Wednesday saw a huge rotation in the market, away from the high-tech leaders that have driven the rally all year.  The SPY gapped 0.12% higher, DIA gapped 0.17% higher, and QQQ gapped 0.09% higher at the open.  Then after a very short follow-through to the upside, a selloff started.  This was a huge selloff in the QQQ and it never really let up all day, closing near the lows.  At the same time, the SPY had just a modest selloff that lasted until just before 11 am, at which point a sideways grind with a slightly bearish trend kicked in and lasted the rest of the day.  However, the DIA selloff was over before 10 am and it chopped sideways with a slightly bullish trend all day long.  This action gave us a Spinning Top type Bearish Engulfing candle in the SPY (just continuing its three-day consolidation), a white-bodied Spinning Top in the DIA (just continuing its three-day consolidation), and a huge Bearish Engulfing candle in the QQQ that dropped back down through its T-line (8ema).

On the day, seven of the 10 sectors were in the green as Energy (+2.28%) was by far the biggest gainer and Technology (-1.28%) by far the biggest loser of the session.  At the same time, SPY lost 0.35%, DIA gained 0.30%, and QQQ lost a whopping 1.70%.  The VXX gained almost a half of a percent to end at 28.91 and T2122 climbed even deeper inside the overbought territory to 97.44.  10-year bond yields spiked to end at 3.797% while Oil (WTI) gained just over 1% to end the day at $72.49 per barrel.  So, Wednesday saw that big rotation out of the mega-cap high-tech names (AMD -5.15%, AMZN -4.25%, GOOG -3.89%, MSFT -3.09%, NVDA -3.05%, etc.)  and into the old-line DIA names (CAT +3.91%, MMM +2.76%, GS +2.74%, CVX +2.59%, etc.). Clearly, the QQQ which has been the leader all year, and itself was led by the handful of mega-cap techs, was suddenly out of favor. This move was punctuated by QQQ posting heavy volume while SPY and DIA saw slightly less-than-average volumes for the day

In major economic news, April Exports fell to $249 billion (compared to the March value of $258.2 billion) while April Imports rose to $323.6 billion (versus the $318.8 billion in March).  However, the April Trade Balance (Deficit) was slightly less than had been expected at -$74.6 billion (compared to a forecast for $75.2 billion but well above the March reading of $60.6 billion).  Later, EIA Weekly Crude Oil Inventories diverged from what the API numbers had shown Tuesday night.  EIA reported oil inventories fell 0.451-million-barrels (versus a forecast calling for a build of 1.022-million-barrels and far lower than the prior week’s 4.488-million-barrel inventory build).  With that said, EIA also reported that Gasoline inventories grew more than expected at +2.746-million-barrels (compared to a forecast of +0.880-million-barrels) and Distillate (Heating Oil and Diesel) inventories grew much more than expected at +5.075-million-barrels (versus a forecast of 1.328-million-barrels).

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In stock news, the Wall Street Journal reported Wednesday that AMZN is following NFLX lead and strongly considering an ad-supported tier for its Amazon Prime Video service.  The same report claimed WBD and PARA were in talks with AMZN to sell their streaming ad-based services through Prime Video.  At about the same time, Bloomberg reported that the world’s largest beef supplier (JBSAY) is currently building the largest lab-grown meat processing plant in the world in Spain.  (The plant will be able to supply 1,000 metric tons of lab-grown meat per year and is expected to be online in 2024.)  Later, Reuters reported the VOD is in the final stages of agreeing to a merger of UK operations with CK Hutchinson.  The agreement would create the largest mobile phone operator in Britain, with the combined company being 51% owned by VOD.  Elsewhere, VLVLY (Volvo) announced the launch of a fully-electric SUV which is scheduled for production later this year.  The EX30 will start at $38,500 (which is cheaper than the competitor TSLA Model 3 even after a series of recent TSLA price cuts).  Meanwhile, NKLA adjourned its shareholder meeting after management failed to get enough votes to support a proposal to issue more shares in order to raise money.  The meeting is planned to reconvene on July 6.  After the close, GME fired its CEO at the time of its quarterly report.  The same announcement named the current Board Chairman to replace the departing CEO Furlong.

In stock legal and regulatory news, BA was sued Wednesday for allegedly stealing trade secrets that they are using for NASA’s Space Launch System rocket.  Wilson Aerospace claims they worked in partnership with BA for two years before BA ended the partnership and continued the project without Wilson.  Elsewhere, after the close Wednesday, TEVA announced it has agreed to pay the state of Nevada $193 million to settle opioid claims against the drugmaker.  Nevada was the last state to settle with TEVA after 48 states previously settled for $4.35 billion.  Meanwhile, RYAAY reached a $5 million settlement with shareholders over a lawsuit accusing the company of defrauding investors by downplaying labor issues.  The CEO had claimed at a shareholder meeting that “hell would freeze over before he recognized a union,” but later offered to recognize a pilot’s union to avoid a possible strike in 2017.  After the close, Axios reported that FOX has notified attorneys for Tucker Carlson (FOX’s former top-drawing host) that he has breached his contract with the company when he launched a Twitter show Tuesday.  The suit has not been filed yet and Carlson’s lawyers claim any suit would violate Carlson’s first amendment rights.

