Iran Sends Destroyer to Red Sea

The last trading day of the year opened up flat on Friday.  SPY opened 0.05% lower, DIA opened 0.04% lower, and QQQ opened dead flat.  At that point, all three major index ETFs ground sideways in a very, very tight range the first hour before starting to sell off.  SPY and DIA both reached their low of the day at 12:25 p.m. while did it faster by 11:35 a.m. Then all three traded sideways with a slightly bullish trend the entire rest of the day.  This action gave us indecisive candles in all three.  The SPY printed a black-bodied Spinning Top candle that retested and held above its T-line (8ema).  DIA gave us a Doji that also retested its T-line and held above.  Meanwhile, QQQ printed a large body, black-bodied Spinning Top that, again, also retested and held above its T-line.

On the day, eight of the 10 sectors were in the red with Technology (-0.66%) and Basic Materials (-0.62%) leading the way lower while Communications Services (+0.09%) and Consumer Defensive (+0.03%) being the only6 ones to hold above flat.  At the same time, the SPY lost 0.29%, DIA lost 0.04%, and QQQ lost 0.43%.  The VXX rose 0.26% to close at 15.52 and T2122 fell back into the midrange at 69.44.  10-year bond yields rose slightly to 3.866% and Oil (WTI) fell to close at $71.65 per barrel.  So, the Bulls took the last day of the year off and the only move was some late-morning profit-taking and then drifting back toward flat.

That ended a very strong year for the stock markets.  QQQ led the way higher with a huge gain of 53.79%.  The SPY gained 24.29% on the year and DIA lagged the vast majority of the year, gaining 13.74%.  All three major index ETFs remain very near all-time highs with QQQ and DIA having been at new all-time highs in the last few days and SPY just within a half of a percent.  The US Dollar (UUP) fell 2.59% on the year, while Oil (USO) fell almost 5%.  At the same time, 10-year bond yields (TNX—X) fell just 0.34% over the year.

The only economic news on Friday was December Chicago PMI, which came in lower than expected at 46.9 (compared to a forecast of 51.0 and the November reading of 55.8).

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In stock news, NVDA launched a modified version of its advanced gaming 4090 chip specifically for the Chinese market.  The new chip is five percent slower than the one that is banned for sale to China.  Later, BA announced that all 737 MAX jets operated in China are back in service.  This comes less than a week after BA announced it had made the first delivery of a 787 Dreamliner to a Chinese customer.  At the same time, FSR announced it had delivered 4,700 electric vehicles (priced at $69,000) in 2023.  Later, UNH announced it had agreed to sell its Brazilian operations for $515.24 million.  Elsewhere, PFE, SNY, and TAK announced they plan to raise prices on 500 drugs in the US in what industry analysts say is a bargaining move aimed at stymying the Biden Administration negotiation of 10 high-cost drugs for Medicare.  Later, CALM said it had agreed to buy a TSN chicken processing plant in Dexter, MO.  CALM said it plans to convert the plant into an egg-grading facility. Finally, Bloomberg reports that X (formerly Twitter) is now worth less than one-third of what Elon Musk paid for the platform as advertising sales continue to plummet as right-wing Musk cannot manage to stop offending and then insulting large parts of society and advertisers in particular.

In stock government, legal, and regulatory news, GOOGL agreed to settle a $5 billion lawsuit that alleged the company secretly tracked the internet use of millions of people.  The terms of the settlement were not made public but may be disclosed on the previously scheduled trial date of Feb. 24.  (The lawsuit originally sought $5,000 per tracked user.)  At the same time, the US Chemical Safety Board announced the findings of its long investigation of a 2020 CHK oil well explosion.  The investigation found that CHK and its contractors failed to use adequate safety and control measures leading to the blast that killed three people.  Elsewhere, a federal judge certified a shareholder class action lawsuit against JNJ Friday, saying the shareholders may pursue damages for JNJ allegedly fraudulently concealing how its talc products had been contaminated with cancer-causing asbestos for five years.  Later, HSY was sued by an FL woman for their candies allegedly lacking the holiday details depicted in the candy’s artistic wrapper representations.  At the same time, a federal judge ruled in favor of TEVA in its patent infringement lawsuit brought by CORT.  Meanwhile, a US District Court upheld an FTC order preventing IQV from acquiring healthcare advertising firm DeepIntent. Later, JERT filed for Chapter 11 bankruptcy.  At the same time, MCD sued a group promoting a boycott of Israeli interests in Muslim-majority Malaysia for $1.31 million, alleging the group had issued false and defamatory statements that hurt MCD operations in that country.  Later, the FDA reported that RBGLY (Reckitt Mead Johnson) is voluntarily recalling batches of baby formula powder due to the possibility of contamination with bacteria.  At the same time, BNPQY signed an agreement to pay $662.3 million in compensation for the misleading practices of its consumer lending unit in France. Finally, the Biden Administration is pressuring ASML to halt shipments of state-of-the-art deep ultraviolet chip lithography equipment to China. ASML agreed to be part of the sanctions set to take effect this month but had rushed to ship orders before the deadline. Now the Biden Administration is pressing hard to stop the last-minute shipments. (It is worth noting that China accounted for 75% of ASML’s Q3 sales.)

