LOW and M Beat Then Lower Guidance

The market seemed undecided on Monday.  SPY opened 0.13% higher, DIA opened up just 0.05%, and QQQ “gapped” up 0.19%.  From that point, we saw divergence as the SPY sold off very, very slowly for the rest of the day while DIA sold off until 1:40 p.m., and QQQ meandered back and forth across its gap until it recrossed the last 5 minutes of the day.  This action gave us black-bodied candles in all three major index ETFs.  The SPY gave us a big black candle that was about $0.28 from being an Evening Star. At the same time, DIA and QQQ printed black Spinning Top candles.  All of this came on very low volume (well below average) in all three major index ETFs.

On the day, six of the 10 sectors were in the red as Utilities (-1.71%) was way out in front leading the way lower and both Technology and Consumer Cyclicals (+0.16%) held up best.  At the same time, the SPY lost 0.37%, the DIA lost 0.15%, and the tech-heavy QQQ was just 0.05% lower.  VXX fell another 1.01% to close at 13.79 and T2122 fell back down further into its mid-range at 60.00.  10-year bond yields climbed to 4.278% and Oil (WTI) rose 1.43% to close at $77.58 per barrel.  So, on Monday stocks started the day on the green side of flat.  However, then the three major index ETFs diverged before all ended lower.  However, all three remain above their T-line (8ema) and the T-lines are also rising.  (Oddly, IWM gave us a strong white candle that bounced up off the T-line, gaining 0.63%.)  

The major economic news released Monday was limited to Building Permits, which came in stronger than expected at 1.489 million (compared to a forecast of 1.470 million but weaker than an upwardly revised 1.493 million from 10 days prior).  Later, January New Home Sales came in up but also lower than predicted at 661k (versus a forecast of 680k and also up from December’s 651k).  This was a 1.5% increase month-on-month after December rose 7.2% month-on-month.  

In Fed news, in his debut speech, Kansas City Fed President Schmid said Monday that there is no need to preemptively cut rates.  Schmid said, “With inflation running above target, labor markets tight, and demand showing considerable momentum, my own view is that there is no need to preemptively adjust the stance of policy.” He continued, “Instead, I believe that the best course of action is to be patient, continue to watch how the economy responds to the policy tightening that has occurred, and wait for convincing evidence that the inflation fight has been won.”  Related to reducing the Fed Balance Sheet, Schmid said “Some interest-rate volatility should be tolerated as we continue to shrink our balance sheet.”

After the close, DDS, HEI, MBC, PRIM, VLRS, WDAY, and ZM all reported beats on both the revenue and earnings lines.  Meanwhile, AES, CAPL, DORM, SBAC, and STRL missed on revenue while beating on earnings.  On the other side, CPE, ERIE, and U beat on revenue while missing on earnings.  Unfortunately, AAN, ATSG, and OKE missed on both the top and bottom lines.  It is worth noting that AAN and U lowered their guidance.  However, PRIM, SBAC, STRL, and ZM all raised forward guidance.

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In stock news, AMZN announced a new $5 billion investment in Mexico for Latin American AWS cloud services (setting up a large server farm in Mexico).  Later, VATE announced it will offer $19 million of common stock to current VATE stockholders of record on March 6 through a grant of rights to purchase.  At the same time, PPG announced it has initiated a strategic review of its architectural coating business units in the US and Canada.  Later, MU announced it has begun the mass manufacture of High Bandwidth memory (HBM3E) which is set to be integrated with NVDA’s top AI chips in Q2 2024.  At the same time, GOOGL announced plans to relaunch its Gemini AI tool in a “few weeks” after the service was pulled last week.  (Gemini bugs caused numerous inaccurate outputs including historical inaccuracies.)  Later, CENN said it was finalizing of its “redomiciling” from Australia to the US.  At the same time, AVGO sold its remote-access business unit to KKR for $4 billion.  This was part of the divestitures AVGO promised to make to secure approval for its acquisition of VMW last year.  (Side note, VMW has increased its pricing 10x per seat since the acquisition.)  Later, UNH said on Monday that the prescription outages at pharmacies last week was caused by a hack and ransomware attack from a group known as “Blackcat.”  (This is the same group that had hit MGM and CZR last year.)  At the same time, ATUS rallied 40% Monday after Bloomberg reported CHTR is considering a bid to acquire ATUS. Elsewhere, LUNR announced its moon lander mission will end today after its tipped-over landing is preventing solar panels from charging batteries.  At the same time, EXPE announced approximately 1,500 job cuts as part of a strategic restructuring that it says will cost the company between $80 million and $100 million pre-tax in 2024.

