It was the Bulls Day on Wednesday.  SPY opened 0.24% higher, DIA opened 0.15% higher and QQQ gapped up 0.32%.  At that point, all three major index ETFs followed through with a steady rally until almost 2 pm.  Then all three traded sideways the rest of the day with a slight profit-taking trend.  This action gave us gap-up, large-body, white candles in all three.  The SPY crossed back above its T-line (8ema) and with a tiny tick on top is now just below its 50sma.  The QQQ also crossed back up through its T-line but had a slightly larger upper wick than the SPY.  QQQ is also just below its 50sma and you might even say it tested the 50 at the high of the day.  DIA is still in more of a sideways consolidation than a rebound rally like the other two majors.

On the day, all 10 sectors were in the green with Technology (+1.08%) way out front leading the way higher followed by Financial Services (+1.20%) while the lagging sector was Energy (+0.11%).  At the same time, the SPY gained 1.08%, DIA gained 0.52%, and QQQ gained 1.58%.  VXX was down 3.34% to close at 24.30 and T2122 climbed back out of the oversold territory into the lower half of the mid-range at 39.42.  10-year bond yields plummeted lower to close at 4.194% while Oil (WTI) fell 1.48% to close at $78.46 per barrel.  This happened on well-below-average volume in all three of the major index ETFs.  So, the rally relationship has resumed, with QQQ and SPY leading the market higher while DIA lags again.  The question is whether or not this is just a relief rally in the month-long pullback.  Either way, Wednesday belonged to the Bulls.      

The major economic news reported Wednesday included Building Permits, which came in slightly above expectation at 1.443 million (compared to a forecast of 1.442 million and a July reading of 1.441 million).  This amounted to a 0.1% month-on-month increase versus the July value which itself was down 3.7% from June.  Later, the Preliminary August S&P US Mfg. PMI came in light at 47.0 (compared to a forecast calling for 49.3 and a July reading of 49.0).  At the same time, the Preliminary August Services PMI was reported at 51.0 (versus a forecast of 52.3 and a July value of 52.3).  In addition, the Preliminary S&P Global Composite PMI was 50.4 (compared to a 52.0 forecast and a 52.0 July value).  After that, the July New Home Sales came in higher than expected at 714k (versus a 705k forecast and a 684k June reading).  This amounted to a 4.4% increase in July, which was better than the +0.2% increase anticipated and far better than June’s decline of 2.8%.  Later, the EIA Weekly Crude Oil Inventories followed the API report from Tuesday night, showing a 6.135-million-barrel drawdown (compared to a predicted 2.850-million-barrel draw and even the prior week’s 5.960-million-barrel drawdown of inventory.

In Russian news, Putin’s unofficial warlord Yevgeny Prigozhen was killed along with the other co-founder of Wagner Private Military Company (Dmitry Utkin).  Most saw this plane crash coming as the inevitable result of Wagner’s June uprising against Putin.  Still, it is notable. Elsewhere, Reuters reported Wednesday that Russian central bank authorities are working on a presidential decree that may give that country’s retail investors a way to unblock their frozen assets held in overseas accounts.  The scheme would allow foreign investors to buy the assets held abroad (3.5 million Russians hold almost $16 billion in foreign accounts that are now frozen).  The idea is that non-Russian investors would buy the frozen Russian account assets (presumably at a discount) in exchange for assets held in non-frozen accounts that can be repatriated to Russia.  It’s unclear whether Western sanctions would now (or could be made to) block this move.  (One would think this to be the case, otherwise, the Russian oligarchs surely would have done this 18 months ago.) It is also unclear if there is some sort of unmentioned reciprocal agreement at play allowing Western business assets frozen in Russia to be released.

