Thursday gave us another schizophrenic day with a gap in one direction and the market then trading in the opposite direction all day. In this case, we gapped down 1.21% in the QQQ, 0.69% in the SPY, down just 0.11% in the DIA. All three major index ETFs then traded sideways for an hour. However, at that point, the Bulls stepped in to drive a slow, modest rally that lasted the entire rest of the day. The SPY and QQQ climbed back up into the opening gap while DIA crossed its much smaller gap to close a little to the positive side. This gave us white-bodied candles in all three index ETFs that could all be seen as larger-bodied Spinning top-type candles in the SPY, QQQ, and DIA. QQQ ended the day testing its 50sma from below and DIA was just below its T-line (8ema) at the high of the day.
On the day, eight of the 10 sectors were in the red with only Utilities (+0.93%) by far the strongest while Technology (-1.13%) and Basic Materials (-0.97%) led the way lower. At the same time, the SPY lost 0.31%, DIA gained 0.20%, and QQQ lost 0.72%. VXX was essentially flat at 21.71 and T2122 climbed but remained inside of the edge of oversold territory at 17.25. 10-year bond yields fell to close at 4.254% while Oil (WTI) dropped 0.81% to close at $86.83 per barrel. (That was Oil’s first drop in 10 days.) This all happened on lower-than-average volume in all three of the major index ETFs. So, the Bears had control at the open, but once they got their footing, the bulls were in charge of a tepid rally the rest of the way.
The major economic news reported Thursday included Weekly Initial Jobless Claims which came in well below expectations at 216k (compared to a forecast of 234k and the prior week’s 229k). At the same time, Q2 Nonfarm Quarter-on-Quarter Productivity came in at +3.5% (a bit below the +3.7% forecast but far better than the Q1 -2.1%). In addition, Q2 Quarter-on-Quarter Unit Labor Costs rose 2.2% (far outstripping the +1.6% forecast but also dramatically lower than the Q1 +4.2%). Later, the EIA Weekly Crude Oil Inventories followed Wednesday evening’s API data by showing a much larger-than-expected drawdown of 6.307 million barrels (versus a forecast calling for a 2.064-million-barrel draw but still far lower than the prior week’s 10.584-million-barrel drawdown). Finally, after the close, the Fed reported that they reduced their Balance Sheet by another $20 billion from $8.121 trillion to $8.101 trillion.
In Fed and regulator news, on Thursday, the FDIC reported that US bank profits and deposits were broadly steady in Q2. This suggested that the turmoil in the sector in Q1 had passed. The report said industry profits in Q2 fell 11.3% year-on-year from 2022 to $70.8 billion. (If the SIVB and SBNY failures were stripped out of the report, the rest of the sector increased profits by 5.7% in Q2 versus 2022.) However, deposits declined for the fifth quarter in a row, down 0.5% quarter-on-quarter. Elsewhere, the Senate confirmed the last open Fed Governor seat, approving Adriana Kugler (who is a labor market expert). Later, NY Fed President Williams told Bloomberg “We’ve got policy in a good place, but we’re going to need to continue to be data dependent.” He went on to say that it was an “open question” whether monetary policy is restrictive enough to bring the economy back into the proper balance of inflation and full employment. After the close, Dallas Fed President Logan said that while it could be appropriate to skip an interest rate hike in September, more policy tightening may be needed before we reach the 2% goal. She said, “Another skip could be appropriate when we meet later this month, … but skipping does not imply stopping.”