In stock legal, governmental, and regulatory news, HOTH announced it had received the Orphan Drug designation from the FDA, granting it tax credits for clinical testing, waiver of FDA fees, and an exclusive market for its HT-KIT therapy.  Later, the FTC (and eight states) filed suit to block the KR acquisition of ACI for nearly $25 billion.  The FTC lawsuit alleges the merger would eliminate competition in many markets, even with KR offering divestments.  At the same time, the US Dept. of Justice threatened to sue BRKB subsidiary PacifiCorp over its failure to cover $356 million in costs associated with the 2020 Slater wildfire that the company’s power lines caused.  Later, GOOGL ramped up its criticism of MSFT and AMZN (especially MSFT) for what it alleged are anticompetitive practices that help build and protect monopoly positions in cloud computing.  GOOGL urged the FTC and other regulators to step in to break the monopolies.  Elsewhere, a panel of experts appointed by the FAA announced a “safety disconnect” between BA management and employees.  At the same time, the US Dept. of Justice announced that DLTR has agreed to pay $41.675 million in a settlement of an FDA probe into its handling of FDA-regulated products.  Later, a subsidiary of EIX agreed to pay $80 million to the US Forest Service for costs and damages from the 2017 Thomas wildfire found to be caused by the company’s power lines.  At the same time, JBLU and SAVE urged a US appeals court to overturn a lower court ruling that blocked their $3.8 billion merger.  Later, the US Supreme Court heard arguments in a case related to laws in FL and TX meant to restrict META, GOOGL, and other social media companies in how they moderate content.  At the same time, US Sec. of Commerce Raimondo said Monday that the government had received more than double the $28 billion chips grants it plans to award.  She said they have received more than $70 billion in grant requests.  SCLX and SRNEQ settled with VTPX.  Under the agreement, VTPX will pay a series of payments in 2024 and will also pay 6% royalties through the end of relative patents.  Both sides also provided mutual releases of all claims. 

Overnight, Asian markets were mixed but leaned toward the green side, led by China.  Shenzhen (+2.24%), Shanghai (+1.29%), and Hong Kong (+0.94%) paced the gains while South Korea (-0.83%), Taiwan (-0.49%), and Singapore (-0.44%) led the losses.  In Europe, we see bourses leaning toward the red side, with nine of the 15 exchanges underwater at midday.  The CAC (+0.09%), DAX (+0.45), and FTSE (-0.06%) lead the region on volume in early afternoon trade.  In the US, as of 7:30 a.m., Futures are pointing toward a start to the day just on the green side of flat.  The DIA implies a +0.04% open, the SPY is implying a +0.13% open, and the QQQ implies a +0.28% open at this hour.  At the same time, 10-year bonds are down a bit to 4.27% and Oil (WTI) is off a quarter of a percent to $77.37 per barrel in early trading.

The major economic news scheduled for Tuesday includes Jan. Durable Goods Orders (8:30 a.m.), Feb. Conf. Board Consumer Confidence (10 a.m.), and API Weekly Crude Oil Stocks (4:30 p.m.).  The major earnings reports scheduled for before the open include AHCO, AEP, AMT, AZO, BMO, BNS, CRI, CLVT, CBRL, DK, HSIC, SJM, JLL, DRS, LOW, M, EYE, NCLH, PRGO, PNW, RCM, SEE, SRE, and STGW.  Then, after the close, ACHC, A, AGL, ARKO, BGS, BECN, BWXT, CRC, CHE, CIVI, COMP, CPNG, DAR, DVN, EBAY, EXR, FSLR, GO, ICFI, ICUI, LNW, MASI, OVV, PARR, PK, PR, RSG, RYAN, SPLK, TKO, UHS, URBN, and VZIO report. 

