Markets Indecisive Ahead of Fed Speakers

On Thursday, markets gapped higher again.  The SPY gapped up 0.55%, DIA gapped up 0.34%, and QQQ gapped up a whopping 1.15%. At that point, the three major index ETFs diverged.  DIA continued to rally until 10:45 a.m. and then traded sideways in a tight range the rest of the day.  Meanwhile, SPY ground sideways along the open level until 1:50 p.m. before going into a very modest selloff right into the close, giving back part of its gap higher.  However, QQQ sold off modestly from the open, tried and failed to get back above the open in late morning and then sold off steadily all afternoon, closing more than have way back into its gap.  This action gave us new all-time high closes in all three major index ETFs.  Yet, except for DIA, markets were uncertain after the gap higher with QQQ printing a big black-bodied candle and SPY giving us a black-bodied candle with an upper wick.  DIA gave us some follow through and a white-body candle but still that upper wick.

On the day, nine of the 10 sectors were green as Industrials (+0.97%) and Financials (+0.88%) led the way higher.  Meanwhile, Communications Services (-0.41%) was by far the laggard sector and only red sector.  At the same time, SPY gained 0.33%, DIA gained 0.69%, and QQQ gained 0.47%. VXX fell almost another percent to close at 13.07 and T2122 stayed in the top part of overbought territory at 94.35.  10-year bond yields backed off slightly to 4.271% and Oil (WTI) fell 0.31% to close at $81.02 per barrel.  So, markets followed through on their loave of the Fed by gapping strongly higher.  However, from that point there was indecisions and divergence among the major index ETFs.  In short, we may be climbing the wall of worry.  This all happened less than average volume in the SPY and QQQ and average volume in the DIA. 

The major economic news scheduled for Thursday included Weekly Initial Jobless Claims, which came in just below expectations at 210k (compared to a forecast of 212k and a prior week 212k value).  On the ongoing side, Weekly Continuing Jobless Claims were a bit below predictions as well at 1,807k (versus a 1,820k forecast and up a bit from the prior week’s 1,803k reading).  At the same time, the Philly Fed Mfg. Index was better than anticipated at +3.2 (compared to the -2.6 forecast but still down from the February +5.2 value).  In terms of jobs, the Philly Fed. Mfg. Employment Index was down but better than the prior month at -9.6 (versus February’s -10.3 reading).  Later, the S&P Global Mfg. PMI came in better than expected at 52.5 (compared to a 51.8 forecast that the previous 52.2 value).  At the same time, the S&P Global Services PMI was slightly lower than predictions at 51.7.2 (versus the 52.0 forecast and down slightly from February’s 52.3 reading).  This gave us a S&P Global Composite PMI in line with anticipated numbers at 52.2 (compared to the 52.2 forecast and down a bit from the February 52.5 number).  Later, February Existing Home Sales were much stronger than was expected at 4.38 million (versus a 3.95 million forecast and the 4.00 million January reading). Finally, after the close, the Fed Balance Sheet showed a $28 billion reduction with a current balance of $7.514 trillion (down from the prior week’s $7.542 trillion).

After the close, AHR, LULU, NKE, and WS all reported beats on both the revenue and earnings lines.  Meanwhile, AIR and FDX missed on revenue while beating on earnings.  It is worth noting that LULU lowered its guidance and said store visits were down so far this year, as well as NKE warning that it will take a hit later this year as it realigns merchandise to current customer demands.  However, FDX narrowed its guidance, raising its lower estimate while lowering its upper estimate.  FDX also said it plans to buyback $500 million worth of stock in this quarter and approved a new $5 billion repurchase program.

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In stock news, on Thursday, PARA said they were not interested in the unsolicited $11 billion offer from APO for PARA’s Hollywood film studio.  Later, RTX announced it had received a $1.2 billion contract from Germany to supply Patriot air defense missiles.  At the same time, CLX announced it had sold its Argentina operations to private equity firm Apex Capital for an as yet undisclosed sum.  (Argentine operations contributed 2% to CLX revenues. And Reuters reports CLX will take a $233 million charge related to the deal.)  Later, SMCI attempted and then aborted an attempt to sell $2 billion of stock to support AI-related expansion.  (GS tried to sell the stock for them but canceled on a lack of buyers.  GS planned to try again after the close Thursday.)  At the same time, SCLX announced it had set a $25/month maximum cap on patient out-of-pocket expenses for its non-opioid pain medications.  Later, Reuters reported that MSFT had agreed to pay $650 million to Inflection (an AI startup) and also hire all of the company’s employees as part of an acquisition. At the same, 18,000 LUV ramp and operations workers approved a new 5-year contract with the airline.  (The deal offers pay 6.6% above UAL’s previously industry leading wages.)  After the close, Reuters reported that NVO’s hit weight loss drug Wegovy will be covered for heart patients by Medicare.  (This could lead to other insurance coverage of the high-margin drug.)  At the same time, NKLA announced it has opened its first high-pressure modular hydrogen refueling station in CA.  Finally, in its first day of trading, RDDT closed up 48% after pricing its IPO Wednesday night at $34, opening at $47 and closing at $50.44.