Overnight, Asian markets were mixed but leaned toward the downside.  Thailand (+1.24%) was the big exception with South Korea (+0.55%) and Australia (+0.49%) rounding out the gainers.  On the red side, Hong Kong (-1.52%), Shenzhen (-1.29%), and Taiwan and Shanghai (both -0.43%) led the region lower.  In Europe, we see a much more evenly split leaderboard at midday.  The CAC (-0.36%), DAX (-0.17%), and FTSE (-0.27%) lead nine bourses lower with six larger-moving bourses in the green in early afternoon trading.  In the US, as of 7:30 a.m., Futures are pointing toward a red start to the year.  The DIA implies a -0.46% open, the SPY is implying a -0.64% open, and the QQQ implies a -0.93% open at this hour.  At the same time, 10-year bond yields have spiked back up to 3.959% and Oil (WTI) is surging up 2.36% to $73.34 per barrel in early trading.

The major economic news scheduled for Tuesday is limited to December S&P Global Manufacturing PMI (9:45 a.m.).  There are no major earnings reports scheduled for either before the open or after the close.

In economic news later this week, on Wednesday, we get December ISM Mfg. Employment, Dec. ISM Mfg. PMI, Dec. ISM Mfg. Price Index, and Nov. JOLTs Job Openings and API Weekly Crude Stocks.  Then Thursday, Dec. ADP Nonfarm Employment Change, Weekly Initial Jobless Claims, Weekly Continuing Jobless Claims, Dec. S&P Global Services PMI, Dec. S&P Global Composite PMI, EIA Weekly Crude Oil Inventories, and the Fed Balance Sheet report.  Finally, on Friday we get Dec. Avg. Hourly Earnings, Dec. Nonfarm Payrolls, Dec. Private Nonfarm Payrolls, Dec. Participation Rate, Dec. Unemployment Rate, Nov. Factory Orders, Dec. ISM Non-Mfg. Employment, and Dec. ISM Non-Mfg. PMI.

In terms of earnings reports later this week, on Wednesday, UNF and CALM report.  Then Thursday, we hear from CAG, LW, RDUS, RPM, and WBA.  On Friday, GBX and STZ report.

In geopolitical news, in the Red Sea, US Navy shot down two anti-ship missiles fired by Yemeni Houthi rebels, which had been fired at an AMKAF (Maersk) ship Sunday. The Houthi then launched four small patrol boats to fire on the ship with small arms, but US Navy helicopters sank those boats, killing several rebels in that process. (Maersk paused Red Sea shipping after the attack despite no damage being suffered.)  This Navy action is part of the US maintaining the safety of Suez-Red Sea shipping lanes while the Houthi try to stop any shipping that might aid Israel and draw attention to the Israeli war on Gaza. In a late-breaking development that has impacted oil prices, Iran has sent a destroyer to the Red Sea after the US action against its Yemeni allies.   

In miscellaneous news, Supreme Court Chief Justice Roberts ignored the court’s ethics problems as well as all the massive legal decisions it faces ahead related to the ex-president.  Instead, in his Sunday year-end note, Roberts focused on the pros and cons of AI technology.  (Probably unrelated, this came just days after it was found that the ex-president’s legal team had used many fake AI-generated legal citations in their motions filed on his behalf in the last couple of months.  Elsewhere, Chinese electric vehicle maker BYD announced it has produced more than 3 million new EVs in 2023.  That very likely means it has again topped TSLA (which had produced 1.35 million in the first three quarters of 2023) as the global EV leader.  In 2022, BYD outproduced TSLA by about half a million cars.  BYD sold 3.02 million vehicles in 2023.  Finally, in terms of starting the year off right, here are 1,000 good news stories you may have missed in 2023.

With that background, it looks like the news out of the Red Sea has markets scared that there could be further escalation of the Israeli-Hama war. All three major indes ETFs opened the premarket flat to modestly higher, but have sold off to form black-body candles that have crossed below the T-line in the SPY and QQQ and are retesting that level in the DIA. So, while the Bulls have held onto the daily trend for quite some time, this looks like a shock were the Bears will make a bid to take back control over the short-term trend. Sitting very near all-time highs, the Bulls retain control over the medium and longer-term trends. In terms of extension, none of the three major index ETFs were extended at all from their T-lines. At the same time, the T2122 indicator is now in its mid-range. So, both the Bulls and Bears have room to run if they gather the momentum to do it, but the Bears should be hungrier given that the Bulls have kept them from making any moves at all for two months.

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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