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In stock news, research firm Antenna reported that NFLX continued its strong growth in new subscribers in July (not as strong as June’s record increase, but still 2.6 million is a significant gain in subscribers for a month).  NFLX was up 3.48% on the day of that news.  At the same time, a Business Insider report said TSLA cut its production targets in Germany by 13% (with plans to cut it more later).  The current rate of output is now 4,350 per week from the TSLA Berlin plant.  Simultaneously, Reuters reported that NVO has chosen TMO as a second contract manufacturer for its hit weight loss drug Wegovy.  In the early afternoon, JNJ announced its Janssen division would be closing down much of its vaccine research and development operations.  (The JNJ COVID-19 vaccine did not perform as well as competitors from PFE and MRNA.)  Later, the UAW announced workers at the major F Louisville plant have voted to authorize a strike with three weeks left before the current labor contract expires.  In other auto industry news, GM said they are halting production at their Ft. Wayne assembly plant for a week as they continue to wrestle with part supply issues.  (GM blamed the shortage on a lack of railcars and truck drivers which led to a massive buildup of partially completed vehicles at the plant.)  In M&A news, private company Esmark announced it has rescinded its offer to buy X for $35/share.  In a statement, Esmark said it will respect the USW Steel Workers Union position (the union is supporting CLF buying X for a lower $7.3 billion total price).  After the close, GM announced it was cutting 940 jobs in AZ and would cease its IT operations in that state to reduce costs.  (80-90 of these layoffs come from the self-driving software team.)  At the same time, Reuters reported that a new supplier quality problem has been identified related to 737 MAX production.  The new problem will delay near-term deliveries of those planes and is likely to impact annual production goals.  AAPL announced after the close that it supports the CA state “Right to Repair” bill as currently written, specifically citing that the bill “protects consumer safety, device security, and manufacturers intellectual property rights.”  (This almost assuredly means the bill has been transformed into something worthless to consumers and non-AAPL repair businesses.)

In stock legal and regulatory news, OSHA said Wednesday that it’s investigating a chemical spill at a lithium battery plant owned by GM and South Korea’s LG Energy.  This is one of six open OSHA investigations into that plant’s operations.  (In a possibly related case, after the close, Bloomberg reported that the joint venture is working on a deal to give employees at that plant a 33% raise plus back pay.)  At mid-morning, drugmaker Mallinckrodt (MNKKQ) told Reuters it expects to file for a second bankruptcy in the next few days.  This comes after the drugmaker reached a deal with victims who had agreed to accept $1 billion less in their settlement with the company over opioid distribution practices.  Later, a court in Kenya ordered META into mediation in the company’s dispute with 184 content moderator employees and two contractors who were suing the company for unfair dismissal (because they were organizing a union).  The court ruled META has 21 days to reach an agreement to resolve the dispute with the plaintiffs.  In the afternoon, Reuters reported that UAL has agreed to a $30 million settlement after one day of trial in a case related to their treatment of a quadriplegic man in a vegetative state.  Late in the day, a coalition of environmental activist groups sent a letter to the SEC, pushing to stop Brazilian meatpacker JBSAY from being listed (issuing an IPO) on the NYSE.  After the close, GS, JPM, MS, and UBS agreed to pay $499 million to settle an antitrust lawsuit from investors, which had accused them of conspiring to stifle competition through their stock lending practices.  Also after the close, the FCC announced it would be releasing the public comments made in a bid to deny the broadcast license renewal of the FOX TV station in Philadelphia.  Comments made by the grassroots group “The Media and Democracy Project” have asked for denial based on FOX’s false and harmful information (lies) about the 2020 election. FOX dismissed the petition as frivolous and without merit, but the petitioners mentioned FOX’s $787.5 million defamation case settlement brought by Dominion Voting System and FOX internal communications released related to that case that proved the company knew the results of the election were valid but repeatedly lied about it anyway and knew that could lead to something like the January 6 riot attempting to stop official vote counting.  At the same time, an FDA panel of independent experts voted against the approval of an MDT blood pressure treatment device. 

After the close, ADSK, GES, NTAP, NVDA, SNOW, and SPLK all beat on both the revenue and earnings lines.  It is worth noting that ADSK, GES, NVDA, and SPLK all also raised their forward guidance.  It is also worth noting that there were some major surprise beats on earnings with NVDA surprising by 29.2%, SPLK surprising by 57.8%, GES surprising by 84.6%, and SNOW surprising by 120%.  However, the most notable beat of the day was NVDA’s 170% jump in sales (year-on-year) resulting in a 27% beat on revenue…driven by AI processing demand (whose division sales more than doubled). NVDA also expects AI-related demand to continue increasing, more than doubling again in 2024. That is likely to drive markets (especially QQQ and SPY) this morning.

Overnight, Asian markets were mostly green on the back of the AI rally.  Hong Kong (+2.05%), South Korea (+1.28%), and Taiwan (+1.17%) led the region higher.  Only New Zealand (-0.60%) and India (-0.29%) were in the red.  In Europe, we see a very similar picture taking shape at midday.  Only Russia (-0.76%) and Finland (-0.05%) are in the red, while the CAC (+0.46%), DAX (+0.36%), and FTSE (+0.35%) lead the region higher.  In the US, as of 7:30 am, Futures are pointing toward a mixed open.  The DIA implies a flat open of -0.02%, the SPY is implying a +0.64% open, and the QQQ implies a +1.27% open at this hour.  At the same time, bonds are back up a bit to 4.214% and Oil (WTI) is up fractionally to $79.04 per barrel in early trading.

