Markets Pulled Back After Printing New Highs

Markets opened flat on Thursday.  SPY opened 0.02% higher, DIA opened up 0.11%, and QQQ opened down 0.02%. From there, all three major index ETFs rallied steadily, reaching the highs of the day at 11:10 a.m.  At that point, all three sold off more slowly, recrossing the open and reaching a low at 2:20 p.m.  Then SPY and QQQ bounced modestly for 30 minutes before selling off again.  Meanwhile, DIA bounced with more strength but then also sold off harder. In all three major index ETFs, the biggest candle of the day was a sharp drop the last 5 minutes.  This action gave us black, inverted Hammer type candles (not Shooting Stars because there was no gap higher) in all three of those ETFs.  This gave us new all-time highs, but not new all-time high closes in the SPY, DIA, and QQQ.  This happened on less than average volume in all three.

On the day, eight of the 10 sectors were in the red with Basic Materials (-0.59%) and Industrials (-0.57%) out front leading the majority of sectors lower.  Meanwhile, the Consumer Defensive (+1.12%) sector was the biggest mover and held up far better than any other sector.  At the same time, SPY lost 0.21%, DIA lost 0.02%, and QQQ lost 0.20%.  VXX was flat to close at 11.51 and T2122 dropped but remains well into its overbought territory to close at 88.64.  At the same time, 10-year bond yields rose to 4.379% and Oil (WTI) gained 0.84% to close at $79.29 per barrel.  So, Thursday was a mostly “dead money” day with a modest morning move higher followed the a slightly stronger selloff in the afternoon. 

The major economic news scheduled for Thursday included April Building Permits, which came in lower than expected at 1.440 million (compared to a forecast of 1.480 million and the March 1.485 million reading).  On the start side, April Housing Starts were up but lower than predicted at 1.360 million (versus the forecast of 1.420 million but up from March’s 1.287 million value).  At the same time, the April Import Price Index was up sharply to +0.9% (compared to a +0.2% forecast but up less from the March +0.6% reading).  The other side of trade, the April Export Price Index, was also higher than anticipated at +0.5% (versus a +0.4% forecast and well up from March’s +0.1% value).  On the Unemployment front, Weekly Initial Jobless Claims were a bit higher than predicted at 222k (compared to a 219k forecast but also down from last week’s 232k reading).  As far as ongoing claims are concerned, Weekly Continuing Jobless Claims were higher than expected at 1,794k (versus a 1,780k forecast and 1,781k number the prior week).  Meanwhile, the Philly Fed Mfg. Index came in lower than anticipated at 4.5 (compared to a +7.7 forecast and down significantly from April’s +15.5 number).  Later, April Industrial Production (month-on-month) was lower than predicted at 0.0% (versus a +0.1% forecast and March reading).  After the close, the Fed Balance Sheet was down $49 billion from $7.353 trillion to $7.304 trillion.

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In Fed speak news, on Thursday, NY Fed President Williams acknowledged and said that he welcomes the CPI data. He also discounted the idea of any rate hike. However, he also said wants to see more before any cut in rates.  Williams said, “I don’t see any need to tighten monetary policy today … Monetary policy is restrictive and is in a good place.”  Later, Cleveland Fed President Mester echoed other FOMC comments saying, “I now believe that it will take longer to reach our 2% goal than I previously thought.”  She added, “We will need to accumulate further data over the coming months to have a clearer picture of the inflation outlook (before cutting rates).”  Later, Atlanta Fed President Bostic said he sees the ongoing disinflation leading to a potential rate cut.  However, he said nothing was locked in, there was no timetable, and many things could happen. Bostic said, “one data point is not a trend, and said there are a number of different scenarios that could yet play out on the inflation front.” 

After the close, AMAT, CPRT, DXC, GLOB and TTWO all reported beats on both the revenue and earnings lines.  Meanwhile, FLO missed on both the top and bottom lines.

In stock news, on Thursday, SPR (a primary supplier to BA) announced it is laying off 450 employees in the next few weeks.  (This is about 3.6% of the company’s workforce as of year-end 2023.)  Later, after the close, RDDT announced a partnership deal with OpenAI.  The deal will allow OpenAI to train its AI models (like ChatGPT) on content from the Reddit platform.

