery plant in Canada. STLA made their location decision in 2022 and had already begun plant construction prior to the VWAGY deal.) In other EV news, FSR announced Monday that it is accelerating production of its Ocean SUV, raising its output goal to between 1,400 and 1,700 by the end of June. Meanwhile, HEI announced it has reached a deal to buy Wencor (private) for just over $2 billion in order to fill out its portfolio of generic aerospace parts. In that space, late in the day, Bloomberg reported that DAL is in talks with EADSY (Airbus) for a large wide-body jet order. At the same time, Reuters reported that CEO Elon Musk has told TSLA management that there can be no hires (including contractors) unless he personally approves the hiring request. For reference, TSLA has 128k employees at the moment. Finally, after the close Monday, BRKB said it has begun investing in COF and that it no longer has a position in BK. This was a somewhat odd information release since regulatory filings back on March 31 had shown this to be the case.
In stock legal and regulatory news, in an interesting twist to a saga that was thought to be dead, the EU gave antitrust approval to the MSFT $69 billion purchase of ATVI. However, MSFT still faces an uphill battle in overturning the British veto of this acquisition. MSFT has until May 24 to appeal the denial from the British Competition and Marketed Authority. In other European legal news, a French prosecutor in Paris has opened a judicial inquiry into “planned obsolescence” and “deceptive marketing” of AAPL products stemming from a December 2022 complaint. Elsewhere, GS was fined $7.3 million by the ECB for underreporting the risk associated with some corporate loans between 2019 and 2021. Meanwhile, ABT was sued Monday in a proposed class action suit claiming the company advertising misled consumers into believing its PediaSure product would increase the height of children. On the docket for Tuesday will be AI regulation as the CEO of OpenAI will appear before a US Senate panel that is considering several different approaches to AI regulation. MSFT and GOOGL will be the most obviously impacted companies from such regulation. However, IBM, BABA, BIDU, AMZN, CRM, NVDA, TMPS, TSLA, and dozens of other companies offer or use AI already and could be impacted. Finally, Elon Musk lost his appeal to the US Second Circuit Court of Appeals. Musk’s appeal was an attempt to overturn his settlement with the SEC which requires the advance review of any tweets Musk puts out containing information about TSLA after Musk’s tweets misled investors in 2018. (Musk also paid a $20 million fine and was forced to temporarily step down as CEO of TSLA.)
In miscellaneous news, the US Dept. of Energy said after the close that it will purchase 3 million barrels of crude oil to begin filling the Strategic Petroleum Reserve with offers to be submitted by May 31 for delivery in August. Elsewhere, the NY Fed released data showing that the demand for new mortgages had slowed substantially in Q1. The Fed said this demand fell to the lowest Q1 level since 2014, even after overall mortgage debt rose $121 billion from Q4 to $12.04 trillion. This came as overall household debt levels rose 0.9% to $17.05 trillion.
Overnight, Asian markets were mixed. Taiwan (+1.28%) and Japan (+0.73%) led the gains while Shenzhen (-0.71%), India (-0.61%), and Shanghai (-0.60%) paced the losses. In Europe, we see a similar picture taking shape at midday. Belgium (-1.11%) is by far the biggest mover. However, the CAC (+0.07%), DAX (+0.12%), and FTSE (+0.13%) lead the more plentiful green bourses in early afternoon trade. In the US, as of 7:30 am, Futures are pointing to a mixed start to the day. The DIA implies a -0.23% open, the SPY is implying a -0.07% open, and the QQQ implies a +0.03% open at this hour. At the same time, 10-year bond yields are down a bit to 3.478% and Oil (WTI) is off a quarter of a point to $70.95/barrel in early trading.
The major economic news events scheduled for Tuesday include April Retail Sales (8:30 am), April Industrial Production (9:15 am), March Business Inventories and the March Retail Inventories (both at 10 am), and the API Weekly Crude Oil Stocks report (4:30 pm). We also have Fed speakers (Mester at 8:15 am, Bostic at 8:55 am, Barr testifies at 10 am, Williams at 12:15 pm, and Bostic again at 7 pm). There will also be another meeting between President Biden and the leaders of both parties from Congress over the debt ceiling (and budget deficit). The major earnings reports scheduled for the day include BIDU, HD, IQ, SE, and TME before the open. Then, after the close, CPRT, KEYS, KD, and PTC report.
In economic news later this week, on Wednesday, April Building Permits, April Housing Starts, and EIA Crude Oil Inventories are reported. On Thursday we get Weekly Initial Jobless Claims, Philly Fed Mfg. Index, April Existing Home Sales, Fed Balance Sheet, and Bank Balances with the Fed. Finally, on Friday, we hear from two Fed speakers (Chair Powell and Williams).
In terms of earnings reports later this week, Wednesday, we hear from ARCO, TGT, TJX, SQM, CSCO, STNE, SNPS, TTWO, VSAT, and ZTO. On Thursday, WMS, BABA, BBWI, CSIQ, DOLE, GRAB, BEKE, MSGE, WMT, AMAT, CVCO, DXC, FTCH, FLO, GLOB, and ROST report. Finally, on Friday, we hear from DE and FL.
After the close, NU and XP both reported beats on the revenue and earnings lines. So far this morning, BIDU, TME, and ONON have reported beats on both the revenue and earnings lines. Meanwhile, HD missed on the top line while beating on earnings. At the same time, SE and IQ have missed on both the top and bottom lines. It’s worth noting that ONON has raised guidance while HD lowered its forward guidance.
With that background, it looks like the premarkets are pulling back from earlier highs. However, all three major indices still are hanging inside their recent tight chopping range. The SPY and QQQ remain above their T-lines and the DIA remains below its own 8ema. Only the QQQ has been clearly trending bullishly of late with the SPY grinding sideways and the DIA leaning to the bearish side of trend. With that said, DIA is sitting on a potential support level and the SPY has one just below. All three major indices have a little room above before hitting the next potential resistance level. Over-extension is not a problem yet, either in terms of distance from the T-lines or in terms of the T2122 indicator. So, be careful given the chop and divergence of short-term attitudes of the SPY, DIA, and QQQ.
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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