Friday gave us the gap lower at the opening bell on what most attributed to fear over a strong payroll report (fear it will lead the Fed to more hikes).  We opened down 0.57% in the SPY, down 0.30% in the DIA, and down 0.81% in the QQQ.  After an hour of grinding along the lows (and a little lower in the DIA), the Bulls ripped the face off of the Bear chasers.  This resulted in a strong rally in all three major index ETFs until just after noon and then a slow further rally to the highs at about 2:45 p.m.  At that point, all three just ground sideways and a bit lower into the close.  This action gave us strong white-bodied Bullish Engulfing candles in the SPY, DIA, and QQQ.  All three crossed back above their T-line (8ema), barely in the DIA, strongly in the QQQ, and somewhere in between those two on the SPY.

On the day, nine of the 10 sectors were in the green with Technology (+2.03%) far out ahead (by three-quarters of a percent) leading the way higher.  Meanwhile, Consumer Defensive (-0.31%) lagged behind the other sectors. At the same time, the SPY gained 1.19%, DIA gained 0.88%, and the tech-heavy QQQ gained 1.68%.  VXX fell 1.25% to close at 23.64 and T2122 climbed up out of the oversold territory into the lower end of the mid-range at 29.94.  10-year bond yields spiked to close at 4.797% while Oil (WTI) gained a bit more than half of a percent to end the day at $82.79 per barrel.  So, we saw a Bullish whipsaw after a significant open lower.  Some analysts believe this was just largely a short covering rally.  While I tend to be in this camp, short covering does not necessarily count out a bottom.  For example, all three major index ETFs put in above-average volume (far above average in the QQQ) on Friday.  Absolute Breadth also increased slightly.  

The major economic news reported Friday included the September Avg. Hourly Earnings (month-on-month) which came in the same as the August increase at +0.2%.  This is a bit better than expected compared to a forecast of +0.3%.  The September year-on-year Avg. Hourly Earnings also came in just a touch better (from a Fed standpoint) than forecast at +4.2% (versus the +4.3% forecast and +4.3% August reading).  At the same time, September Nonfarm Payrolls came in extremely hot a +336k (compared to a forecast of +170k and the August value of +227k).  There were also big upward revisions to both the July and August job creation numbers.  Likewise, September Private Nonfarm Payrolls were also extremely hot at +263k (versus the +160k forecast and the +177k August reading).  The Sept. Participation Rate remained steady at 62.8%.  Still, even with the massive number of jobs created, the Sept. Unemployment Rate remained steady at 3.8% (compared to a 3.7% forecast and the 3.8% August reading).  As always, interpretation is everything.  The bears (and largely out of the White House party) thought these numbers were a dire warning to the Fed that they MUST hike rates massively and relentlessly to avoid Armageddon.  On the other hand, the bulls (and the party in the White House) see the data as validation that the economy is creating a huge number of jobs while inflation keeps slowly ticking lower.  In short, everything is rosy.  I will leave it to you to decide how you see the data.  For myself, I am between the two extremes but lean toward the latter interpretation.  Either way, I fully expect the Fed to do what they have been saying and signaling for months…hike once more this year and then hold steady, most likely through Q3 of next year.

Speaking of the Fed, Cleveland Fed President Mester (typically a hawk) commented on the Payrolls report Friday in an interview with CNN.  Mester said, “With this one report, [the data] continues to say it’s a strong labor market, but it is getting a little bit less tight than we saw before … We also in that report saw that wage growth is tempering a bit.”  She went on to characterize the overall economy as “economic growth has been strikingly strong and yet we’re still making progress on inflation.”  She continued “We are basically at or near” the peak of the tightening campaign and the main question is how long the Fed should keep rates high to bring inflation back to 2% by the end of 2025.”

In Autoworker contract talks and strike news, the UAW did not widen its strike on Friday.  The UAW reported that the last-minute counter-offer from GM made a major concession as the automaker agreed to include EV battery plants in their UAW offer.  In addition, GM raised their wage increase offer to 23% (surpassing the F and STLA offers).  North of the border, Unifor (UAW equivalent in Canada) says that GM is fighting key elements of the recent F contract agreed and approved by the union to avoid a strike.  The key issues are GM’s classification of full-time employees as temporary contract workers (avoiding higher wages and benefits), health allowances for retirees, and product investment commitments.  The Unifor strike deadline for GM is Monday night at midnight.

In stock news, MGM clarified its report of “significant” impacts on Q3 profits from the cyber-attack back in September.  On Friday, the company said that they estimate the revenue lost is $110 million (which was less than some analysts had feared).  Elsewhere, to add insult to injury, a day after a Commerce Dept. investigation was announced (into the percentage of staff that comes from the US) TSM now faces a labor cost threat from a coalition of 14 unions who say the company is stalling negotiations.  Elsewhere, AMZN announced that its first two Kuiper satellite internet network satellites were launched Friday at 2 p.m.  (Kuiper will compete with Elon Musk’s SpaceX.)  At the same time, AMGN announced it had completed the $27.8 billion acquisition of HZNP.  Late in the day, Reuters reiterated what was reported here before the open Friday, saying that XOM is now in advanced talks to purchase PXD in a deal that could be over $60 billion.  At the same time, T faced rumors Friday late that it is considering divesting its 70% ownership of DirecTV (purchased for $16 billion in 2021).

