NVDA Slide Continued Monday in Rotation

Markets diverged Monday, even on broadly sideways action.  The SPY opened 0.06% higher, DIA gapped up 0.30%, and QQQ gapped down 0.39%.  From there, SPY and QQQ put in slow selloffs (QQQ faster than SPY) that both hit a crescendo the last 30 minutes of the day and closed on their lows.  For its part, DIA rallied sharply after the open until 11 a.m.  From that point, DIA followed the slow selloff (even slower than SPY) until 1:30 p.m. and then moved sideways the rest of the day.  This action gave us a black-bodied Inverted Hammer that crossed below its T-line (8ema) in the SPY. QQQ printed a large-bodied, black candle with upper wick that also crossed below its T-line.  However, DIA gave us a gap-up, white-bodied candle with an upper wick.  This all happened on slightly less-than-average volume in the QQQ and DIA with SPY having volume that was well-below-average. 

On the day, nine of the 10 sectors were in the green with Energy (+2.42%) way out in front (by 1.1%) leading the other eight green sectors higher.  Meanwhile, Technology (-1.24%) was the worst-performing sector by more than 1.25%.  At the same time, SPY lost 0.34%, DIA gained 0.66%, and QQQ lost 1.30% as money rotated out of the tech names.  VXX fell 0.80% to close at 11.20 and T2122 moved up to the high-end of its mid-range at 69.59. On the bond front, 10-year bond yields fell to 4.23% and Oil (WTI) popped 1.16% to close at $81.67 per barrel.  So, Monday was a rotation day with money fleeing technology (NVDA was down 6.68% on $54 billion in stock traded) and seeking safety in the big oil (XOM +2.97%, CVX +2.60%, and COP +3.44%) and financial names (JPM +1.21%, BRKB +1.06%, BAC +1.34%). It is worth noting that NVDA, which has been the driving engine of the market for months, has been down almost 13% over the last three trading sessions.

There was no major economic news scheduled for Monday.

In terms of Fed speak, Cleveland Fed President Mester (retires next week) said she believe the Fed needs to remain open to selling more of its mortgage-backed securities as part of reducing the Fed Balance Sheet.  However, she said that she doesn’t think this will happen soon.  Mester said, “I don’t think it’s immediate that we should be selling MBS.”  Later, Chicago Fed President Goolsbee told CNBC that while inflation is (slightly) cooling, he is looking for more confirmation before a rate cut.  Goolsbee said he is a closet optimist but that the Fed need to get “a little bit more confidence on the inflation side.”  He said, “If unemployment claims are going up (the unemployment rate is inching up) many of the other measures have cooled down to something like what they were before the pandemic and you start to see weakness on consumer spending.”  If this comes to pass Goolsbee said the Fed will need to start thinking about balancing both sides (inflation and employment) rather than focusing on just inflation. Meanwhile, San Francisco Fed President Daly told an audience that inflation is not the only risk.  She said, “We must continue the work of fully restoring price stability without a painful disruption to the economy.”  She continued, saying the Fed must “exhibit care” …  (while there is still) “more work to do” (on bringing inflation down) … “inflation is not the only risk we face.”

After the close, there were no noteworthy earnings reports.

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In stock news, on Monday, UPS sold its Coyote Logistics unit to RXO for $1.025 billion (UPS bought the company for $1.8 billion in 2015). Later, NVO announced it will spend $4.1 billion to build a new manufacturing plant in NC to boost production of its highly-profitable weight loss drug Wegovy.  At the same time, PARA announced it will raise the price of its streaming services in late summer.  Later, BA announced its troubled Starliner has again delayed its return to earth.  The first manned flight of Starliner is stuck, docked to the International Space Station after having rescheduled its undocking three times now.  (Current plans are for a July 6 attempt to return to earth, which, if hit, would mean the 8-day mission had been forced to last a month.)  After the close, Bloomberg reported that contrary to earlier rumors, AAPL and META are not in talks about forming an AI partnership.