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In stock news, on Tuesday, SUM announced they have agreed to buy Columbian cement producer Cemento Argos for $3.2 billion in cash and stock. (That deal would make SUM the largest cement maker in the US.) Elsewhere, NWSA said it’s engaged in various negotiations with artificial intelligence companies over the use of content produced by AI. At the same time, MGA (electric vehicle components maker) told an investors conference that it expects to roughly double its sales this year and double again by 2025. Later, the CEO of CHTR said it was urgent to resolve its contract dispute with DIS. (DIS has blocked CHTR customers from accessing DIS content, including ESPN during the highest-rated football season and CHTR is hemorrhaging subscribers as a result.) In cost-cutting news, WMT announced changes to its entry-level store compensation plans to make cashiers, stockers, self-checkout helpers, department associates, and personal shoppers all receive the same hourly wage. The move was meant to take advantage of a slowing job market (which I must have missed happening). WMT did not specify the amount it expects the move to save. Meanwhile, the CFO of BA said the company still expects to hit its annual 737 deliveries goal, despite a new production problem that has slowed deliveries of its bestselling 737 MAX. However, he also said BA will be on the low end of its 400-450 jet target. In other BA news, SPR told an investor conference Thursday that it has asked BA to absorb more of the financial pain caused by inflation and parts shortages. The CEO told the conference that their contracts with BA are “not sustainable.” (BA did not reply to Reuters requests for comment.) At the same time, the CFO of RIVN told a GS conference that the company expects a significant decrease in the cost of battery materials during 2024, and will even see some of those effects in Q4 of 2023.
In stock government, legal, and regulatory news, AAPL suffered a second-straight terrible day after China banned the use of iPhones by government officials. (This move by China is widely seen as both a signal to AAPL, which has recently been moving operations out of China and into places like India, and to the US government that it could ban iPhones altogether if trade wars continue.) a three-judge federal appeals court panel revived a lawsuit against GM from a black safety supervisor. The suit accused GM of racism and sexism that created a hostile work environment over complaints of workers displaying nooses and Confederate flags as well as using racial and sexist slurs toward herself and other black employees for a prolonged period without company sanctions. At the same time, MSFT announced it would pay the legal damages that its customers might suffer if they are sued for copyright infringement for using the output of MSFT AI products. The potentially legally risky plan could also be a marketing boon for its co-pilot assistant products. At nearly the same time, MSFT also announced that it suspects Chinese-controlled social media accounts are already using AI to influence voters as the US prepares to enter the heart of the 2024 election cycle. MSFT said they have made the US Dept. of Justice aware of its research findings. (Screenshots of META’s Facebook and X, formerly Twitter were provided.) After the close, Reuters reported that ZM has been in talks with the US FTC and EU, UK, and German competition regulators, outlining anti-competitive behavior by MSFT related to chat and video apps and bundling with MSFT’s dominant Office suite.
In Autoworker contract talks or strike news, GM offered a 10% immediate wage hike and two additional 3% increases over four years. The offer also included a $5,500 ratification bonus (immediate) as well as $5,000 in potential bonuses over the life of the contract. The UAW President quickly called it “an insulting proposal that doesn’t come close to an equitable agreement.” He continued by implying the threat of a strike as of midnight on September 14. Elsewhere, the UAW said it plans to deliver a counter-proposal to STLA Friday. Meanwhile, F is taking a different tact, by giving 8,000 UAW hourly workers a $4.33/hour ($9,000/year) raise effective immediately (a week ahead of the expiration of the current contract and before a new contract has been agreed. For what it is worth, analysts say a strike against STLA is the most likely thing to happen with a strike against GM and F held as negotiating escalation tools by the UAW.
Overnight, Asian markets were nearly red across the board on a modest move day. Only India (+0.47%) was in the green, while Japan (-1.16%), New Zealand (-0.72%), and Singapore (-0.58%) led the region lower. In Europe, we see a similar picture taking shape at midday. Three of the 15 bourses are in the green. However, the CAC (-0.09%), DAX (-0.41%), and FTSE (-0.09%) lead the way lower in early afternoon trade. In the US, as of 7:30 a.m., Futures are pointing toward a modestly red start to the day. The DIA implies a -0.19% open, the SPY is implying a -0.22% open, and the QQQ implies a -0.30% open at this hour. At the same time, 10-year bond yields are flat at 4.254% and Oil (WTI) is up two-thirds of a percent to $87.48 per barrel in early trading.
