Wednesday turned into a Bear Trap. After hot CPI numbers, SPY gapped down 1.00%, DIA gapped down 0.84%, and QQQ gapped down 1.06%.  However, from there, all three major index ETFs rallied.  QQQ recrossed its gap by noon before chopping sideways along the Tuesday close level for the rest of the day.  After the open, SPY rallied to almost cross its gap by 1 p.m. before it too meandered sideways in the top half of its gap the rest of the day.  Meanwhile, DIA was the weakest of the three.  After its gap lower, it chopped sideways around that opening level until noon, rallied for an hour and then chopped sideways again in the lower half of its gap the rest of the day.  This action gave us white candles in all three.  QQQ printed the strongest (largest white candle with tiny wick on both ends.  It gapped below and then crossed back above its T-line (8ema) during the day.  SPY printed a large-body candle with an upper wick that retested its T-line from below, after gapping down through it, only to close just below that average.  DIA gave us the most indecisive candle gapping down through its T-line and printing a white Spinning Top candle that never quite retested from below.

On the day, six of the 10 of the sectors were in the red with Energy (-2.02%) far out in front leading the market lower.  On the other side, Communications Service (+0.13%) was again the strongest sector and led the four that managed to hang on to green territory. At the same time, SPY lost 0.32%, DIA lost 0.56%, and QQQ eked out a gain of 0.06%.  Meanwhile VXX was just on the red side of flat, closing at 42.87 and T2122 dropped into the lower half of its mid-range, closing at 32.74.  On the bond side, 10-Year Bond yields popped up to 4.629% and Oil (WTI) dropped 2.81%, closing at $71.25 per barrel.  So, Wednesday saw the market lay a classic Bear Trap.  The Bears over-reacted to news, gapping stocks lower across the entire market.  Then the Bulls stepped in to immediately fade that gap and the Bears never regained their footing.  By the time the damage was done to the Bears, markets took profits and meandered sideways in the afternoon.  This all happened on below-average volume in all three major index ETFs. 

The major economic news on Wednesday included Month-on-Month January Core CPI, which came in higher than expected at +0.4% (compared to a forecast of +0.3% and a December reading of +0.2%).  On the annual side, Year-on-Year January Core CPI also came in higher than expected at +3.3% (versus a +3.1% forecast and the December +3.2%).  On the headline side, Month-on-Month January CPI was two ticks higher than expected at +0.5% (compared to a +0.3% forecast and December’s +0.4% reading).  On the annual basis, Year-on-Year January CPI came in with a 3-handle at +3.0% (versus a +2.9% forecast and December value).  Later, EIA Weekly Crude Oil Inventories showed a bigger build than predicted at +4.070 million barrels (compared to a +2.400-million-barrel forecast but down from the prior week’s +8.664 million barrels.  Meanwhile, the January Federal Budget Balance was also worse-than-expected at -$129.0 billion (versus a forecasted -$88.1 billion and the December reading of -$87.0 billion). 

In Fed news, on Wednesday, Atlanta Fed President Bostic said, “We had a little pop of a number today, which is something we got to watch.”  Bostic went on to say he is not comfortable with any more rate cuts until the uncertainty around Trump Administration policy and actions on inflation become clearer.  Bostic said, “It’s going to take a while to just figure out what is going on.”  He continued, saying “(The next rate cut) is going to happen later than it would have otherwise…it may be that complexity increases and the fog stays with us.”  Later, Chicago Fed President Goolsbee commented to the New York Times about the latest CPI numbers, saying that the January inflation data “was sobering.”  He continued by saying that the FOMC should consider more than just a single report, but he said, “There’s no question, if we got multiple months like this, then the job (reducing inflation) is clearly not done.”  Later, Fed Chair Popwell testified before the House, saying, “We are close but not there on inflation. Today’s inflation print…says the same thing.”  He went on to say, “we’re not quite there yet. So we want to keep policy restrictive for now.”  He continued, “The economy is strong, the labor market is solid and we have the luxury of being able to wait and let our restrictive policy work to get inflation coming down again. And that’s what we’re doing.”  When questioned about the Fed Balance Sheet and quantitative tightening, Powell said “I think we have a ways to go” (meaning more balance sheet reduction to do).  He went on to say there is no sign yet that market liquidity has shrunk too much.

