Huge Beat By NVDA Has Bulls Running

Markets opened just a little bit lower on Wednesday with SPY opening down 0.15%, DIA gapping down 0.23%, but QQQ opening 0.04% higher.  From there, all three major index ETFs meandered sideways in a tight range until 1:30 p.m.  Then a stiff selloff took all three to their lows of the day at 2:45 p.m.  From there the SPY, DIA, and QQQ rallied modestly, in waves, into the close.  This action gave us black-bodied indecisive candles in all three major index ETFs.  The QQQ printed a long-legged Doji, the SPY printed a Bear Doji Harami, and the DIA printed a black Spinning Top.  The DIA also retested and closed pennies below its T-line (8ema).  Again, this all happened on very low volume in all three major index ETFs.

On the day, eight of the 10 sectors were in the red with Basic Materials (-1.71%) and Energy (-1.69%) well out front leading the way lower.  Meanwhile, Healthcare (+0.22%) held up better than the other sectors.  At the same time, SPY lost 0.29%, DIA lost 0.53%, and QQQ lost just 0.02%.  VXX gained 2.14% to close at still very low 11.43 and T2122 dropped further into the lower half of its mid-range at 41.67.  In other markets, 10-year bond yield was up very slightly to 4.424% and Oil (WTI) fell 1.74% to close at $77.29 per barrel.  So, overall, Wednesday was another day of consolidation, or in the case of DIA, a mild pullback.  However, it is worth noting that all three of them are still less than one percent from their all-time high closes. 

The major economic news scheduled for Wednesday included April Existing Home Sales, which came in a bit lower than expected at 4.14 million (compared to a forecast of 4.21 million and March’s 4.19 million reading).  Later, EIA Weekly Crude Oil Inventories showed an unexpected increase of 1.825 million barrels (versus a forecast of a 2.400-million-barrel drawdown and the prior week’s 2.508-million-barrel draw). 

In Fed news, the May 1 Fed Meeting Minutes indicated the FOMC had worries about the progress on inflation.  The report said, “Participants observed that while inflation had eased over the past year, in recent months there had been a lack of further progress toward the Committee’s 2 percent objective.”  They clarified that, “The recent monthly data had showed significant increases in components of both goods and services price inflation.”  The minutes also showed that “various participants mentioned a willingness to tighten policy further should risks to inflation materialize in a way that such an action became appropriate.”  Interestingly, immigration was mentioned on multiple occasions as a good thing for the economy, saying it had helped sustain consumption and was helping ease the labor market.  In regards to the Fed Balance Sheet, the minutes said, “Almost all participants expressed support for the decision to begin to slow the pace of decline of the Federal Reserve’s securities holdings in June.”  It went on, “A few participants indicated that they could have supported a continuation of the current pace of balance sheet runoff at this time or a slightly higher redemption cap on Treasury securities than was decided upon.” 

After the close, the huge news was NVDA’s huge beats on both lines.  NVDA showed a 10.3% upside surprise on revenue but a MASSIVE 262.1% increase in earnings, up to $6.12/share.  At the same time, ENS and UVV also beat on both the revenue and earnings lines.  Meanwhile, BBAR, PLUS, and SNOW beat on revenue while missing on earnings.  Unfortunately, SNPS and VFC missed on both the top and bottom lines.

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In stock news, on Wednesday, BIIB announced it had agreed to acquire Human Immunology Biosciences for up to $1.8 billion.  At the same time, CSX railroad said it will resume normal coal export operations at the Port of Baltimore this week and is loading trains now, after crews cleared part of the “deep channel.”  (Baltimore is the US’s second largest coal export hub, accounting for 28% of US exports.)  It is worth noting that CSX and rival NSC feed CEIX’s coal terminal in the Baltimore Port.  Later, SBGSY (Schneider Electric) and BSY announced they have terminated discussions about a strategic transaction.  At the same time, Bloomberg reported that DIS has struck a deal to sell its stake in India’s “Tata Play” satellite provider.  (Terms of the deal were not announced.)  Later, AAUKF (Anglo American) agreed to a 1-week extension for BHP to make another acceptable takeover bid after its board rejected BHP’s third offer of $49.18 billion.

