Markets gapped significantly lower on Wednesday (1.25% in the SPY, 1.15% in the DIA, and 1.35% in the QQQ) as markets followed Europe in rethinking whether the Fed would actually pivot soon.  The bears then proceeded to follow through, taking us to the lows of the day at 10:30 am.  However, the bulls stepped in to buy the pullback again, leading a long, steady rally which more than faded the gap and took us to the highs of the day at 3:20 pm.  Then there was one more reversal as the bears took back over at 3:20 pm and drove prices back down into the morning gap by the close.  This action is giving us gap-down, large white candles with wicks on both ends, that had bounced up off the T-line (8ema).

On the day, 7 of the 10 sectors are in the red with Energy (+1.31%) far out front due to the OPEC+ production cut.  On the lagging side, Communications Services (+1.77%) and Utilities (-2.08%) brought up the rear.  Meanwhile, SPY lost 0.19%, DIA lost 0.10% and QQQ lost 0.05%. The VXX is up 0.67% to 19.52 and T2122 is a bit higher y at 69.42.  The 10-year bond yields are back up to 3.751% and Oil (WTI) is up 1.63% to $87.93/barrel.  Basically, it was a schizophrenic day with a strong gap and run one direction that completely reversed to go back in the other direction and then reversed yet again.  However, the very short-term bullish trend remains intact.

In economic news, ADP reported September Nonfarm Employment went up more than expected, coming in at +208k jobs (versus +200k forecast and +185k in August).  The August Trade Balance also was less slightly negative than expected at -$67.40 billion versus -$67.70 billion forecast and -$70.50 billion in July.  In addition, September Services PMI came in better than expected at 49.3 (versus 49.2 forecast and 43.7 in August).  The ISM September Non-Mfg. PMI also came in hotter than expected at 56.7 (versus 56.0 forecast and 56.9 in August).  Overall, these are all things the Fed will not like to see and will probably want to come in worse to slow inflation.  Finally, EIA Weekly Crude Oil Inventories came in with a 1.356 million drawdown (compared to a forecast 2.052-million-barrel build).

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In energy news, as mentioned above, OPEC+ decided on and announced a 2 million barrel per day production cut starting in November.  This was at the very high end of analyst estimates for the cut, which had ranged between 0.5 million and 2 million.  The group’s stated aim is to get oil prices to stabilize in the $100 – $105 / barrel range.  Not that it matters much, but most analysts still do not expect the full 2 million barrel cut to be implemented as all OPEC+ countries tend to cheat their quotas at the margins. Elsewhere, the CEO of TTE made an announcement that the French energy giant will continue to ship Russian liquified Natural gas as long as there are no European sanctions on that fuel.

In stock news, TSN announced it is joining other major corporations and moving its corporate headquarters out of Illinois and into Arkansas.  This move will impact 1,000 employees.  Then, after the close, GM agreed to pay $3.5 million to the DOJ to resolve claims that failed to provide benefits and protections to US service members.  This amount only includes $65,000 in penalties and the other $3.435 million will go to the affected US service members.  Elsewhere, F announced an 11% price hike on electric F-150 Lightning Pro trucks for the 2023 model year.  That brings the base price to $51,974.  At the same time, COST announced comparable store sales rose by 8.5% in September.  This includes an 11.2% increase in US stores and a much smaller 5.7% increase in Canadian stores. Finally, this morning PTON CEO McCarthy said that his company has 6 months to prove it can survive and that 500 more job cuts are coming soon. PTON was down as much as 8% in premarket trade on this “news” but has recovered to be down only 1.65% at the moment.

In miscellaneous news, Bloomberg reported that the entire midday reversal and long rally was likely sparked by a single options trade.  They described this trade as a $31 million debit spread on SPX futures, buying 20,000 October $4500 Calls and 14,000 March $4300 Calls while also selling 48,000 January $4500 Calls.  Elsewhere, late in the afternoon, GS raised its Q3 GDP estimate to +1.9% (from the previous, and recently revised downward, +0.9%).  So, in other words, the economy was stronger in Q3 than GS had expected, even as late as mid-Q3. In Fed speak, Atlanta Fed President Bostic said that the Fed’s fight against inflation is still in early days. Specifically, he said that “despite some glimmers of hope (in recent data), the overarching message I’m drawing (from data) is that we are decidedly in the inflationary woods…not out of them.”