In stock legal and governmental news, on Thursday, as expected, the US Dept. of Justice (and 16 states Attorneys General) sued AAPL in an antitrust case striking at the core monopoly “walled garden” strategy of preventing competitors to have access to the hardware or software of its iPhones (but also watches and tablets) without paying a 30% commission.  (AAPL stock fell 4.07% on the news.)  At the same time, Bloomberg reported EU investigators had begun new investigations into AAPL and GOOGL over their compliance with the recent EU Digital Markets Act.  Later, the GOP controlled (Jordan) US House Judicial Committee subpoenaed an activist group that promotes ESG issues on corporate boards.  The GOP’s essential idea is to harass the group under the idea it has violated antitrust laws.  The same committee, using the same logic, also subpoenaed BLK and STT who have funds that consider ESG with other factors in determining investments.  At the same time, the FDIC proposed new guidelines for scrutiny of mergers of banks with more than $100 billion in assets.  The guidance was approved on a 3-2 party line vote with GOP members saying there was already an institutional bias against bank mergers.  Elsewhere, Reuters reported that the CEOs of AAL, UAL, V, and MA have refused to testify before a US Senate hearing into credit card program competition.  After the close, AXNX announced it has partially won a patent dispute brought by MDT.  The Patent Board invalidated 10 of MDT’s 15 patent claims.  Also after the close, the 5th Circuit Court of Appeals ruled in favor of the Biden Administration and against big tobacco companies who alleged cigarette pack warning labels violated the company’s first amendment rights.

Overnight, Asian markets were mixed but leaned to the red side with seven of the 12 exchanges in negative territory for the day.  Hong Kong (-2.16%), Shenzhen (-1.21%), and Shanghai (-0.95%) led the region lower.  (This happened as China seemed to loosen its grip on the yuan, letting it slip to a level not seen since November. This weighed on market sentiment toward China entities.) Meanwhile, in Europe, we see the opposite picture taking shape on more moderate moves.  Eight of the 15 European exchanges are in the green at midday.  The CAC (-0.11%), DAX (+0.13%), and FTSE (+0.77%) lead the region on volume as always in early afternoon trade.  In the US, as of 7:30 a.m., Futures are pointing toward a modest green start to the day.  The DIA implies a +0.14% open, the SPY is implying a +0.14% open, and the QQQ implies a +0.07% open at this hour.  At the same time, 10-year bond yields are down to 4.245% and Oil (WTI) is just on the green side of flat at $81.17 per barrel in early trading.

The major economic news scheduled for Friday is limited to Fed Chair Powell speaking at 9 a.m. (Vice-Chair Jefferson and Governor Bowman are on the same event slate), Fed Vice Chair (Bank Supervision) speaking at noon, and Fed member Bostic speaking at 4 p.m.  There are no major earnings reports scheduled for either before the open or after the close Friday.

In government shutdown news, on Thursday, the House finally released the 1012 page text of the six spending bills, which total to $1.2 trillion. The Speaker of the House has decided to wave the GOP rule of three days to read any bill.  So, the House will vote on the bills Friday after 1 day.  Senate Majority Leader Schumer said assuming the House can pass the bills, it will require bipartisan action (and Senators not reading the final bill) in order for get a Senate vote on the bills before the Friday night shutdown deadline.  However, this means it is possible the shutdown can be averted, albeit with many “cut corners” such as not reading the bills being voted on.  Although these six bills total $1.2 trillion, the overall 2024 budget will be $1.66 trillion.

In miscellaneous news, the Swiss National Bank unexpectedly became the first major central bank to cut rates in this cycle.  The SNB cut its benchmark rate by 25 basis points to 1.50%. Meanwhile, a judicial panel consolidated nine lawsuits challenging the SEC sending the consolidated case to the conservative-packed (10 GOP appointees and 1 Dem appointed judge) US 8th Circuit Court of Appeals.  Elsewhere, China tightened rules for consumer finance companies in an effort to force consolidation among lenders.  (This group offers $120 billion annually in high-interest loans to individuals normally shut out of traditional banks in that country.)  Of 31 lenders in this group, 10 do not meet the new stricter capital requirements.  In other news, for the bond market watchers, the inversion of two-year and 10-year bond yields reached a milestone, exceeding the record 1978 inversion duration of 624 days.  Finally, US Energy Sec Granholm told industry executives that the current pause on new US LNG projects will be lifted within a year.  (The US is already the largest LNG exporter in the world and, once lifted, new export terminal projects are likely to make the US a dominant player in the global natural gas market.)

With that background, it looks like the market is slightly positive but mostly undecided on a Friday morning. All three major index ETFs are just on the green side of flat, but all three are also printing small-body, indecisive candles in the premarket. The SPY and QQQ have tiny red body candles and the DIA a tiny white-body candle so far in the early session. Of course, all three remains above their T-line (8ema) and all three T-lines are rising. So, the short-term trend is still clearly bullish. Meanwhile, the longer-term trend in the three major index ETFs have all recovered and are bullish again. In terms of extension, things are not as extended as the three major index ETFs are not quite as stretched above the T-line. However, the T2122 indicator remains in the upper part of its overbought territory. So, we should expect rest (consolidation) or pullback soon but that does not mean today necessarily. (Remember that markets can remain extended longer than we can stay solvent betting on a turn too early.) This means both sides still have room to run if they can gather the momentum, but the bears have more slack to work with now. Looking at those 10 Big Dog tech names, six of the 10 are in the green during the premarket. However, the two biggest movers, TSLA (-3.49%), and NVDA (-0.40%) are to the downside…and they are the heaviest dollar-volume stocks in the market. This means there is indecision even among the market movers. This tends to point toward the market being indecisive. Also, remember that this is a Friday…payday while all three major ETFs are up 2.5% or more on the week. This would certainly seem like a time to take profits. For us, it means prepare your account for the weekend by taking profits, hedging, lightening positions or whatever else you need to do.

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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