The major economic news scheduled for Thursday includes July Durable Goods Orders and Weekly Initial Jobless Claims (both at 8:30 am), Fed Balance Sheet and Bank Reserve Balances with the Fed (both at 4:30 pm).  The Central Bankers Jackson Hole Conference also starts at 8 am.  The major earnings reports scheduled for before the opening bell include BURL, DLTR, NTES, WOOF, RY, TD, and WB.  Then, after the close, GPS, INTU, MRVL, JWN, ULTA, and WDAY report. 

In economic news later this week, on Friday, Michigan Consumer Sentiment, Michigan Consumer Expectations, Michigan Consumer Inflation Expectation, and Michigan Consumer 5-year Inflation Expectations are reported.  Fed Chair Powell also speaks as the Jackson Hole Conference continues.

In terms of earnings reports, there are no earnings reports scheduled for Friday.

In miscellaneous news, retail industry analyst Susquehanna reported that big retailers have already returned to a cost-cutting focus by going back to a just-in-time inventory model.  Susquehanna analyzed the last 20 years of ocean container ship imports into the US looking for trends. They found that the “big 4” big box retailers (WMT, TGT, HD, and LOW) all reduced their inventories by more than 4% in Q2, which was the largest reduction since 2015.  The analyst is predicting (based on discussions with retailer management) Q3 pre-holiday inventory builds will be larger than last year’s 6% quarter-on-quarter increase but far less than the 14% average from pre-COVID years.

In late-breaking news, Turkey surprised markets this morning with an unexpectedly large rate hike of 7.5%, bringing that country’s main rate to 25%.  The Dollar fell against the Turkish Lira almost immediately.  Elsewhere, privately-held Subway (sandwich shops) sold itself to privately-held Roark Capitol.  Roark already owned Dunkin Donuts, Baskin-Robbins, Sonic, Arby’s, Buffalo Wild Wings, and a host of other restaurant industry brands.  Finally, Bloomberg reported that China has a major $9 trillion “off the books” debt problem.  It seems that this is the amount of debt held by Chinese local governments through state-owned companies set up to borrow on behalf of province and local government entities.  The problem is that the local governments have not been able to raise enough income (tax revenue) to pay the interest on that $9 trillion in hidden debt.  So, banks are unwilling to lend to those entities and investors are not buying bonds issued by those financing companies.  If there were a default by any of those shadow funding agencies, China’s entire $60 trillion financial system would be at risk of collapse.

So far this morning, BURL, DLTR, FRO, RY, and SN all reported beats on both the top and bottom lines.  Meanwhile, NTES and WB missed on revenue while beating on earnings.  On the other side, WOOF and TD beat on revenue while missing on the earnings line.  It is worth noting that WOOF lowered its forward guidance.   

With that background, it looks like the premarket is giving us a similar feel as the Wednesday normal session. SPY and especially QQQ gapped higher and will open with significant gains. Meanwhile, DIA is stuck in the mud and not participating. It is interesting that all three of their premarket candles are indecisive candles (after the gaps from the two broader ETFs). SPY and QQQ are above their T-line (8ema) while DIA remains just below its own T-line. The morning gap will also see the QQQ well up above its 50sma and the SPY retesting its 50sma from below. So, the short-term downtrend has been broken in the SPY and QQQ, but the DIA remains in just a consolidation. Of course, the much longer-term trend is still bullish since last year but that has been pushed hard recently by the Bears. As far as extension goes, the morning gap may have QQQ a little extended above its T-line but the other two are not far from that average. The T2122 indicator is also back in its mid-range, so there is plenty of room to move in either direction, say it with me, if we can find the momentum.

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.

Ed

🎯 Mike Probst: Rick, Got CTL off the scanner today. Already up 30%. Love it.

🎯 Dick Carp: the scanner paid for the year with HES-thank you

🎯 Arnoldo Bolanos: LTA scanner really works $$, thanks Ed.

🎯 Bob S: LTA is incredible…. I use it … would not trade without it

🎯 Malcolm .: Posted in room 2, @Rick… I used the LTA Scanner to go through hundreds of stocks this weekend and picked out three to trade:  PYPL, TGT, and ZS.   Quality patterns and with my trading, up 24%, 7% and 12%…. this program is gold.

🎯 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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