The Bears were in control Tuesday as a traditionally weak September kicked off.  SPY gapped down 0.54%, DIA gapped down 0.50%, and QQQ gapped down 0.65%.  After that open, DIA sold off sharply for 45 minutes, SPY did the same for 80 minutes, and QQQ sold off sharply until 11 a.m.  From there, all three ground mostly sideways until 1:30 p.m. when the next leg down started and ran until the last 5 minutes.  This action gave us large, black candles with lower wicks.  All three major index ETFs crossed below their T-line (8ema), with SPY and QQQ also crossing below their 17ema while DIA bounced up off its own 17ema.  This all happened on average volume in the SPY, QQQ, and DIA. 

On the day, eight of the 10 sectors were in the red with Technology (-3.92%) and Basic Materials (-3.67%) down hard and leading the way lower. Meanwhile, Communications Services (+0.66%) and Consumer Defensive (+0.30%) holding up better than others and being the only green sectors. At the same time, SPY dropped 2.06%, DIA dropped 1.43%, and QQQ dropped 3.04%.  The VXX spiked more than 20% to close at 53.54% and T2122 dropped out of its overbought territory and into the mid-range at 59.06. 10-Year bond yields fell to close at 3.833% while Oil (WTI) plummeted 4.28% to close at $70.40 per barrel.  So, Monday was “all Bears, all the time” as the post-holiday blues started in tech and spread everywhere.  NVDA (-9.53%) gapped down almost three percent but was down 4.67% by 9:35 a.m.  That one ticker also traded more than three times as much dollar-volume than the next biggest ticker (TSLA, -1.64%).  This meant technology created a tide the rest of the market could not swim against.

The major economic news scheduled for Tuesday includes August S&P Global US Mfg. PMI came in a tick lower than expected at 47.9 (compared to a 48.0 forecast and 49.6 July reading).  Later, July Construction Spending remained the same, but that was not as good as anticipated at -0.3% (versus a forecast of +0.1% and June’s -0.3% value).  At the same time, August ISM Mfg. Employment was up to 46.0 (compared to July’s 43.4 number).  Meanwhile, the headline August ISM Mfg. PMI was up but still a few ticks below predictions at 47.2 (versus a 47.5 forecast but also above July’s 46.8 value).  Finally, August ISM Mfg. PMI Prices were up to 54.0 (versus a 52.1 forecast and a July reading of 52.9).

In Fed news, the San Francisco Fed released a report Tuesday that said it expects housing inflation to fall over the next year based on a study of supply and demand.  The paper indicated that this will likely add to downward pressure on overall inflation.  The report stated, “In recent months housing inflation has come down, but it remains well-above pre-pandemic levels and continues to account for a large share of overall inflation.”  The study found that by year’s end shelter inflation may drop to as low as 2%, before reverting next year to its 3.3% pre-pandemic average.  This led the report to conclude, “This will contribute downward pressure to inflation overall, although the extent and speed of this adjustment in shelter inflation is highly uncertain.”

After the close, ZS reported beats on both the revenue and earnings lines.

In stock news, on Tuesday, CPCAY (Cathay Pacific Airways) announced it has conducted an inspection of its entire EADSY (Airbus) A350 fleet after an in-flight failure of an engine part.  The inspection found 15 jets where the part needed to be replaced.  Later, STZ announced it will write down the value of its wine and spirits unit and take up to a $2.5 billion charge in the current quarter due to several weak quarters of US demand.  It also trimmed its revenue growth forecast from 6%-7% down to 4%-6%.  (STZ reports the current quarter results on 10/3.)  At the same time, CG announced it is picking banks to underwrite its $4.7 billion IPO of its Acrotec Zurich unit.  Later, Reuters reported that multiple analysts tell it INTC is likely to be dropped from the DIA after the chipmaker stock has fallen 60% this year.  (This would trigger further sales as funds that own all DIA components would be forced to sell their INTC positions.)  No timeline was given.  However, the underlying DJIA does rebalance weights at the end of each quarter.  So, September 30 would seem a logical candidate date. 

Elsewhere, at the same time, the Unite Here union announced its strike at MAR, HLT, and H hotels in Seattle and Baltimore has concluded after three days.  However, the strike at hotels from the same chains in seven other cities will continue.  In other union news, the CWA union (Communications Workers of America) withdrew from mediation with T, saying the process was just a delaying tactic by the company.  17,000 of T’s workers have been on strike for more than two weeks.  After the close, CRM announced it had agreed to acquire Tenyx (an AI-powered voice agent technology startup) for an undisclosed sum.  Also after the close, Reuters reported the US gasoline futures fell 6% Tuesday (the biggest one-day loss since July 2022) to their lowest level since December 2021.

In stock legal and governmental news, on Tuesday, Reuters reported that the US (Medicare) will still pay at least twice as much for the prescription drugs where it has negotiated prices for the first time compared to what other high-income countries pay.  The lower prices will save the US $6 billion in 2026 but are still far higher than many countries with national health systems pay.  At the same time, NFE announced it has received US Dept. of Energy authorization to export liquified Natural Gas to “Non-FTA” countries (i.e. countries that do not have a free trade agreement with the US).  NFE said it is expecting incremental revenue growth from its sales to Latin America, Brazil, and Jamaica for example.  Later, ABNB asked New York City to reconsider regulations for short-term rentals that went into effect a year ago.  The company said the rules had caused it major issues (an 83% decline in ABNB rental postings for stays of less than 30 days in NYC) while having virtually no impact on the apartment vacancy rate (at least according to the data ABNB cited).  After the close, the SEC announced that six credit rating agencies have agreed to pay $49 million in civil penalties over failures in recordkeeping and reporting. This includes the three major agencies MCO, SPGI, and Fitch.

