Markets Screamed Higher, Now Extended

After a pleasant surprise, stocks ripped higher in the pre-market and gapped massively higher at the open.  (SPY gapped up 3.75%, DIA gapped up 2.75%, and QQQ gapped up 4.95%.)  At that point, we saw a sideways rollercoaster that led to gains of another 0.3% (DIA) to 1.1% (QQQ) by noon.  From that point, stocks sold off modestly for an hour and recovered for another hour, bringing us back to the highs of the day at about 2 pm.  At that point we saw another wave higher the rest of the afternoon.  This action gave us a huge gap-up, followed by strong white candles with lower wicks in the DIA, SPY, and QQQ.  All three indices are now extended well above their T-line (8ema) and the SPY and DIA have broken out of their recent high resistance level.  DIA is also testing its long-term downtrend line (going back to the start of the year).  Meanwhile, the QQQ is testing its 50sma. 

On the day, all ten sectors were in the green with Technology (up a whopping +8.42%) and Consumer Cyclical (+7.06%) leading the way higher while the Energy sector (+2.22%) “lagged” behind.  Meanwhile, the SPY gained 5.49%, DIA gained 3.66%, and QQQ gained 7.31%.  The VXX was down 5.49% to 17.21 and T2122 spiked back up deep into the overbought territory at 97.69.  10-year bond yields continue to be very volatile and plunged back down to 3.824% and Oil (WTI) went up 0.56% to $86.31 per barrel.  So, all-in-all, Thursday was all about the huge gap with a modest morning and then an even larger afternoon follow-through that took us out near the highs.

In economic news, as mentioned above, the October CPI gave us a great surprise by coming in at 7.7% (compared to a forecast of 8.0% and September’s reading of 8.2%).  That 0.5% month-on-month drop led traders to think that inflation is coming under control and the Fed may start easing up on its rate hikes.  As a result, pre-markets rocketed higher and the bulls never looked back.  The Weekly Initial Jobless Claims came in slightly worse than expected at 225k (compared to the forecast of 220k and last week’s reading of 218k).  That too reinforced the idea that the economy was now slowing and that should lead the Fed to ease up soon.  Finally, in the afternoon, the October Federal Budget Balance also came in better than expected at a $88 billion deficit (compared to the expected $90 billion deficit).

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In miscellaneous news, the US Dollar fell sharply on Thursday after the CPI data.  This gave the Japanese Yen its largest gain since 2008 while the British Pound had its best day since 1985.  Meanwhile, in China, the country’s normal annual surge in exports is now in doubt after it reported October exports fell unexpectedly due to falling global demand and covid lockdowns.  Back in the US, Fed speakers on Thursday seemed to embrace more gradual rate hikes at this point.  San Francisco Fed President Daly told a virtual conference that she “supports a more gradual approach.”  At the same time, Kansas City Fed President George said “A more measured approach to rate increases may be particularly useful…”  At a separate event, Philly Fed President Harker said he believes the Fed ought to pause once rates get above 4.6% and that the Fed can always start tightening again if needed, based on data.

In stock news, GOOGL’s Waymo announced it has opened up its autonomous taxi service in Phoenix AZ after months of test runs.   Meanwhile, AZN announced it has withdrawn its application for US approval of its Covid-19 vaccine. AZN cited declining demand that is already being served by existing shots. Elsewhere, AMD released new server market CPU products Thursday that analysts say are far faster, larger (many more cores and I/O lanes), and much more power efficient than rival INTC offerings.  In CEO news, BIIB announced that the former CEO of SNY will take over the reins as BIIB on November 14.  The CEO of KDP also resigned after a violation of the company code of conduct.  However, the CEO of AIG was given a 5-year contract extension after hours.  Finally, after hours, the state of CA sued MMM and DD (and other smaller companies) in an effort to recoup the costs of clean-up of toxic and cancer-causing substances known as “forever chemicals.”  The state is alleging the two firms marketed products containing these chemicals in the state for decades despite knowing their toxicity.

