Stocks gapped higher Tuesday and then slowly followed through to the upside until about 2:15 pm. At that point, we saw a sideways grind take shape that lasted until the bulls again stepped in the last half hour of the day. This left us with all 3 major indices forming something like a Fig Newton pattern on the daily chart and closing near their highs. It was also the best day in 3 weeks for US markets. The SPY and DIA are still fighting with their respective 50sma and longer-term downtrend resistance levels. However, QQQ has cleared both those levels and is trying to pull the large caps higher with it, on the strength of names like NVDA, AMD, META, GOOG, AMZN, and NFLX. All 10 sectors were in the green, with Industrials and Technology leading the way. On the day, SPY gained 2.70%, DIA gained 2.40%, and QQQ gained 3.08%. The VXX was flat at 21.85 and T2122 spiked deep into the overbought territory at 98.71. 10-year bond yields have popped back above 3% to 3.028% and Oil (WTI) closed 1.2% higher at $103.81/barrel. All-in-all, the day was a very nice move on below-average volume for the bulls.
In business news, AMZN sued thousands of Facebook group administrators who allegedly brokered false/fake AMZN product reviews. META shut down more than 10,000 such groups that AMZN reported for this behavior. Later in the day, a judge ruled that the trial over the lawsuit brought by TWTR against Elon Musk (seeking to force his $54.20/share purchase) will begin in October. Musk had sought to delay the trial until mid-2023. After the close ATVI announced that a second group of employees (this time Quality Assurance testers) have formed a union, just months before the company’s acquisition by MSFT closes. While this is a tiny group (20 people), it does represent a second department where either ATVI or MSFT will need to deal with the same union (Communications Workers of America).
In China news, the middle-class backlash against the housing sector is building steam. The real estate sector in China has a long history of starting huge housing projects, selling the units prior to completion, and then never finishing the development (often due to the developer defaulting on loans and going out of business). A now widespread boycott of paying mortgage payments on such projects has taken root and spread. Currently, Bloomberg reports more than 300 projects from 24 real estate developers spread across over 90 cities are now participating in the boycott. This is tripled in size from my first report on it a couple of weeks ago. This is huge news, because real estate makes up one-fifth of the Chinese economy and public protest of any kind is unheard of in that country. Elsewhere, SEC Chair Gensler again told reporters it was unclear whether Chinese authorities and American regulators will reach a deal to avoid delisting 200 Chinese companies from US stock exchanges. He went on to say he was not particularly confident.
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On the Russian story, the Wall Street Journal reported that EU sources are currently expecting that Russia will restart the flow of natural gas through the Nord Stream 1 pipeline (as scheduled) when the planned maintenance period ends Thursday. The flow is expected to return to 60% of capacity (down 40% from prior levels). Elsewhere, the Ukrainian First Lady will speak to the US Congress today. She is expected to ask for more aid and condemn human rights abuses. In that vein, the US is preparing yet another shipment (the 16th) of military aid for Ukraine.
After the close, OMC, JBHT, CALM, and PNFP all reported beats on both the top and bottom lines. Meanwhile, IBKR beat on revenue while missing on earnings. On the other side, NFLX missed on revenue while beating on earnings. NFLX stock was up as much as 8.5% in after-hours trading as it lost fewer subscribers than analysts had expected (down just less than one million versus a loss of 2 million expected).
So far this morning, ABT, ASML, BIIB, TLSNY, NDAQ, CMA, and ELV all reported beating on both the top and bottom lines. Meanwhile, MTB missed on revenue while beating on earnings. On the other side, AKZOY, NTRS, and FHN beat on revenue but missed on earnings. Finally, BKR, WIT, and HCSG reported misses on both lines.
Overnight, Asian markets were green across the board. Japan (+2.67%) was an outlier to the upside as the Bank of Japan decided to remain accommodative in fear that economic growth is uncertain (they did not raise rates). Singapore (+1.68%), Australia (+1.65%), and Hong Kong (+1.11%) led the region higher. It is worth noting that Hong Kong ended its city-wide Covid isolation program. In Europe, stocks are mixed but lean to the red side at mid-day. The FTSE (-0.27%), DAX (-0.39%), and CAC (-0.26%) are leading the region lower. However, 7 of the smaller exchanges are in the green, led by Greece (+0.95%) and Russia (+0.80%). As of 7:30 am, US Futures are pointing toward a flat to modestly red start to the day. The DIA implies a -0.16% open, the SPY is implying a -0.13% open, and the QQQ implies a flat -0.03% open at this hour. 10-year bond yields as back down to 2.969% and Oil (WTI) is off almost 2% to $102.21/barrel in early trading.
The major economic news events scheduled for Wednesday are limited to June Existing Home Sales (10 am) and Crude Oil Inventories (10:30 am). The major earnings reports scheduled for the day include ABT, ASML, BKR, BIIB, CMA, ELV, LAD, MTB, NDAQ, NTRS, and WIT before the opening bell. Then after the close, AA, CCI, CCK, CSX, DFS, EFX, KMI, KNX, LSTR, LVS, SEIC, STLD, TSLA, UAL, VMI, and WTFC report.
In economic news coming later this week, on Thursday we get Philly Fed Mfg. Index and Weekly Jobless Claims. Finally, on Friday Mfg. PMI and Services PMI are released.
In earnings reports later this week, on Thursday we get reports from AIR, ABB, AAL, T, AN, BX, DHI, DHR, DPZ, DOV, DOW, FITB, FCX, HRI, HBAN, IPG, IQV, KEY, MMC, NOK, NUE, PM, POOL, DGX, SAP, SNA, SON, SNV, TSCO, TRV, TPH, UNP, WBS, SAM, COF, ISRG, MAT, PPG, RHI, STX, SNAP, SIVB, THC, UFPI and WRB. Finally, on Friday we hear from AXP, ALV, CLF, GNTX, HCA, NEE, NHYDY, RF, ROP, SLB, and VZ.
Earnings season remains the top story for markets. However, Mortgage demand dropped to its lowest point since 2000 last week as the average 30-year fixed-rate conforming loan rate rose to 5.82%. This comes as the overall demand fell another 6%, as new home purchase applications were down 7% week-on-week (down 19% versus the same week last year) and refinance applications fell 4% on the week. So, the housing market will also get some focus from traders.
Recession fears (including those stoked by Russia) will remain in the back of trader’s minds and eyes will also start drifting toward the Fed with a rate meeting next week. Futures are showing a very modestly bearish start to the day right now. However, there are more earnings reports coming before the open and overall the market is in a positive mood after yesterday’s strong showing. Remember that the SPY is still fighting with its mid-term downtrend line and 50sma. So, volatility remains a high probability. The only two things that we know for sure are that we are seeing very low volumes (which tells us there is not much conviction in either the bull or bear camps) and we also know the longer-term trend remains bearish, while we have been in a sideways to slightly bullish more for a few weeks.
Stick with your trading rules, trade with the trend, and take those profits when you have them. Demonstrate patience and wait for confirmation. Remember that trading is our job. So, do the work and follow the process. Always move your stops in your favor and remember the “Legend of the man in the green bathrobe“…it is NOT house money, it’s all our money! One way to put this is Buffett’s first rule of making big money in the market, which is to not lose big money in the market. So, don’t be stubborn. If you have a loss, just admit you were wrong, respect your stop, and take the loss before it grows. 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. Lastly, remember it is Friday. So, be prepared for the weekend news cycle.
See you in the trading room.
Ed
Swing Trade Ideas for your consideration and watchlist: HALO, INSG, AGNC, XBI, SWKS, INMD, RIVN, BMY, NFLX. 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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