After the close, DD shares soared as the company announced it will split into three independent, publicly traded companies.  The split is planned to be tax-free for shareholders.  The current CEO will be replaced in the DD business by the current CFO, but will remain as executive chairman.  Also after the close, WBA announced it has sold $400 million worth of shares of COR, lowering its stake to 12% (down from 13%).  WBA said the funds will primarily be used to pay down debt.  At the same time, WBD announced its TNT network has signed a 5-year deal with DIS’s ESPN unit to broadcast college football games beginning in the fall of this year.

In stock legal and governmental (and potentially political) news , two top Democrats (Senate Budget Committee Chair Whitehouse and House Ranking Democrat Raskin of the House Oversight Committee) jointly sent a letter to the Dept. of Justice.  The letter seeks a sweeping investigation and action like was taken against big tobacco in the past…this time against big oil.  The letter was sent on behalf of a Joint Staff Report released in April that documented decades (50-60 years) of Big Oil deceiving the public and Congress, as well as suppressing actual evidence of the dangers of climate change and the impact of fossil fuels on that problem.  (It alleges that like big tobacco lied about the cancer risks of its product, Big Oil has known about, lied to cover up, and had a program of disinformation about the dangers of fossil fuel on the climate.)  The letter was accompanied by a raft of evidence such as internal reports, communication, etc. from oil companies and also whistleblower testimony that the Joint Staff report collected and summarized.  Note: you can’t ignore the political background here given that within the last week Trump offered big oil execs specific government policy and law changes…if they gave him $1 billion in campaign donations.  Those oil execs have subsequently scheduled a major Trump fundraiser event in Houston.  So, Democrats may have political motives, although it’s also true that the report was done before Trump’s offer to the execs at a Mara Lago dinner.  On the other hand, the American Petroleum Institute response to the letter could easily be confused for Trump campaign rhetoric, claiming this was just a dishonest way to deflect attention away from inflation and America’s need for more oil and gas.  Of course, both could be true. (The Dems could be politically motivated AND Big Oil could have known of and lied about the harmful effects of their products.) Regardless, in practical terms, a criminal or civil (like was brought against the tobacco companies) case on this matter would take years at a minimum to come about.  So, it is a quite long-term risk for oil companies, not short-term. However, it was news Wednesday and is worth noting.

Elsewhere, the SEC announced that ICE has agreed to pay a $10 million penalty for failure to immediately alert the SEC about a cyber intrusion event dating back to early 2021.  At the same time, UK regulators fined C $78.5 million for “controls failures” over a “fat finger” trade mistake that caused several “mini flash crashes” of European stocks between 2018 and 2022. (The last of these was a mistaken $444 billion order that was meant to be a $58 million order in May 2022.)   Later, Russian President Putin approved the liquidation of AXP’s Russian business.  At the same time, JNJ was sued in what the plaintiff’s hope will become a class action suit.  The suit alleges that JNJ engaged in fraudulent bankruptcy claims to avoid paying and pressure cancer victims of its talc business into settling.  (So, this case is not over the cancer, it is over the JNJ blatant attempt to avoid liability by transferring all liability to a subsidiary and then filing for bankruptcy of that subsidiary.  This move is called the “Texas Two-Step.”)  Later, Reuters reported the JPM is poised to announced a $100 million settlement payment to the CFTC over trade reporting lapses.  At the same time, a judge ordered BMY and SNY to pay more than $916 million to the state of HI for failing to warn non-white patients of health risks of their Plavix blood thinner.  (This was an increase from the original trial’s $834 million jury award, which was thrown out over a legal error.)  After the close, Reuters reported that C is being sued by a former Managing Director who claims she was fired for refusing to give false information to regulators in 2023.  At the same time, the US Dept. of Justice announced it will seek the breakup of LYV over antitrust violations from its acquisition of Ticketmaster.

