Inflation Waning and Op-Ex Friday Today

Markets opened lower on Thursday but then proceeded to put in a nothing day.  The SPY “gapped” down 0.10%, the DIA opened 0.18% lower, and the QQQ gapped down 0.21%.  However, as mentioned, the rest of the day was a sideways meander in all three major index ETFs, crossing and recrossing the gap and never straying too far away from it at either the peaks or valleys.  This action gave us indecisive, white-body, Spinning Top candles in the SPY, DIA, and QQQ.  (The QQQ had the largest of the bodies.)   The SPY could also be seen as a Bullish Engulfing candle if you squint.  All three remain well above their T-line (8ema) and 50sma.  This happened on average volume in the DIA, and below-average volume in the SPY and QQQ.

On the day, eight of the 10 sectors were in the red with Energy (-2.00%) way out front leading the way lower while Utilities (+0.44%) held up far better than any other sector.  At the same time, the SPY gained 0.12%, DIA lost 0.07%, and QQQ gained 0.09%.  The VXX fell more than 1.5% to close at 18.85 and T2122 dropped back down into its mid-range at 66.67.  10-year bond yields dropped to 4.443% and Oil (WTI) plummeted 4.87% to close at $72.93 per barrel.  So, Thursday was a holding pattern with markets waffling sideways all day.  We were able to relieve some over-extension by marking time (giving the T-line time to make up ground), which was greatly needed.  However, for the most part, it was just an indecisive pause day in a Bullish rally.

The major economic news reported Thursday included the October Month-on-Month Export Price Index, which came in far below expectation at -1.1% (compared to a forecast of -0.5% and far below the September value of +0.5%).  At the same time, the October Month-on-Month Import Price Index also came in far below anticipated at -0.8% (versus a forecast of -0.3% and far below the September reading of +0.4%).  Both of these show that inflationary pressures are falling, despite the narrative of some.  Meanwhile, Weekly Initial Jobless Claims were greater than predicted at 231k (which was a three-month high, compared to a forecast of 220k and far above the prior week’s 218k).  At the same time, The Philly Fed Mfg. Index was reported better than expected but still showing deteriorating conditions at -5.9 (versus a -9.0 forecast and a -9.0 previous reading).  Later, October Month-on-Month Industrial Production came in lower than predicted at -0.6% (compared to a forecast of -0.3% and far below the Sept. value of +0.1%).  On a year-on-year basis, Oct. Industrial Production was down 0.68% well below the Sept. reading of -0.16%.  (It should be noted, that the UAW strikes had a not insignificant impact on the October Industrial Production.)  Then, at the close, Sept. TIC Net Long-Term Transactions fell by $1.7 billion (massively below the forecast of +$89.4 billion and the Aug. value of +$62.2 billion).  Finally, after the close, the Fed Balance Sheet continued to fall with a current value of $7.815 trillion (down $46 billion from the prior week’s $7.861 trillion).

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In stock news, RWT announced Thursday that it had signed a long-term contract from TM to supply the Japanese carmaker’s new NC plant with EV battery materials.  RWT expects to provide enough battery materials to supply 1 million EVs per year with a long-term goal of multiplying that by five (5 million vehicles per year). At the same time, Reuters reported that LLY had agreed to invest $2.19 billion to build a German plant to produce products, addressing a supply chain weakness identified by the COVID pandemic.  Later, after a long and harrowing vote, UAW members ratified the union’s deal with GM.  Attention shifts to F, whose vote ends Friday, and then STLA where the vote ends on Tuesday.  Speaking of GM, the company suspended its Cruise robo-taxi unit employee equity program.  Elsewhere, NTRS announced that it has been chosen to manage COST’s $29 billion retirement plan.  At the same time, TW announced it had acquired algo trading firm r8fin for an undisclosed amount in a deal that will close in 2024.  Later, AMZN announced it would sell HYMTF (Hyundai) cars online starting in 2024.  At the same time, employees at hundreds of SBUX stores walked off their jobs during a store promotional event Thursday, demanding improved staffing and better schedules.  Later, FUJHY (Subaru) is the latest carmaker to raise the wages of its employees and improve healthcare and other benefits following the UAW deals with the big 3 automakers.  After the close, Bloomberg reported that after already delaying its attempt to replace QCOM modem chips with “internally designed” (read “stolen and reverse engineered”) for a year, AAPL now appears likely to miss its latest revised goal of Q2 2025 for the project.  At this point, Bloomberg reported late Q4 2025 looks more likely.  In addition, in a reversal of company tradition going back to its inception, AAPL has again agreed to use industry standards.  This time, it will adopt the industry standard messaging protocol after stubbornly refusing for years.  This will make AAPL to Android messaging much easier and smoother.

In stock government, legal, and regulatory news, FMC was hit with a class-action lawsuit on behalf of investors.  The suit alleges the company failed to disclose critical information about legal defeats and weakening patent protections.  Across the pond, CRSP and VRTX have both achieved milestones in the UK, gaining conditional approval for their gene-edited treatment for sickle cell anemia. At the same time, the Portuguese sister subsidiary of ATUS announced it has found violations during its internal probe after a summer corruption scandal.  Later, the Wall Street Journal reported that regulators are pushing WFC to improve its internal monitoring to detect financial crime at the banks as the company faces a lawsuit alleging it allowed a Las Vegas attorney to operate a Ponzi scheme.  Elsewhere, perhaps in response to political pressure (or perhaps in response to sexual misconduct charges against the FDIC Chair), the FDIC unexpectedly and abruptly canceled a planned meeting on Thursday where the topic was to be a special bank fee on large banks to cover the costs of the March bank failures.  (The cancellation came 15 minutes after the start of the meeting.)  At the deadline, AMZN and TikTok both said they would appeal the EU designation as “gatekeeper” platforms.  (MSFT, AAPL, and GOOGL did not challenge the designation, which brings additional regulatory compliance requirements.)  Later, MS agreed to pay a settlement of $6.5 million to a group of states over negligence that led to a data breach covering millions of customers.  After the close, Reuters reported that according to three sources, AMAT is under US criminal investigation for evading export restrictions on shipments to China via South Korea.  At the same time, bankrupt RAD filed suit against the US Dept. of Justice in the hope of ending a lawsuit against the company for its responsibility in opioid abuse.  Meanwhile, the US ended the evidence phase of its antitrust lawsuit against GOOGL.  At the same time, a US judge rejected bids to dismiss several hundred cases, saying that Kia and HYMTF must face suits claiming they are responsible for auto thefts due to negligence and refusal to change software widely seen as easy to hack (YouTube how-to videos describe it in-depth.)

