More Fed Speakers On Tap as LOW and M Beat

Markets opened mixed and flat on Monday.  SPY and QQQ both opened 0.02% higher while DIA opened down 0.08%.  At that point, SPY and QQQ followed through rallying for 30 minutes.  From there QQQ traded sideways the rest of the day.  SPY traded the same way until 11:45 a.m., sold off slowly until 2 p.m. and then traded sideways just above the open the rest of the day.  Meanwhile, DIA did not begin its rally until 10 a.m. reaching the highs of the day about 11:40 a.m. and the it too sold off until 2 p.m. more than recrossing the open gap and then trading sideways at the lows from 2 p.m. into the close.  This action gave us a large, white-bodied candle in the QQQ that gave us both a new all-time high and a new all-time high close.  At the same time, SPY printed a white-body Inverted Hammer candle that could easily be seen as a Tweezer Double Top along with Thursday’s candle.  However, DIA gave us a black-bodied, high wick candle that did not quite make it to the all-time high (Thursday) and closed below Friday’s low.  All three major index ETFs also remain well above their T-line (8ema).

On the day, five of the 10 sectors were in the green with Technology (+0.89%) leading the green half higher.  At the same time, Financial Services (-0.70%) and Consumer Defensive (-0.69%) were way out front leading the red sectors lower. Meanwhile, SPY gained 0.12%, DIA lost 0.46%, and QQQ gained 0.70%.  VXX gained very slightly to close at 11.38 and T2122 dropped a bit, falling just outside of its overbought territory to close at 79.01.  At the same time, 10-year bond yields rose to 4.445% and Oil (WTI) fell half of a percent to close at $79.67 per barrel. So, Monday was a day of divergence with the Dow 30 moving lower, QQQ driving higher, and SPY in the middle just on the green side of flat.  This all happened on well below-average volume across all three major index ETFs.

There was no major economic news scheduled for Monday.

In Fed news, on Monday, Atlanta Fed President Bostic told Bloomberg that interest rates are likely to stay above the levels of the past decade.  Bostic said he expects inflation to fall throughout the rest of 2024 and 2025.  However, the labor market (while weaker than it was a year ago) “is not soft” and will force the Fed to keep rates higher for longer.  Later, Vice Chair Barr said, “Inflation readings in the first quarter of this year were disappointing.  These results did not provide me with the increased confidence that I was hoping to find to support easing monetary policy.”  He continued, “We will need to allow our restrictive policy some further time to continue its work.”  At the same time, Fed Vice Chair Jefferson told a NY audience that it is too early to tell if the slowdown in the disinflationary process will be long lasting.  He went on to say the Fed viewed determining whether it will be long lasting or if inflation will resume its decline as a necessary precondition for the Fed to start cutting rates.  Meanwhile, Cleveland Fed President Mester told Bloomberg that she also believes inflation will continue to fall the rest of this year, although more slowly than she had been expecting.  In an article published Monday afternoon, San Francisco Fed President Daly reiterated that she sees no evidence of the need for rate hikes.  However, Daly was also quoted as saying that at the same time she is “not confident” is falling to 2%.  So, she also sees no need to cut rates yet.

On another topic, Vice Chair Barr said the Fed was reconsidering how much liquidity banks should be made to keep on hand.  He was quick to point out that these “adjustments” were targeted at larger banks and that by increasing he amount they must hold at the Fed Discount Window it would increase the capital available for the Fed to act as “the buyer of last resort” for smaller banks that may fail.  (No timetable or specifics on the “adjustments” was mentioned.) 

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After the close, KEYS, PANW, TCOM, and ZM all reported beats on both the revenue and the earnings line.  Meanwhile, NDSN and JHX missed on revenue while beating on earnings.  It is also worth noting that KEYS and NDSN lowered forward guidance while ZM raised its guidance.