Overnight, Asian markets were truly mixed with Hong Kong (-1.70%) and Shenzhen (-1.56%) leading half the region’s exchanges lower.  Meanwhile, India (+1.64%) and Japan (+1.26%) led the other half higher.  In Europe, the picture is much greener at midday with 12 of 15 bourses above flat. Russia (-0.67%) is the only appreciable loser at this point in the session.  The CAC (+0.28%), DAX (+0.23%), 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 significant gap higher on the NVDA blowout earnings.  DIA implies a +0.09% open, the SPY is implying a +0.59% open, and the QQQ implies a +0.99% open at this hour.  At the same time, 10-year bond yields are down to 4.418% and Oil (WTI) is up seven-tenths of a percent to $78.11 per barrel in early trading.

The major economic news scheduled for Thursday includes Building Permits, Weekly Initial Jobless Claims, and Weekly Continuing Jobless Claims (all at 8:30 a.m.), S&P Global Mfg. PMI, S&P Global Services PMI, and S&P Global Composite PMI (all at 9:45 a.m.), April New Home Sales (10 a.m.), and the Fed Balance Sheet (4:30 p.m.).  Fed member Bostic also speaks again at 3 p.m.  The major earnings reports scheduled for before the open include ATAT, BILI, BJ, BEKE, MDT, NTES, PSNY, RL, TD, and TITN.  Then, after the close, CVCO, DECK, INTU, ROST, and WDAY report. 

In economic news later this week, on Friday, April Core Durable Goods, April Durable Goods, Michigan Consumer Sentiment, Michigan Consumer Expectations, Michigan 1-Year Inflation Expectations, Michigan 5-Year Inflation Expectations are reported and Fed member Waller speaks.

In terms of earnings reports later this week, on Friday, BAH reports.

So far this morning, YI, BILI, BJ, BEKE, MDT, and TD all reported beats on both the revenue and earnings lines.  Meanwhile, ATAT missed significantly on revenue while beating on earnings.  On the other side, NTES beat on revenue while missing on the earnings line.  Unfortunately, TITN missed on both the top and bottom lines.

In miscellaneous news, the US Consumer Financial Protection Bureau announced on Wednesday that “buy now, pay later” lenders (such as AFRM, AFTPY, and Klarna) must apply credit card rules.  This will force the companies to investigate customer disputes, refund on returned products, and provide periodic billing statements (among other rules).  Most of those companies already voluntarily comply with many (but not all) of the rules set out in the “Truth in Lending” Act.  Elsewhere, a second farm worker (this time in MI) has been determined to have been infected with the Bird Flu (H5N1) in late March.  As with the earlier-reported TX case, the worker suffered eye and flu-like symptoms and has recovered.

As a reminder, remember that Monday is a holiday and markets will be closed.  Finally, also make note the US securities market will begin its 1-day trade settlement (called “T+1”) down from the current 3-day settlement next week.  This change begins Tuesday, May 28.  (Also note that some analysts are nervous over the stress on the system of clearinghouses and brokerages.)

With that background, the Bulls have been flying since NVDA’s blowout report and forecast last night. Both the SPY and especially the QQQ gapped up significantly in the premarket and have printed a larger white-body candle since that point. The less tech-driven DIA lags far behind, but is being pulled higher in the early session as well. All three remain above their T-line (8ema) although the DIA is just so, recrossing above in premarket trading. The moves take QQQ and SPY to new all-time highs again. So, the short-term trend remains very bullish (except only slightly so in DIA). Meanwhile, the mid-term is also very bullish and the longer-term market remains very Bullish as the major index ETFs have returned to “fresh air” with no overhead resistance. In terms of extension, QQQ is now clearly extended far above its T-line and SPY is starting to push that level. The T2122 indicator does not show premarket activity so it remains in the lower half of its mid-range. The bottom line is that the market will need rest soon but it is very unlikely to come today as the Bulls celebrate the NVDA news. With regard to those 10 big dog tickers, all 10 are well into the green at this point this morning with that biggest dog NVDA (+7.09%) and AI competitor AMD (+2.94%) way out front dragging the QQQ higher today.

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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