After the close, QFIN, AMAT, BZH, CPRT, GPS, GLOB, HI, POST, ROST, and WWD all reported beats on both the revenue and earnings lines.  Meanwhile, MATW, UGI, and ZTO all missed on revenue while beating on earnings.  It is worth noting that GPS and UGI lowered their forward guidance.

Overnight, Asian markets were mixed again but leaned toward the down side.  Hong Kong (-2.12%) was by far (by 1.50%) the biggest loser while Japan (+0.48%) led the five (of 12) gaining exchanges.  In Europe, things are much more bullish as only Russia (-0.21%) is in the red at midday.  The CAC (+0.79%), DAX (+0.78%), and FTSE (+0.82%) lead the region higher in early afternoon trade.  In the US, as of 7:30 a.m., Futures are pointing toward a mixed start to the day.  The DIA implies a +0.23% open, the SPY is implying a +0.17% open, but the QQQ implies a -0.06% open at this hour.  At the same time, 10-year bond yields are down again to 4.408% and Oil (WTI) is up 1.37% to $73.88 per barrel in early trading.

The major economic news scheduled for Friday includes Oct. Building Permits and Oct. Housing Starts (both at 8:30 a.m.).  Friday is also options expiration day in the market.  The major earnings reports scheduled for before the open include ATKR, BJ, and SPB.  There are no major earnings reports scheduled for after the close. 

In geopolitical news, China and the US continued to “make nice” on Thursday.  Both sides expressed that there does not need to be conflict with China saying it is not trying to supplant the US as the world’s leading economic power.  Both also said that the two can be both cooperative and competitive.  However, the relations are and will remain an “uneasy coopetition” as President Biden said he stood by previous comments that Xi is a dictator and China stood by claims the US is the aggressor in the relationship.  Meanwhile, in the Middle East, the Israeli offensive in Gaza continues.  On Thursday, the IDF invaded the largest hospital in Gaza, claiming to have found weapons caches and the entrance to a “Hamas tunnel.”  It was reported overnight that the release of 50 more hostages held by Hamas (a deal brokered by Qatar) is being held up.  The point causing the delay is that Israel only wants to provide enough of a cease-fire for the 50 civilians to be transferred out of Gaza, while Hamas wants a 3-day truce in return for that exchange.  In related news, Ukraine is suffering from a severe reduction in the amount of ammunition being supplied to it.  Ukraine’s Western supporters have fallen victim to political theatre in their own countries (meaning politicians feeling the need to express support for Israel by making Israeli military aid the priority).  While the IDF will gladly accept all this largess, the truth is they had more than enough weapons and ammunition to wipe Gaza off the map in their stockpile prior to the Hamas atrocity back in October.  So, Russia is the beneficiary of the Western response to the Hamas terror attack.

In encouraging miscellaneous news, Freddie Mac reported that the average 30-year fixed-rate mortgage loan rate fell to a two-month low this week at 7.44%.  The agency noted a decrease in inflation leading to the decline.  (The 15-year fixed-rate mortgage also fell to 6.76%, down from 6.81% the prior week.)  Elsewhere, the American Farm Bureau reported that the cost to prepare Thanksgiving dinner will be 4.5% LOWER this year than in 2022.  The group’s survey found that seven of the 11 ingredients of their “standard Thanksgiving meal” are lower priced than they were in 2022, including a 5.6% decrease in Turkey prices. Overall, it is looking like the naysayers of Fed actions were wrong, both prices and inflation are falling, and a soft landing may well still be in the cards at this point.

So far this morning, SPB reported a beat on both the revenue and earnings lines.  At the same time, BJ missed on revenue while beating on earnings.  Unfortunately, ATKR missed on both the top and bottom lines.  It is worth noting that SPB has lowered its forward guidance.

With that background, it looks like all three major index ETFs are looking to make a small gap higher to start off Friday. All three are trading higher at this point with SPY and QQQ printing white-bodied candles during the early session while DIA gapped more but is printing a black premarket candle. All three candles are small at this point, indicating not a lot of conviction. The SPY, DIA, and QQQ all remain well above their T-line (8ema) and 50smas. The downtrend going back to summer has also been well-broken in all three charts. So, the Bulls are in control of both the short-term and 4-5-month trend. This is all on the strength of a dramatic rally over two weeks. In terms of extension, all three major index ETFs remain a bit stretched above their T-line (8ema). At the same time, the T2122 indicator has now dropped back into its mid-range. So, we may still have room to run in either direction, but more of a pause of pullback would definitely be healthy for the rally. With that said, keep in mind that the market can remain overbought longer than you can last predicting a reversal too soon. Finally, remember this is Friday, payday, and time to prepare your account for the weekend news cycle. On top of that, this is an Options Expiration Friday, so don’t be surprised by some volatility.

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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