In stock government, legal, and regulatory news, the UK said the SNAP AI Chatbot may pose a privacy risk for children.  However, the UK Information Commissioner’s Office said it will consider a company reply before deciding whether or not to ban the service in UK.  Later, the US Treasury Dept. issued new EV tax credit guidance on Friday.  The change will allow consumers (as of January) to transfer their $7,500 (new EV) or $4,000 (used) tax credit directly to the dealership.  This will mean a de facto price reduction for electric vehicles. At the same time, the USDA announced that bird flu was detected in a commercial flock of turkeys, the first infection discovered since April.  This comes just as CALM announced that egg prices are down 48% from a year ago (as of September).  Elsewhere, a recall of nearly 10k 2023 electric vehicles by NSANY (Nissan) was announced by the NHTSA.  The recall is related to defective inverter software that could lead to vehicle shutdowns.  After the close, a US District Judge ruled that SBUX must disclose its anti-union spending in efforts to quash a union in Buffalo, NY.  The US Labor Dept. NLRB had demanded the data during its investigation and SBUX had refused.  Also after the close, HEINY (Heineken) had its Brazilian brewery added to the government’s list of companies it says are responsible for labor practices analogous to slavery.  Friday evening, the Mexican government said that WMT will face an anti-trust investigation from the country’s anti-trust panel (related to wholesale distribution of consumer goods).

Overnight, Asian markets were mixed but leaned to the downside on modest moves.  Taiwan (+0.41%) paced the five gaining exchanges while New Zealand (-0.73%) and India (-0.72%) led the seven exchanges in the red.  In Europe, we see a similar mixed picture with a bit more amplitude at midday.  Norway (+1.49%) and Russia (+1.17%) are way out-front pacing the gains while Greece (-1.54%) is by far the biggest loser.  However, the CAC (-0.49%), DAX (-0.73%), and FTSE (+0.22%) lead the region (as usual) on volume in early afternoon trade. In the US, as of 7:30 a.m., Futures point toward a gap down to start the day.  The DIA implies a -0.51% open, the SPY is implying a -0.64% open, and the QQQ implies a -0.83% open at this hour.  At the same time, the 10-year bond yield has spiked to 4.795% and Oil (WTI) spiked 2.64% to $85.80/barrel.

There is no major economic news scheduled for Monday.  There are also no major earnings reports scheduled for either before the open or after the close.

In economic news later this week, on Tuesday we have two Fed speakers (Waller at 1 p.m. and Kashkari at 3 p.m.).  Then Wednesday, we get Sept. PPI, EIA Short-Term Energy Outlook, FOMC Meeting Minutes, API Weekly Crude Oil Stocks report.  We also hear from Fed members Bowman at 4:15 a.m. and Waller at 10:15 a.m.  On Thursday, Sept. CPI, Weekly Initial Jobless Claims, EIA Crude Oil Inventories, Federal Budget Balance, and the Fed’s Balance Sheet are reported.  Finally, on Friday, we get the September Export Price Index, Sept. Import Price Index, Michigan Consumer Sentiment, Michigan Consumer Expectations, Michigan 1-year Inflation Expectations, and Michigan 5-year Inflation Expectations.  Fed member Harker also speaks at 9 a.m.

In terms of earnings reports later this week, on Tuesday, PEP reports.  Then Wednesday, again there are no reports.  However, earnings season starts again on Thursday, as CMC, SAL, DPZ, FAST, INFY, SVNDY, and WBA report.  Finally, on Friday, we hear from BLK, C, JPM, PNC, PGR, UNH, and WFC all report as earnings season kicks off again.

In miscellaneous news, JPM released a market forecast on Friday which predicts a bearish scenario for global equities.  The report cited a very strong dollar, weakening service sector, and interest rates expected to peak in Q4.  JPM suggested that their clients rebalance portfolios to go overweight on technology, consumer staples, and utilities as those sectors get beaten down by currently rising bond yields.  Elsewhere, Bloomberg reported that a bi-partisan group of US Senators (including Majority Leader Schumer) will be in China this week, hoping to get a meeting with Chinese President Xi.  Their hope is to discuss escalating tensions. At the same time, Taiwan is probing four of their companies (at US urging) for helping China’s Huawei set up a network of chip manufacturing plants in Southern China.  (As reported here last week, President Biden is looking likely to meet Xi in mid-November on the sidelines of an Asia Pacific Economic Conference in San Francisco.

In late-breaking news, given the attacks in Israel and Palestine, oil is sure to knee-jerk higher (despite neither place having any real oil production or transit), and oil-levered stocks may take a hit.  The most recent news out of Israel has the IDF placing Gaza under siege (no food, water, fuel, or electricity allowed to enter) and are continuing their pounding of targets in that 141 sq. mile strip.  (The IDF says 500 targets were hit last night alone.)  Elsewhere, CNBC reports that China’s key economic ministries announced Monday that they are targeting a 50% increase in the country’s computing power by 2025.  The six main technology-related ministries jointly announced a goal of 300 exaflops by that date.  (For reference, that would be a computer equivalent to 600 million mainstream laptop computers tied together.)  Just for comparison, the US now has three of the top five supercomputers in the world.  China’s current best (known) is not even among the top 500 of the world’s most powerful computers.

With that background, it appears the Bears are gapping all three major index ETFs lower. However, premarket candles in all three are white-bodied and indecisive. In other words, the Bears are not getting follow-through after the initial knee-jerk gap. We have scheduled news, speakers, or earnings to change the narrative. So, expect the Israel-Palestine war to drive the news cycle all day. In terms of extension, none of the three major index ETFs are far below their T-line (8ema) and the T2122 indicator is now back in its mid-range. So, again we have room to run if either the Bulls or Bears can find energy. Expect more volatility at the open as traders who do not trade the premarket session get their first chance to over-react. It could be a bumpy day. (Mondays like this are the reason for hedging, lightening up, and/or buying option insurance on Friday can be a good idea.)

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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