There is no major economic news scheduled for Friday. The only major earnings report on the day is KR before the opening bell. There are no reports scheduled for after the close.
After the close, DOCU and RH reported beats on both the revenue and earnings lines. It is worth noting that DOCU raised its forward guidance. This morning, KR was supposed to report at 7:15 a.m. However, for some reason, they are delayed and have not posted results yet as of 7:45 a.m. (Late, KR reported a miss on revenue and a beat on earnings. It has not posted any change to guidance yet.)
In miscellaneous news, traffic on the ChatGPT website fell for the third month in a row. Since they are widely accepted as the leader in the AI space, this begs the question as to whether “AI mania” is subsiding or if this is just the result of numerous competitors diluting the ChatGPT market leadership. Elsewhere, the Financial Times reports that GS will begin following the “Jack Welch at GE” plan, meaning they now have plans to fire 1%-5% of the GS workforce annually, based on performance evaluations. This “culling of the deadwood” would lead to 450 to 2,500 firings (and presumably replacement hires) each year. Meanwhile, CNBC did an analysis of just how much impact “shrinkage and theft” are really impacting retailer profits. (The topic has been a major talking point among right-wing media and has even been cited as an excuse by some retailers to explain poor results.) CNBC analyzed seven big retailers (TGT, M, DKS, LOW, FL, ULTA, DLTR, TJX, and WMT) balance sheets. Contrary to the general narrative of the right, they found that inventory losses were only a small fraction of the retailer’s sales and “pale in comparison to other factors squeezing margins.” (Those factors include “excessive” discounting and promotions.) In fact, CNBC found that shrink is in line with the industry-standard losses over the last decade (1% – 1.5% of sales). This suggests that despite individual well-publicized cases that are aided by ever-present video, “organized theft rings” and “people just feeling entitled to take ransack or take what they want” is not really more of a problem than it was a decade or two ago. It just seems that way because companies are looking for excuses and one side of the political aisle wants to push the narrative that things are terrible. (To be fair, this is certainly not exclusively a tactic of the right. It has been said that there are only two themes to politics. “Things have gone to hell, throw the bum out” and “You’ve never had it this good, give me another term.”) The point is, that theft was mostly just a convenient excuse, taking advantage of one part of society that wanted to push a certain narrative, being used by companies to justify poor performance.
In geopolitical news, Bloomberg reports that India is currently studying its potential responses to a Chinese invasion of Taiwan. The report says this comes after the US made discreet inquiries about how India might contribute in the event of war, which would result when the US steps in to defend Taiwan. While this made news and is being reported as a “new study commissioned by India’s top military commander,” I have serious doubts whether that is entirely true. Frankly, both Indian and the US military and political leadership would need to be completely incompetent if such a scenario had not been extensively studied and various responses discussed, over and over again. The topic is probably revisited at least annually in each country. In fact, I would bet that the subject has been discussed between the militaries and between the political leaders of the two countries repeatedly over many years. (At least ever since India started to think of itself as an emerging power in Asia.) So, I suspect this is just a story leak meant to make news and apply a bit of pressure on China as the G-20 meeting gets going. Still, it made Bloomberg’s top headlines.
With that background, it looks like the Bulls tried to make a move in the premarket, but have sold off since that point. All three major index ETFs started the early session at or very near their T-line (8ema), but have since sold down to create black-bodied premarket candles. (QQQ has also done the same with its 50sma this morning.) This leaves the SPY, QQQ, and DIA just on the red side of flat as we get nearer to the open. The short and mid-term trends remain bearish with the long-term trend remaining bullish across all three major index ETFs. As far as extension goes, none of the major index ETFs are far from their T-line and the T2122 indicator is sitting just inside the top edge of the oversold territory. So, both sides have room to run, if they can gain the momentum to do so. Finally, don’t forget it’s Friday. Pay yourself and prepare your account for the weekend news cycle. Hedge, lighten up, or get some insurance (options) to mitigate risk as you see appropriate.
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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🎯 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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