After the close, APP, CSCO, CW, FAF, GXO, HUBS, MGM, MKSI, PAYC, PEGA, PPC, QDEL, HOOD, RGLD, ROL, SCI, TYL, VTR, and WFG all reported beats on both the revenue and earnings lines.  Meanwhile, AR, CRBG, EQIX, MSA, TTD, and WMB all missed on revenue while beating on earnings.  On the other side, KGC, MTW, TSE, and WCN beat on revenue while missing on earnings.  However, ALB and TROX missed on both the top and bottom lines.

Overnight, Asian markets were mixed with six exchanges in the green, five in the red, and one unchanged.  South Korea (+1.36%) and Japan (+1.28%) led the gainers while Shenzhen (-0.77%) paced the losses.  In Europe, the picture is brighter with only 3 of the 14 bourses in the red.  The CAC (1.25%), DAX (+1.45%), and FTSE (-0.59%) are leading the region higher in early afternoon trade.  Meanwhile, in the US, as of 7:30 a.m., Futures are pointing toward a mixed flat start to the day.  DIA implies an unchanged open, SPY is implying a -0.08% open, and QQQ implies a +0.02% open at this hour.  At the same time, 10-Year Bond Yields are back down to 4.599% and Oil (WTI) is off 1.26% to $70.47 per barrel in early trading.

The major economic news scheduled for Thursday includes Weekly Initial jobless Claims, Weekly Continuing Jobless Claims, January Core PPI, and January PPI (all at 8:30 a.m.), and the Fed’s Balance Sheet (4:30 p.m.).  The major earnings reports scheduled for before the open include ALNY, ATUS, AEP, HOUS, AVNT, CBRE, CROX, DDOG, DE, DTE, DUK, GEHC, GPN, HBI, HRI, HTZ, HMC, HWM, H, IRM, KNF, LECO, TAP, MCO, DNOW, OGN, PBF, PAG, PCG, PHIN, PPL, SBH, SN, SONY, TU, TIXT, TRU, USFD, WEN, YETI, ZBRA, and ZTS.  Then after the close, AEM, AL, ABNB, AMAT, BIO, BFAM, CAE, COIN, DVA, DXCM, DLR, DKNG, GDDY, IR, LEG, MSI, PANW, RSG, ROKU, TWLO, and WYNN report. 

In economic news later this week, on Friday, Jan. Core Retail Sales, Jan. Retail Sales, Jan. Export Price Index, Jan. Import Price Index, Jan. Industrial Production, Dec. Business Inventories, and Dec. Retail Inventories are reported.

In terms of earnings reports later this week, on Friday, AMCX, AEE, AXL, BGC, ENB, FTS, MGA, MRNA, NMRK, POR, TRP, and THS report.

With that background, it looks like the market is undecided again early this morning. The SPY and DIA are printing small Doji-like candles near their Wednesday close level.  Meanwhile, QQQ gapped up to start the premarket, but has printed a large black candle that rand down to retest the T-line and then has rebounded back to be basically flat from the prior close.  With that said, at the moment, SPY and DIA are below their T-line awhile QQQ is above.  So, the short-term trend is mixed this morning.  The mid-term downtrend (if you want to call it a trend) remains a choppy mess. At the same time, the long-term trend remains bullish.  In terms of extension, as mentioned, all three are back close to their T-line.  Meanwhile, T2122 sits in the lower half of its mid-range.  So, both sides have room to work today if they can find momentum. In terms of the Big Dogs, seven of the 10 are in the red with AAPL (-0.37%) and AMZN (-0.35%) pacing the losses.  On the other side, TSLA (+2.20%) is by far the biggest mover and leads the gainers.  As far as liquidity goes, TSLA has traded twice as much dollar volume as NVDA (-0.13%), which itself has traded almost seven times as much as the next most active premarket name. However, it is worth noting that this is a light volume early session overall.

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.

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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