On Tuesday, after Fed Chair Powell’s morning speech, markets opened up just on the down side of flat.  At that point, all three major indices chopped sideways until noon. Then a slow, steady bullish trend started that lasted into the close.  This action gave us white-bodied, Bullish Engulfing signals in the SPY and QQQ.  Meanwhile, the DIA bounced up off its 50sma on the day.  All of this, once again, took place on lower-than-average volume.

On the day, all 10 sectors were in the green as Consumer Defensive (+0.09%) lagged behind and Consumer Cyclical (+1.46%) lead the other sectors higher.  Meanwhile, the SPY was up 0.70%, the DIA was up 0.58%, and QQQ was up 0.85%.  At the same time, the VXX was down 4.16% to 12.91 and T2122 remains in the overbought territory at 89.57.  10-year bond yields spiked to 3.606% and Oil (WTI) was up 0.31% at $74.86 per barrel.  So, overall, it has been a bullish day that negated the potential bearish signal from Monday.

In economic news, as mentioned above, Fed Chair Powell spoke to Sweden’s central bank Tuesday.  He made no reference to interest rate decisions other than to say that more increases are likely on the way this year.  His remarks emphasized that fighting inflation requires measures that are politically unpopular and that the Fed must be independent of political control in order to take the hard actions that will bring inflation down.  He also went on to address GOP criticisms by saying that “the Fed should stick to its knitting” (and not stray into using regulatory power to address climate change or social issues).  He emphatically said, “We (the Fed) are not, and will not be a climate policymaker.”  However, he also said asking big banks to examine their readiness for major climate-related events and other risks was fair game but that is as far as it should go.  If the premarket is a judge, traders liked what they heard from Powell. Much later, after the close, the API delivered its Weekly Crude Oil Stocks report with a massive unexpected build in inventories.  The data showed inventory up by 14.865 million barrels (compared to a forecasted drawdown of 2.375 million barrels).

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In stock news, Airbus maintained its position as the world’s largest plane manufacturer when it reported that deliveries rose 8% in 2022.  Airbus delivered 663 jets, compared to just 480 delivered by BA during the year.  Elsewhere, GM, F, GOOGL, SPWR, and RUN announced they will work together to create standards and protocols that will allow for Virtual Power Plants to be used to ease loads on electricity grids.  (The VPP idea is that thousands of decentralized energy sources like electric vehicles and batteries can be pooled together to create a source of power for an electric grid during high-demand periods.)  Meanwhile, CNBC reported that the money AAPL app store developers have received this year suggests that AAPL app store growth has slowed and is likely in line with the 2021 revenue from that unit.  At the same time, FDX said it was trimming Sunday deliveries starting in March, reducing the percentage of the US that is eligible for Sunday delivery down to 50% (from 80%).  In other news, the Wall Street Journal reported that FRG is considering going private through a management buyout.  Finally, WFC (long the leader in home lending) is scaling back its mortgage business and will now only offer home loans to existing banking customers.

In energy news, in addition to the crude oil stocks above, the Weekly API report also showed a 1.8-million-barrel increase in gasoline inventories and a 1.1-million-barrel build of distillate stocks (diesel fuel and heating oil).  Compare these to a forecast of a 1.186-million-barrel build in gasoline inventory and an expected drawdown of 0.472-million-barrels of distillate.  In other news, the US EIA released a forecast on Tuesday afternoon saying that global oil consumption will reach a new record of 102.2 million barrels per day in 2024.  Finally, February Natural Gas futures fell another 7% on Tuesday (following Monday’s 5% rally), bringing the total drop to 52% over the last three weeks.

Early this morning, the FAA suffered a system outage that normally alerts pilots of in-air hazards and airport facility status changes (like closed airports and runways). That system has stopped processing new or updated information. This outage caused the FAA to order the delay or cancellation of all flights in US airspace (inbound or outbound) until the system is restored.  As of 6:30 am, almost 800 flights had been delayed, canceled, or rerouted away from US airspace.  Obviously, this will have a very minor, but real, impact on US businesses, especially airlines. (For reference, the storm just before Christmas caused the cancellation of many thousand flights each day for more than a week.)

Overnight, Asian markets were mixed but lean to the upside on modest moves with Japan (+1.03%) and Australia (+0.90%) leading the gainers while Shenzhen (-0.58%) and Taiwan (-0.35%) paced the losses.  Meanwhile, in Europe, the exchanges are heavily weighted to the green at midday.  The FTSE (+0.64%), DAX (+1.05%), and CAC (+0.98%) are leading the region higher in early afternoon trade with only Norway (-0.63%) and two other very minor spots of red on the board.  As of 7:30 am, US Futures are pointing toward a start to the day just on the green side of flat.  The DIA implies a +0.10% open, the SPY is implying a +0.15% open, and the QQQ implies a +0.10% open at this hour.  At the same time, 10-year bond yields are back down to 3.578% and Oil (WTI) is up fractionally to $75.38%/barrel in early trading.

The major economic news events scheduled for Wednesday are limited to EIA Crude Oil Inventories (10:30 am).  There are no major earnings reports scheduled for before the opening bell.  However, after the close, KBH reports.

In economic news later in the week, on Thursday, December CPI, Weekly Initial Jobless Claims, the WASDE Ag Report, and the December Federal Budget Balance are reported. Finally, on Friday, we get December Import/Export Prices, Michigan Consumer Sentiment, and hear from Fed member Harker.

In terms of earnings, on Thursday, INFY and TSM report.  However, on Friday, we hear from BAC, BK, BLK, C, DAL, FRC, JPM, UNH, WFC, and WIT report.

In mortgage news, after rising at the end of the year, interest rates dropped sharply last week from 6.58% to 6.42% for a 30-year, fixed-rate, conforming loan.  That drop led to a 5% increase in refinance applications and an overall mortgage volume increase of 1.2% compared to the prior week according to the Mortgage Bankers Association.  The mortgage volume was still 86% lower than the same week in 2022. 

With that background, it looks like the large-cap indices are sitting just on top of their 50sma (also a resistance level for the SPY) after a very small bullish premarket move. Meanwhile, the QQQ is also positive in premarket, but has not yet reached its 50sma above. This is looking like a modest additional follow-through to Tuesday’s move. However, it is far from a definitive direction move in the bullish direction. Nonetheless, the premarket bias is bullish. Do not be surprised if price just drifts and chops around today as the market waits on that CPI report Thursday (not for its own sake, but as a read-through to what the Fed may do at month end). So, don’t count on average volumes, and be very careful trading thin tickers.

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

Swing Trade Ideas for your consideration and watchlist: BWA, DIS, CAT, PYPL, SBUX, ALLY, GILD, LUMN, and META. You can find Rick’s review of tickers on his YouTube Channel here. Trade your plan, take profits along the way, and smart. Also, remember to check for impending earnings reports. Finally, remember that any tickers we mention and talk about in the trading room are not recommendations to buy or sell.

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