In stock news, on Monday, GOOGL announced it has invested $1.1 billion into the expansion of its Finnish data center, aimed at driving growth of its AI business unit in Europe.  At the same time, AAPL slashed its iPhone prices in China (offering up to $318 in discounts on some models) amidst fierce competition from Huawei.  Later, MSFT introduced a new category of personal computer with AI features.  It calls this new line of PCs “CoPilot+” and the initial launch came from OEM computer makers Acer and Asustek.  At the same time, Reuters reported that Soroban Capital Partner has taken a $500 million position in JCI.  This news came after Sunday’s revelation that Elliott Investment Mgmt. had taken more than a $1 billion position in JCI.  (The motives and timing behind the moves are not known.)  Later, SSB announced it will buy smaller rival bank IBTX for roughly $2 billion, creating a combined bank with $65 billion in total assets.  At the same time, TGT announced it has cut prices on 5,000 items in an attempt to lure back inflation-drained shoppers.  The reductions will take place over the course of the summer.  Meanwhile, Bloomberg reported that HIMS is taking on the Big Pharma giants by offering a generic version of the same active ingredient in the how weight loss drugs from LLY and NVO.  This $199/month product undercuts the pharma giants by as much as 85%.

In stock legal and governmental news, on Monday the NHTSA announced it opened an investigation into 51,500 electric vehicles from VLKAF (Volkswagen) over concerns of the door opening while the cars were driving.  At the same time, NHTSA also closed its probe into more than 100k TSLA Model X after the company issued a recall to fix a front seat belt problem (failure due to faulty bolt installation).   Later, the US Senate Finance Committee issued a report alleging that BMWYY (BMW) imported at least 8,000 Mini Cooper cars which contained parts from a banned Chinese supplier.  BMWYY said it had halted import and will conduct service action to remove and replace the electronic components in question.  At the same time, an independent lab from CT sued GSK, alleging the drugmaker had defrauded the US government and taxpayers by concealing the cancer risks of Zantac for nearly four decades.  (The lab found during testing in 2019 the Zantac forms a cancer-causing compound and is unfit for human consumption.  The lawsuit alleges GSK found the same thing in 1983 and has suppressed that finding from the FDA, Medicare, Medicaid, and other agencies. 

Elsewhere, the NHTSA announced Monday it is investigate a VFS electric vehicle crash in late April which killed a family of four.  Meanwhile, DJT disclosed that it had been cooperating with a FINRA investigation related to the company’s “blank check merger.”  After the close, a trade group representing nearly all automakers filed its support of two key parts of the recent EPA emissions rules.  The group said automakers support the EPA plan to include electric vehicles in fleetwide average emissions calculations and also in excluding upstream emissions, such as emissions from manufacturing plants, from those calculations.  (The new rules have been challenged by a lawsuit from 25 GOP-led states while 22 states and five major cities support the new rules.  The rules call for a 49% cut in fleetwide average emissions between 2026 and 2032.  This was watered down from the originally proposed 56% cut over that period after carmaker pushback.)  Also after the close, the same conservative legal activist group behind myriad DEI lawsuits, filed another suit, this time suing LUV over a two-decade old program that awarded free round-trip flights to certain Hispanic college students.

Overnight, Asian markets were nearly red across the board.  Only India (+0.12%) was able to hang onto green territory.  Meanwhile, Hong Kong (-2.12%) was BY FAR (by 1.5%) the biggest loser as Chinese Real Estate support measures disappointed.  In Europe, we see a similar picture taking shape with only one of 15 bourses in the green while the CAC (-0.99%), DAX (-0.40%), 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 mixed and flat start to the day.  The DIA implies a +0.02% open, the SPY is implying a +0.03% open, and the QQQ implies a -0.06% open at this hour.  At the same time, 10-year bond yields are down to 4.428% and Oil (WTI) is off 1.57% to $78.55 per barrel in early trading.

