Michigan Data and Fed Speakers Ahead

On Thursday, markets opened higher with SPY gapping up 0.26%, DIA gapped up 0.26%, and QQQ gapped up 0.20%.  At that point, all three major index ETFs wove their way sideways until 11:55 a.m.  From there, all three headed South with a hard move lower at 1 p.m. (when a poor 30-year bond auction was apparently caused by a hack of a major Chinese bank, which is normally a big bond buyer).  DIA hit its lows at 2:45 p.m. followed by the SPY and QQQ at 3 p.m.  All three then traded in a tight range the rest of the day.  This action gave us large, black-bodied candles in all three.  The SPY and QQQ both printed what could be seen as Evening Star signals while the DIA just gave us a large black candle.  This happened on average volume in the DIA and QQQ while that SPY gave us less-than-average volume.

On the day, nine of the 10 sectors were in the red with Healthcare (-2.26%) out in front leading the way lower while Energy (+0.07%) held up better than the other sectors, barely holding onto green territory.  At the same time, the SPY lost 0.78%, DIA lost 0.59%, and QQQ lost 0.77%.  The VXX gained 3.85% to close at 20.77 and T2122 fell again but remained at the low end of the mid-range at 26.04. 10-year bond yields rose to 4.634% and Oil (WTI) fell slightly to close at $75.54 per barrel. So, Thursday broke the streak of higher closes in the SPY and QQQ, as well as giving us the second straight lower close in the DIA.  

The only major economic news reported Thursday was Weekly Initial Jobless Claims, which came in slightly higher than expected at 217k (compared to a forecast of 215k but still slightly down from the prior week’s 220k).  Then, after the close, the Fed Balance Sheet again came in down just a bit from the previous week at $7.861 trillion (down from $7.867 trillion the prior week).

In Fed speak news, Richmond Fed President Barkin (hawk) and Atlanta Fed President Bostic (dove) both spoke at a New Orleans event.  Both seemed to indicate that the economy has not yet fully absorbed the impacts of the previous FOMC rate hikes.  In his remarks, Bostic again said he believed the Fed policy is already restrictive enough to curb inflation and warned that there could be some “economic instability” ahead as the economy fully feels the previous Fed hikes.  For his part, Barkin predicted a coming economic downturn and said his forecast had not expected the strong Q3 growth.  He argued that an economic slowdown is necessary to stop price-setters from continuing to raise prices.  Later, Fed Chair Powell told an IMF conference in Washington that he and his Fed colleagues are encouraged by the slowing pace of inflation but are still not sure they have done enough to keep that slowing momentum going. He said, (the Fed is committed to a 2% rate of inflation target), but… “we are not confident that we have achieved such a stance.”  Powell went on to say inflation remains “well above” where they would like to see it but also described the Fed policy as “significantly restrictive.”  Above all, Chairman Powell tried to warn investors not to expect rate cuts in 2024 (as many still predict).  Finally, he said, “We will continue to move carefully, however, allowing us to address both the risk of being misled by a few good months of data, and the risk of overtightening.”

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In stock news, UNH announced Thursday that it is transitioning eight insulin products to tier 1 status (least expensive).  Those products are made by LLY, NVO, and SNY.  At the same time, TDG announced it is buying a components and subsystem business from private company CPI for $1.39 billion.  Later MGM announced it has reached a tentative deal with the hospitality workers union, less than 24 hours ahead of a strike by 25,470 Las Vegas employees.   (CZR reached a deal earlier and WYNN has not yet reached an agreement.)  Elsewhere in the entertainment industry, the Screen Actors Guild reached a deal with studios such as DIS, PARA, NFLX, WBD, FOX, and AMZN ending the 118-day strike. Later, software company BILL issued a statement seeking to quash the rumors that it is in negotiations to be acquired.  At the same time, FSR revealed is negotiating with five different carmakers in the hope of attaining additional production capacity in the hope of launching two additional models by 2025.  Later, Reuters reported that NVDA plans to release three new chips aimed at the Chinese markets.  Less than a month after US officials tightened rules on export to China, NVDA has reworked the product designs of their AI chips to skirt the restrictions.  At the same time, XOM said it has acquired a floating production and storage facility from SBFFY for $1.26 billion.  Later, UAL announced it is revamping its loyalty program tied to CCF credit cards with changes taking effect on January 1.  Meanwhile, Reuters reports that GS is working on a dozen different projects to incorporate AI into its business practices.  After the close, TKO announced that major shareholder McMahon plans to sell 8.4 million shares in a secondary offering for $713.16 million.  Also after the close, BKNG announced it would begin booking cruises.  In addition, NFLX and WBD announced they are partnering with VZ to offer a $10/month streaming combination (versus the old price of $17/mo.).