In economic news later this week, on Wednesday, Q4 GDP, Q4 GDP Price Index, Jan. Goods Trade Balance, Jan. Retail Inventories, EIA Weekly Crude Oil Inventories, and two Fed speakers (Bostic at noon and Williams at 12:45 p.m.) are reported.  On Thursday, we get Weekly Initial Jobless Claims, Weekly Continuing Jobless Claims, Jan. PCE Price Index, Jan. Core PCE Price Index, Jan. Personal Spending, Feb. Chicago PMI, Jan. Pending Home Sales, Fed Balance Sheet, and three Fed speakers (Bostic at 10:50 a.m., Mester at 1:15 p.m., and Williams (8:10 p.m.).  Finally, on Friday, S&P Global Mfg. PMI, Jan. Construction Spending, Feb. ISM Mfg. Employment, Feb. ISM Mfg. PMI, Feb. ISM Mfg. PMI Price Index, Michigan Consumer Sentiment, Michigan Consumer Expectations, Michigan 1-year Inflation Expectations, Michigan 5-year Inflation Expectations, and two Fed speakers (Bostic at 10 a.m. and Daly at 1:30 p.m.) are reported.


In miscellaneous news, Reuters reported Monday that NVDA options account for a full 25% of options premiums now as the AI craze has gained steam.  NVDA options trade $3 billion in options premium per day on average at this point.  Elsewhere, the US Dept. of Commerce restricted exports to Canadian firm Sandvine for allegedly helping the Egyptian government target human rights activists.  Overseas, Japan announced January CORE CPI inflation of 2% on Tuesday (right at the Bank of Japan’s 2% target).  This was slightly above the forecasted 1.9% year-on-year number.  The headline number remained at 2.2% year-on-year, down sharply from 2.6% in December.  In personnel news, JPM hired the head of Banking from their direct competitor C.  At the same time, the Walton family sold roughly $1.5 billion of WMT stock in Q4 while the stock was near record highs.  Finally, speaking of JPM, CEO Jamie Dimon said Monday that “AI is the real deal (not a fad) and will make a real difference in the economy.”  Perhaps more importantly, he said the commercial real estate problem will be contained to “just pockets of the sector” as long as the US avoids a recession.  He went on to say that most property owners can handle the current levels of stress and that “lower valuations tied to interest rates is not a crisis, it’s kind of a known thing.”

In geopolitical news, Sweden officially joined NATO after finally being approved by the Putin-loving Hungarian Parliament.  Meanwhile, in Ukraine, the first known destruction of an American-supplied M1A1 tank was recorded in the Avdiivka area (front-line in Eastern Ukraine).  Meanwhile, in Russia, there was another “mysterious death” of a former Russian military officer and prominent Putin critic (who was famous for leading the “little green men” who invaded and annexed Donbas). Igor Girkin (known as Strelkov) “apparently hung himself” in his cell. (Strelkov, a wanted war criminal himself, criticized Putin not for the invasion of Ukraine, but for the invasion being inept because it was being executed by corrupt Putin cronies who are not qualified).  Meanwhile, French President Macron said Monday that sending Western ground troops to Ukraine had not been ruled out.  The statement was made to the press after a meeting of European heads of state.  Tuesday, German Chancellor Scholz walked back the idea by saying there was “no consensus over deploying ground troops” among European leaders and NATO officials.  This was probably all rhetoric, but with US support of Ukraine frozen the probability of a broader war increases as Russia is making small but significant gains of ground again.

So far this morning, AHCO, AMT, AZO, BNS, SJM, JLL, LOW, M, TIGO, EYE, and SEE all reported beats on both the revenue and earnings lines.  Meanwhile, CRI, CLVT, PRGO, and SRE missed on revenue while beating on earnings.  On the other side, DK, NCLH, and FOUR beat on revenue while missing on earnings.  Unfortunately, BMO, HSIC, RCM, and STGW missed on both the top and bottom lines.  It is worth noting that CRI raised its guidance.  However, LOW and M both lowered guidance.

With that background, it appears the market is on the green side of undecided this morning. All three major index ETFs gapped lower to start the premarket but all three are also putting in white-bodied candles so far in the early session. The QQQ in particular is strong. All three remain above their T-lines in the premarket. So, the short-term trend remains bullish. Meanwhile, the longer-term strong bullish trend continues to hang in (despite being tested). In terms of extension, none of the three major index ETFs is too far from its T-line and the T2122 indicator is in its mid-range. So, both sides of the market have room to run if they can gather the energy to do so. Continue to watch those 10 Big Dog tech names. As mentioned above, they represent a huge portion of the market and if they move together in one direction, it’s hard for indexes to go the other way. Right now, eight of the 10 are green with the two red ones very, very modestly below break-even.

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.


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