In stock legal and governmental news, on Monday the 9th Circuit Court of Appeals threw out a proposed class-action suit against UBER which alleged the company process for terminating low-rated drivers was racially discriminatory.  (Evidence had not been presented showing the company terminated a higher percentage of non-white drivers.  However, without discovery, the plaintiffs argued they could not get such data.)  Later, the CEO Stankey of T, asked that Congress give the FCC power (and a mandate) to require big tech firms like META and GOOGL to pay into a fund to be used to subsidize access to broadband services.  At the same time, family members of BA 737 MAX crash victims asked a US District Judge to appoint a corporate monitor to examine BA safety and corporate compliance procedures.  The request comes after the group had accused BA of reneging on the promises the company gave in 2021 to avoid prosecution related to the two crashes in 2018 and 2019.  Later, PacifiCorp (owned by BRKB) settled with 378 plaintiffs for $150 million related to the 2020 fires caused by the utility’s electric equipment.  This settlement resolves nearly all individual claims, but many corporate and government claims remain unsolved.  The US has also threatened to sue PacifiCorp for failure to pay $356 million in costs and damages for the single “Slater” fire.  (This brings the company’s total settlements to over $1 billion for those fires.)

Overnight, Asian markets were mostly green.  Australia (+1/36%), Japan (+0.95%), and India (+0.78%) led the region higher.  In Europe, stocks are mostly lower at midday.  The CAC (-0.66%), DAX (-0.88%), and FTSE (-0.19%) lead the region lower in early afternoon trade.  Meanwhile, in the US, as of 7:30 a.m., Futures are pointing toward a mixed but positive start to the day.  The DIA implies a -0.12% open, the SPY is implying a +0.17% open, and the QQQ implies a +0.41% open at this hour.  At the same time, 10-year bond yields are down to 4.224% and Oil (WTI) is off 0.65% to $81.10 per barrel in early trading.

The major economic news scheduled for Tuesday is limited to Conference Board Consumer Confidence and API Weekly Crude Oil Stocks.  We also hear from Fed Governor Bowman twice.  The major earnings reports scheduled for before the open include CCL and SNX.  Then after the close, FDX and WOR report. 

In terms of earnings reports later this week, on Wednesday, we hear from GIS, PAYX, UNF, BB, CNXC, FUL, JEF, LEVI, MU, MLKN, and WS.  On Thursday, AYI, MKC, WBA, and NKE report.  Finally, on Friday, there are no earnings reports scheduled.

In miscellaneous news, on Monday Bloomberg reported 2023 saw record contributions to 401(k) accounts again as in 2022.  The average percent of salary deposited into the 4012(k)s stayed the same at 11.7%, but average salaries increased more than had been seen in quite a while.  Elsewhere, the San Jose Mercury News reported Monday that for the first time, utilities (especially electric companies) across CA and broader in the West, enter peak summer wildfire season without insurance.  Similar to the ways that hurricanes have made insurance companies stop serving FL, TX, and other disaster-prone regions, wildfires have caused insurance companies to raise rates to untenable levels or abandon insuring major utilities altogether.  As a result, the utilities are self-insuring this fire season in what amounts to a gamble of tens or hundreds of millions of dollars.  Finally, Reuters reported that the TSA screened an all-time record of 2.99 million passengers Sunday.  This was the highest number of passengers ever screened on a single day.

In late-breaking news, the EU Antitrust Commission charged MSFT with “abusive bundling” of its Office and Teams applications.  (Teams is just a business version of Skype.)  In 2023, MSFT unbundled the two from their subscription “365” service in a bid to head off these charges.  However, the EU called the move “insufficient” due to the already accomplished integration and Office’s massive market share.  Elsewhere, Fed Governor Bowman (a long-time Hawk) told a London audience that she was open to raising rates if inflation does not pull back further.  However, she also hedged her bets by saying, “Should the incoming data indicate that inflation is moving sustainably toward our 2 percent goal, it will eventually become appropriate to gradually lower the federal funds rate…”

With that background, it looks as if markets are indecisive but leaning bullish so far this morning. SPY and QQQ are both retesting their T-line (8ema) from below. Meanwhile, DIA is printing a gap-up, black-bodied candle in the premarket such that it is back below Monday’s close. Just continue to bear in mind that all three major index ETFs are still close to their all-time highs. So, the short-term trend is mixed. At the same time, the mid-term remains bullish in all three major index ETFs and the longer-term market remains very Bullish in trend. In terms of extension, none of those three are extended above their T-line and the T2122 indicator is in the upper-end of its mid-range. Therefore, the market still has room to run in either direction. With regard to those 10 big dog tickers, eight of the 10 are in the green again this morning. Only META (-0.16%) and MSFT (-0.10%) are in the red so far in the early session.

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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