After the close, FLO, BZH, STN, and TOST reported beating on both the revenue and earnings lines.  Meanwhile, EDR missed on revenue while beating on earnings.  On the other side, COMP beat on revenue while missing on earnings.  It is worth noting that TOST raised its forward guidance.  However, COMP and EDR both lowered their forward guidance.

So far this morning, MT, BAM, AZN, USFD, RWEOY, BDX, NIO, DDS, TDG, KELYA, SBH, SLVM, and NICE all posted beats on both the revenue and earnings lines.  At the same time, AEG, WRK, TPR, EPC, and EYE all missed on revenue while beating on the earnings line.  On the other side, PRMW beat on revenue while missing on earnings.  Unfortunately, WE and SIX missed on both the top and bottom lines.  It is worth noting that USFD and PRMW raised their forward guidance.  However, BDX, NIO, TPR, SBH, WE, and YETI all lowered their forward guidance.

Overnight, Asian markets were strongly green across the board.  Following the cue from the US, Hong Kong (+7.74%), Taiwan (+3.73%), and South Korea (+3.37%) led the region higher.  In Europe, we see a more mixed picture, but still leaning toward the upside at midday.  The FTSE (-0.47%), DAX (+0.38%), and CAC (+0.27%) are leading a region that is mixed and showing modest moves in early afternoon trade.  Denmark (-1.24%) is an outlier in the region.  As of 7:30 am, US Futures are pointing toward a modestly green start to the day.  The DIA implies a +0.35% open, the SPY is implying a +0.35% open, and the QQQ implies a +0.39% open at this hour.  10-year bond yields are down again to 3.811% and Oil (WTI) is spiking more than 3% to $89.21/barrel in early trading.

The major economic news events scheduled for Friday is limited to Michigan Cons. Sentiment (10 am).  The major earnings reports scheduled for the day are limited to AQN before the open.  There are no major earnings reports scheduled for after the close.     

So far this morning, AQN beat on the revenue line while missing on the earnings line.  However, DDL had massive misses on both the top and bottom lines.  It is worth noting that AQN also lowered their forward guidance.

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After a massive rally on Thursday, US markets (both stock and bonds) seem to have declared victory over the inflation enemy and will now EXPECT the Fed to act accordingly. This just means the risk has shifted to the downside, where Fed words (and especially the December meeting) could crush those raised expectations of the bulls. Be careful buying into that line of thinking. Yes, inflation came down half of a percent, but it’s still at 7.7% and that is a far cry from the Fed’s 2% target. Even more salient is the fact that this is a single data point. All of the Fed members have been talking about tightening and staying tight until inflation has shown clear evidence of SUSTAINED progress toward the target. I’m just a country boy, but to me, one data point does not equal sustained. Either way, all we can do is focus on what the market actually does, not on what we expect the Fed will/should do.

With that background, premarkets look green, but we are very extended and coming into resistance areas in the DIA and QQQ. So, think long and hard about chasing and if you decide to do so, stop and think again. We know that price moves in a lightning bolt, zig-zag pattern. And at the moment, our zig is sorely in need of a zag if this is going to be a sustained move higher. This is born out in the distance from the T-line and the extension in the T2122 indicator. Also remember that control of the House and Senate are still up in the air. While it is a very high probability that the GOP will take the House, we will not know about the Senate for another month due to the GA runoff.

So, continue to be deliberate and disciplined…but don’t be stubborn. Remember it’s 100 times more important to avoid big mistakes than it is to pick big winners. If you have a loss, admit you were wrong and take that loss before it gets out of hand. And when price does move in your direction, always move your stops in your favor and take a little profit off the table. You have to remember the “Legend of the man in the green bathrobe“…in that situation, it is NOT HOUSE MONEY you’re betting, it’s YOUR MONEY! And there is absolutely no reason to keep raising your bet (risk) just because you’ve had a win. Finally, keep in mind that trading is not a hobby. It’s a job. The money is real. So, you have to 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: no trade ideas today. 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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🎯 Dick Carp: the scanner paid for the year with HES-thank you

🎯 Arnoldo Bolanos: LTA scanner really works $$, thanks Ed.

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🎯 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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