In mortgage news, this morning the Mortgage Bankes Assn. released its weekly look at the mortgage market. This week, they report mortgage refinance demand is up 94% as compared to one year ago as interest rates (modestly) continued to fall.  (However, this was down three-tenths of a percent from the week before.)  The national average 30-year, fixed-rate, conforming loan mortgage was a 6.43% last week, down one tick from the week before.  New home purchase loan mortgage applications were also up 3% for the week, but that was still 4% lower than one year prior.  Overall, this led to a 1.6% increase in mortgage applications from the previous week.

Overnight, NVDA (as well as other companies) was subpoenaed by the US Justice Dept.  This is part of a DOJ investigation into NVDA violating antitrust laws by making it harder for companies to switch suppliers of AI-accelerator processing units.  The investigation also is looking into NVDA sales practices that financially penalize buyers that don’t exclusively use NVDA chips.  (NVDA is far and away to market leader in this space with AMD the only competitor of significance although INTC has just recently announced a chip to compete in that space.)  Previously, DOJ had sent questionnaires to many companies in the AI space, but these are legally-binding information requests.

Also overnight, Asian markets were heavily in the red with only two of the 12 regional exchanges hanging onto green territory.  Taiwan (-4.52%), Japan (-4.24%), and South Korea (-3.15%) all suffered badly on the big chip losses in reaction to the US Tuesday leading the region lower.  In Europe, we also see a red picture with just two of the 14 bourses in the green at midday. The CAC (-0.89%), DAX (-0.77%), and FTSE (-0.57%) are leading the region down in early afternoon trade.  Meanwhile, in the US, as of 7:30 a.m., Futures are pointing toward some follow-through on Tuesday’s losses.  The DIA implies a -0.19% open, the SPY is implying a -0.45% open, and the QQQ implies a -0.81% open at this hour.  At the same time, 10-Year Bond yields are down to 3.81% and Oil (ETI) has popped back 1.09% to $71.14 per barrel in early trading.

The major economic news scheduled for Wednesday includes July Exports, July Imports, and July Trade Balance (all at 8:30 a.m.), July Factory Orders and July JOLTs Job Openings (both at 10 a.m.), Fed Beige Books (2 p.m.), and API Weekly Crude Stocks (4:30 p.m.).  The major earnings reports scheduled for before the open include, CIEN, CNM, DKS, DLTR, HRL, and REVG.  Then, after the close, CASY, CPRT, and HPE report.

In economic news later this week, on Thursday, August ADM Nonfarm Employment Change, Weekly Initial Jobless Claims, Weekly Continuing Jobless Claims, Q2 Nonfarm Productivity, Q2 Unit Labor Costs, August S&P Global Composite PMI, August Global Services PMI, August ISM Non-Mfg. Employment, August ISM Non-Mfg. PMI, August ISM Non-Mfg. Prices, Weekly EIA Crude Oil Inventories, and Fed Balance Sheet are reported.  Finally, on Friday, we get August Avg. Hourly Earnings, August Nonfarm Payrolls, August Private Nonfarm Payrolls, August Participation Rate, and the August Unemployment Rate.  We also hear from Fed members Williams and Waller (twice).

In terms of earnings reports later this week, on Thursday, GIII, KFY, NIO, SAIC, TTC, AVGO, and DOCU report.  Finally, on Friday, we hear from ABM, BIG, DOOO, and GCO.

So far this morning, CIEN and DKS reported beats on both the revenue and earnings lines.  Meanwhile, HRL and REVG missed on revenue while beating on earnings.  However, DLTR missed on both the top and bottom lines.

With that background, it looks as if the Bears continue to have control in the premarket. All three major index ETFs gapped down to start the early session. However, since that point SPY and QQQ have printed very indecisive (wick heavy) premarket candles while DIA is more decisive, but still a small candle. All three are now well below their T-line (8ema). So, the short-term trend is bearish. At the same time, the mid-term trend is still bullish (although it is being pressed hard in the QQQ) and in the long-term, remains in a Bull trend with DIA and SPY still close to all-time highs. In terms of extension, QQQ is stretched below its T-line but the other two are not far from that average. At the same time, the T2122 indicator is back in the middle of its mid-range. So, the market is not “too extended” but the QQQ will need a pause, bounce, or reversal soon to avoid becoming out of whack in its decline. Just remember the mantra “follow, don’t lead, but also don’t chase” in mind. With regard to those 10 big dog tickers, nine of the 10 are in the red this morning with only AMD (+1.76%) in the green. However, the the biggest dog NVDA (-1.59%) is out front leading the way lower on heavy volume (6.5 times the volume of the second heaviest dollar-volume so far today). Part of this is the news that yesterday’s drubbing took $300 billion off NVDA’s market cap and the weak hands are still abandoning ship.

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.

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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