In stock government, legal, and regulatory news, early Thursday, the NHTSA said that TSLA is recalling 159 Model S and Model X cars.  At the same time, AAPL suffered a setback related to its $14 billion tax bill in the EU.  An advisor to the EU’s top court said that a lower court had made legal errors when ruling in favor of AAPL and the top court should review the case on whether AAPL owes Ireland $14 billion.  Later, the Bulgarian Parliament approved a $1.5 billion purchase of Stryker fighting vehicles from GD.  At the same time, a US bankruptcy court ruled that Scandinavian airline SAS could receive a $450 million loan from private firm Castlelake.  The funds will be vital to repaying APO, which is the debtor-in-possession of the airline.  After the close, AAPL agreed to pay $25 million to the Dept. of Justice to settle claims that the company has illegally favored lower-wage immigrant workers over US and green-card-holding people.  Of this, $6.75 million are penalties and the $18.25 million will go to an unspecified number of discrimination victims.  After the close, a US judge approved the $290 million JPM settlement with victims of disgraced and deceased financier Epstein.

After the close, DTEGY, HOLX, LNW, LGF.A, NWSA, RBA, STN, TTD, and WYNN all reported beats on both the revenue and earnings lines.  Meanwhile, CANO beat on revenue while missing on earnings.  On the other side, FLO, ILMN, MTD, VYX, and NGL all missed on revenue while beating on earnings.  Unfortunately, CPRI, TPC, and U missed on both the top and bottom lines.  It is worth noting that ILMN lowered its forward guidance.  

Overnight, Asian markets were nearly red across the board.  Only India (+0.15%) held on to green territory while Hong Kong (-1.76%) Thailand (-1.10%), and Singapore (-0.91%) led the region lower.  In Europe, we do see red across the board at midday.  The CAC (-1.11%), DAX (-0.78%), and FTSE (-1.28%) are leading the region lower in early afternoon trade.  In the US, as of 7:30 a.m., Futures are pointing toward a mixed start to the day.  The DIA implies a +0.16% open, the SPY is implying a +0.05% open, and the QQQ implies a -0.11% open at this hour.  At the same time, 10-year bond yields are back down slightly to 4.606% while Oil (WTI) is up 1.33% to $76.74 per barrel in early trading.

The major economic news scheduled for Friday are limited to Michigan Consumer Sentiment, Michigan Consumer Expectations, Michigan 1-Year Inflation Expectations, and Michigan 5-Year Inflation Expectations (all at 10 a.m.).  However, there were some last-minute Fed speaking engagements including Logan, Bostic, and Daly. The major earnings reports scheduled for before the open are limited to AQN.  Then, after the close, STNE reports. 

So far this morning, TOELY and DWAHY reported beats on both the revenue and earnings lines.  However, AQN missed on revenue while reporting in line with expectations on earnings.

In miscellaneous news, a hacking and ransomware attack on Chinese ICBC bank stopped it and others from participating in the US 30-year bond auction.  In turn, the lack of Chinese buyers caused soft demand and spooked US markets Thursday afternoon.  Back in the US, the Fed’s semiannual supervision report said that it was keeping a close tab on banks (related to rising interest rates and commercial real estate losses).  Despite some concerns, the report said the overall banking system remains sound and most lenders remain well-capitalized.  Unrelated to this, the Bank of England said Friday that the UK’s 50 largest banks will be subjected to a stress test that imagines a scenario worse than 2022’s shock to the gilt market.

With that background, it looks like all three major index ETFs are now looking to open up a bit from the Thursday close. All three are giving us white-bodied, indecisive candles (more wick than body) inside of Thursday’s black candle. The SPY, DIA, and QQQ all remain above their T-line (8ema) and 50smas (although the SPY and DIA are close to retesting those averages). So, the Bulls still have control of the short-term trend, even after pulling back from the recent impressive Bull run. However, keep in mind that all three also remain 4%-5% below their summer highs. So, the Bears remain in control of the longer-term trend. In terms of extension, none of the major index ETFs are stretched from their T-line. At the same time, the T2122 indicator is in its mid-range (the bottom of that range). So, there is some room to run in either direction. Bear in mind that this is Friday. So, pay yourself by taking some profits and prepare your account for the weekend news cycle. This might include, lightening up, buying insurance (puts/calls) on individual positions, or hedging your overall account.

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.


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