So far this morning, MKC and CAG bother reported beating on the revenue and earnings lines.  The STZ report is late for some reason.

Overnight, Asian markets were mixed.  Shenzhen (-1.29%), Shanghai (-0.55%), and New Zealand (-0.49%) half of the region lower.  Meanwhile, South Korea (+1.02%), Taiwan (+0.66%), and Thailand (+0.56%) led the other half of the region higher.   Over in Europe, stocks are mostly in the red at midday.  The FTSE (-0.71%), DAX (-0.43%), and CA (-0.42%) lead the majority of exchanges lower.  However, there are a handful of smaller exchanges still modestly in the green in early afternoon trading.  As of 7:30 am, US Futures are pointing toward another down start to the day.  The DIA implies a -0.57% open, the SPY is implying a -0.63% open, and the QQQ implies a -0.57% open at this hour.  10-year bond yields are up a bit to 3.773% and Oil (WTI) is off fractionally to $87.44/barrel in early trading.

The major economic news events scheduled for Thursday is limited to Weekly Initial Jobless Claims (8:30 am).  However, we also have two more Fed speakers after the close (Waller at 5 pm and Mester at 6:30 pm).  The major earnings reports scheduled for the day is limited to CAG, STZ, and MKC before the open.  Then after the close, LEVI reports.

In economic news later this week, on Friday, we get Sept. Avg. Hourly Earnings, Sept. Payrolls, Sept. Participation Rate, and Sept. Unemployment Rate.  In earnings reports later this week, on Friday, there are no major earnings reports scheduled.

Overall, the market seems to be caught in the horns of a dilemma. Fed speaker after Fed speaker keeps saying that the fight against inflation is still in the early stages, they may raise rates as high as 4.5% before the end of 2022, and there will be no rate cuts in 2023. However, markets (as gauged by Fed Fund Futures and large-scale equity dip buying) continue to forecast a slowing of easing and a rate cut in 2023. The most recent reasoning being argued is that the Fed needs to slow tightening and then start cutting in order to save other major global economies from collapse. (For example, the UK faces another cliff next week when the BoE stops buying bonds and the new Truss government is still untrusted. Meanwhile, China faces massive government debt, has just reduced its lending to other countries, and has domestic real estate and banking sectors in turmoil.) So, some traders seem to be betting the Fed will let the US live with inflation in favor of stabilizing the global economy.

With this backdrop, the premarket action has been inside of yesterday’s candle in the major indices. This may indicate we are just consolidating and waiting on the September Payrolls data on Friday. Market extension is not a major issue given the implied open. However, the strong bear trend has not been broken and is the main directional indicator we should heed. Continue to expect volatility and watch for the next bearish leg now that we’ve relieved over-extension and had a short relief rally.

Keep in mind that trading is our job. It’s not a hobby. So, treat it that way. Do the work and follow the process. Stick with your trading rules, trade with the trend, and take those profits when you have them. Demonstrate patience and wait for confirmation. Don’t be stubborn. If you have a loss, just admit you were wrong, respect your stop, and take the loss before it grows. When price does move in your direction, always move your stops in your favor (remember the “Legend of the man in the green bathrobe“…it is NOT HOUSE MONEY, it’s all OUR MONEY!). Lastly, remember that you get rich slowly and steadily in Trading…not by striking it rich on one or two trades. So, give up that lottery ticket mentality.

See you in the trading room.

Ed

Swing Trade Ideas for your consideration and watchlist: AMZN, MSFT, SLV, FCX, X, ZS, RIG, FL, ENPH, FDX, PINS, and CORN. 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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🎯 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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