In stock legal and governmental news, on Thursday, the US Dept. of Justice took the next step in easing restrictions on marijuana by proposing the rule that would reclassify that drug as a “class III” (as opposed to its current “class I” category).  The statement said that the FDA had found credible evidence marijuana can be beneficially medically uses and had no safety concerns that should prohibit medical use.  However, class I drugs (like heroin and LSD), pose major safety risks and have no proven medical uses.  Marijuana stocks soared on the news, even though it has been expected since April.  The announcement (rule proposal) begins 60 days of public comment.  Later, the US Supreme Court ruled 7-2 that the CFPB is not funded unconstitutionally.  This kills one attack on federal agencies by an extreme conservative group, famous for challenging agencies, federal regulations, and private diversity programs.  (This is a very significant ruling because the Fed, FDIC, Social Security, and Medicare/Medicaid could have all potentially been unfunded had the decision gone the other way.)  At the close, the FDA approved AMGN’s treatment for the most-deadly form of lung cancer.

Overnight, Asian markets were mixed but leaned toward the green side again as eight of the 12 exchanges in the region were positive.  Shenzhen (+1.10%) and Shanghai (+1.01%) were by far the biggest gainers while South Korea (-1.03%) was by far the biggest loser on the day.  Meanwhile, in Europe, markets were mostly in the red.  The CAC (-0.34%), DAX (-0.38%), and FTSE (-0.37%) lead the region lower in early afternoon trade.  In the US, as of 7:30 a.m., Futures are pointing toward a second-straight flat open.  The DIA implies a dead flat unchanged open, the SPY is implying a +0.01% open, and the QQQ implies a +0.08% open at this hour.  At the same time, 10-year bond yields are up a bit to 4.398% and Oil (WTI) is on the red side of flat at $79.09 per barrel in early trading.

The major economic news scheduled for Friday is limited to the April US Leading Economic Indicators Index (10 a.m.).  We also hear from Fed member Waller (10:15 a.m.) and Daly (12:15 p.m.).  Major earnings reports scheduled for before the open is limited to HTHT.  There are no reports scheduled after the close. 

So far this morning, HTHT beat on revenue while missing on earnings.

In miscellaneous news, the SEC (in a hat-tip to the efficiency of government) voted unanimously to update data breach rules for brokers, investment advisors, and other investment companies.  In vote, approved rule changes first proposed under the Clinton administration in 2000.  The new rules will require the regulated firms to have and maintain data breach programs to detect, respond to, and recover from cybercrime that accesses their customer’s personal information.  The rule also creates mechanism for companies to share attack data.  However, rather than be hasty, regulated firms now have between 18 and 24 months to come into compliance.  (So, it only took 27 years to get this done…unless the 2025 administration reverses the decision.)

In late-breaking news, the UK Competition and Markets Authority announced the MSFT and Mistral AI partnership “does not qualify” for investigation under British antitrust law.  This avoids a widely-speculated hurdle for the deal.  Elsewhere, after antitrust regulators nixed the acquisition of Figma (cloud-based design software) by ADBE, Figma has told employees they can sell their Figma shares at a company valuation of $12.5 billion. (That is up 25% from the valuation Figma used in fundraising in 2021.)  Finally, online retailer W announced it will open a 150k-square-foot brick-and-mortar store in the Chicago area.

With that background, it looks as if the market is continuing Thursday’s indecisive action, at least early. All three major index ETFs opened the premarket near flat and have strayed little since then in the early session. It is worth noting that all three are printing a white-body candle in the early session, but none of those bodies are significant enough to show any real strength. With that said, all three remains very near the all-time highs from early Thursday and are obviously well above their T-line (8ema). So, the short-term trend remains very bullish. Meanwhile, the mid-term is also bullish. And the longer-term market remains very Bullish as all three major index ETFs have returned to “fresh air” with no overhead resistance. In terms of extension, as mentioned, the SPY, DIA, and QQQ are all well above their T-lines, but only QQQ might be considered too extended. The T2122 indicator pulled back a bit Thursday but remains well into the overbought area. So, more pause or pullback are probably needed, if for nothing else than just to take profits and gather a new group of Bulls (FOMO money?) for a next wave higher (if that is the direction). With that said, we have to remember that markets can, and sometimes do, remain overextended longer than we can stay solvent betting on a turn. In short, don’t predict, follow. With regard to those 10 big dog tickers, seven of the 10 are in the green at this point this morning with only META (-0.41%) and NVDA (-0.30%), which is the biggest dog of all, really dragging on the QQQ. Keep in mind that its Friday, pay day, and time to prepare your account for the weekend news cycle.

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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