The major economic news scheduled for Tuesday is limited to API Weekly Crude Oil Stocks (4:30 p.m.).  However, we also get another raft of speakers including Treasury Sec. Yellen (4 a.m.), Fed Governor Kroszner (4:20 a.m.), Fed member Waller (9 a.m.), Williams (9:05 a.m.), Bostic (9:10 a.m.), Vice Chair Barr (11:45 a.m.), Bostic again (7 p.m.), and Mester (7 p.m.).  The major earnings reports scheduled for before the open is limited to AS, AZO, EXP, LOW, M, OCFT, XPEV, and ZIM.  Then, after the close, MOD, SKY, TOL, URBN, VSAT, and XP report.

In economic news later this week, on Wednesday, April Existing Home Sales, EIA Weekly Crude Oil Inventories, and FOMC Meeting Minutes are reported.  On Thursday, we get Building Permits, Weekly Initial Jobless Claims, Weekly Continuing Jobless Claims, S&P Global Mfg. PMI, S&P Global Services PMI, S&P Global Composite PMI, April New Home Sales, Fed Balance Sheet.  Fed member Bostic also speaks again.  Finally, on Friday, April Core Durable Goods, April Durable Goods, Michigan Consumer Sentiment, Michigan Consumer Expectations, Michigan 1-Year Inflation Expectations, Michigan 5-Year Inflation Expectations are reported and Fed member Waller speaks.

In terms of earnings reports later this week, on Wednesday, ADI, DY, GOGL, HOV, WOOF, PDD, TGT, VIPS, WSM, BBAR, SQM, ENS, PLUS, SUPV, NVDA, SNOW, SNPS, TBBB, and VFC report.  On Thursday, we hear from ATAT, BILI, BJ, BEKE, MDT, NTES, PSNY, RL, TD, TITN, CVCO, DECK, INTU, ROST, and WDAY.  Finally, on Friday, BAH reports.

So far this morning, AS, LOW, and M have reported beats on both the revenue and earnings lines.  Meanwhile, AZO and XPEV missed on the revenue line while beating on earnings.  On the other side, ZIM beat on revenue while missing on earnings.  However, EXP missed on both the top and bottom lines.  It is worth noting that XPEV lowered guidance while ZIM raised its forward guidance.

In miscellaneous news, the embattled Chair of the FDIC, Gruenberg, said he will step down as soon as a successor is confirmed.  Gruenberg and the FDIC have been under a months-long scandal over allowing an environment of sexual misconduct and other misogyny at the agency.  (Gruenberg has been on the FDIC board since 2005 and is in his second term as board Chair.)  Elsewhere, BA shareholders voted to keep departing CEO Calhoun on its board, even after stepping down.  Meanwhile, Bloomberg reported that JPM is putting every new employee through AI training.  This is being done to better prepare for what CEO Dimon says will be a revolution similar to the printing press of steam engine.  On a separate note, Dimon told the JPM annual meeting that his retirement is “less than five years away.”  (This is of note because Dimon has given the same “retirement is always five years away” answer for several years before this change.) 

Finally, as a reminder, make note the US securities market will soon begin its new 1-day settlement of trades, called “T+1”, which is down from the current 3-day settlement.  This change begins Tuesday, May 28.  (Also note that some analysts are nervous over the stress on the systems of clearinghouses and brokerages. They fear the “all or nothing” rollout is a high-risk event. However, officials at the exchanges, clearing houses, and brokers say they expect the transition to be smooth.)

With that background, it looks as if markets are flat and indecisive so far in the premarket. All three major index ETFs opened flat and have printed small, indecisive (more with than body) candles so far in the early session. All three remain at new or very near the all-time highs from last week and are obviously well above their T-lines (8emas). 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, yesterday’s candle allowed the T-line to “catch up” some in the large-cap index ETFs (especially DIA on its black candle). So, only the QQQ could be considered stretched too far above its T-line. However, more rest is probably needed in all three. The T2122 indicator pulled to the very top end of its mid-range, just outside the overbought area. So, while the market has room to run (if either side can find momentum), more pause or pullback are probably needed for a healthy rally to continue or for a trend break to happen. 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, six of the 10 are in the green at this point this morning with NVDA (+0.65%), the biggest dog of all, leading the gains while TSLA (-0.62%) is the biggest drag on the market.

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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