After the close, TCOM reported beats on both the revenue and earnings lines.  At the same time, GME and GEF both reported misses on revenue while beating on earnings.  (While beating, GME earnings were still a loss, just a smaller loss than had been expected.)  It should be noted that GEF raised its forward guidance.  The largest surprises were a 72% upside earnings surprise by TCOM and a 35% upside earnings surprise by GEF.

Overnight, Asian markets were mixed again on mostly modest moves.  Thailand (+1.71%) was by far the largest gainer while Taiwan (-1.12%) and Japan (-0.85%) were by far the biggest losers with the rest of the region making move of less than a half of a percent either direction.  Meanwhile, in Europe, we see a picture with a bullish lean taking shape at midday.  Only two of the region’s bourses are modestly red.  At the same time, The CAC (+0.27%), DAX (+0.21%), and laggard FTSE (-0.06%) lead the region higher in early afternoon trade.  In the US, as of 7:30 am, Futures are now pointing toward a start to the day just on the red side of flat.  The DIA implies a -0.08% open, the SPY is implying a -0.05% open, and the QQQ implies a -0.04% open at this hour.  Over in the bond pits, the 10-year treasury yield is up to 3.809% and Oil (WTI) is up another two-thirds of a percent to $73.02 per barrel in early trade.

The major economic news events scheduled for Thursday are limited to Weekly Initial Jobless Claims (8:30 am), Fed Balance Sheet and Bank Balances with the Fed (both at 4:30 pm).  The major earnings reports scheduled for the day include DBI, REVG, SIG, and TTC before the open.  The after the close, DOCU and MTN report. 

In economic news later this week, on Friday, the WASDE Ag Report comes out. Meanwhile, in terms of earnings reports on Friday, NIO reports.

In miscellaneous news, Treasury Sec. Yellen told CNBC Wednesday that she expects continued progress on bringing down inflation.  She also mentioned the strong labor market and that in the past we considered an Unemployment Rate with a “4” handle to be a very strong labor market.  However, an increase to 3.7% last month was seen by some as a recession warning sign.  When asked about the Fed eventually raising rates to 6%, she said, “Consumer spending has continued to grow in a pretty robust way, but you’re also seeing areas of the economy that are slowing down.”  She then went on to say her former colleagues at the Fed are very capable of making the right decisions but she thinks bringing down inflation is a “top priority.”  Elsewhere, a backlog of ships waiting to unload is building on the US West Coast.  Labor slowdowns by dockworkers have started to cause delays with six container ships waiting (behind schedule) at the Port of Los Angeles and two at Long Beach.  Meanwhile, vessel servicing time has increased at the Ports of Oakland and Seattle.  (Wait times are now 1.5 days while unloading time has risen to 2-5 days up and down the west coast.)  The National Retail Federation and National Assn. of Manufacturers have released public statements urging President Biden to intervene.  The White House has said it is closely monitoring the situation and have engaged with the parties.  (President Biden did intervene in a rail strike last year.)

So far this morning, SIG, REVG, and SKHSY have all reported beats on both the revenue and earnings lines.  Meanwhile, DBI missed on both the top and bottom lines.  (TTC reports at 8:30 am.)  It is worth noting that SIG and DBI both lowered their forward guidance while REVG raised its guidance.  The major surprises included a 94% upside earnings surprise from REVG (on more than 17% revenue upside surprise) and a 24% upside earnings surprise from SIG.

With that background, it looks like markets are undecided again this morning. The QQQ did move lower overnight but has recovered to essentially flat while the SPY and DIA have been trading in a tight range around their Wednesday closes in premarket action. Only the QQQ (after Wednesday’s big and uncharacteristic bearish move) is below its T-line (8ema). However, the QQQ is still far from breaking its uptrend line after months of rally. Overall, both of the large-cap index ETFs can best be described as in a tight consolidation all week, while the QQQ is in a pullback, at least so far. There is no over-extension from the T-line in any of the major indices. However, the T2122 indicator does say we are well into the overbought territory (meaning we need more rest or pullback). Since this is the case, and given all the indecisive action this week (outside of yesterday’s rotation out of high-tech), we need to be wary of intraday volatility and remain alert for more rotation or a change in trend.

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

🎯 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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