Op-Ex Friday and Long Weekend Ahead

The Bulls had control of the large caps all day Thursday but didn’t gain control of the tech-heavy NASDAQ until 11 a.m.  Either way, the rest of the day was bullish.  This started with SPY opening 0.14% higher, DIA gapping 0.24% higher, and QQQ opening 0.17% higher.  At that point, QQQ sold off for 40 minutes and then rode a roller coaster along the lows until 11 a.m.  At that point, it began a modest rally that topped out at 1:30 p.m. and then ground sideways above the open until 3:30 p.m. before selling off back near the open in the last 30 minutes.  Meanwhile, after the higher open, the SPY and DIA rallied strongly in the first hour and then more slowly until 3 p.m. before doing some very modest profit-taking in the last hour.  That gave us large, white-body candles with very small wicks in the SPY and DIA.  At the same time, QQQ printed a white-body Spinning Top candle. 

On the day, all 10 sectors were in the green as Energy (+2.69%) was way out in front leading the way higher while Technology (+0.28%) was by far the worst-performing of the sectors. Meanwhile, the SPY gained 0.68%, the DIA gained 1.03%, and tech-heavy QQQ gained just 0.30%.  VXX dropped 1.03% to close at 14.42 and T2122 climbed back into the top half of its overbought territory at 92.41. 10-year bond yields fell back down to 4.244% and Oil (WTI) gained 2.00% to close at $78.17 per barrel.  So, the Bulls were in control again Thursday with the large cap indices getting back within striking distance of their all-time highs and QQQ headed that direction as well.  This all happened on lower-than-average volume in all three major index ETFs.

The major economic news released Thursday included Weekly Initial Jobless Claims, which came in a bit lower than expected at 212k (compared to a forecast of 219k and the prior week’s 220k value).  On the Weekly Continuing Jobless Claims side the number was higher than predicted at 1,895k (versus the 1,880k forecast and much higher than the 1,865k previous week’s reading).  At the same time, January Core Retail Sales were far below anticipated at -0.6% (compared to a +0.2% forecast and far below the December +0.4% value).  On the broader headline number, January Retail Sales was also far below expectations at -0.8% (versus a -0.2% forecast and far below the December +0.4% reading).  Meanwhile, January Import and Export Price Indexes both rose by 0.8%, which was much higher than the December -0.7% values.  At the same time, the NY Fed Empire State Mfg. Index was better than predicted at -2.40 (compared to a -13.70 forecast and dramatically better than January’s -43.70 value).  The Philly Fed Mfg. Index also came in better than anticipated at +5.2 (versus a -8.0 forecast and January’s -10.6 reading).  Later, January Industrial Production came in lower than expected at -0.1% (compared to a forecast of +0.2% and the December value of +0.1%).  Year-on-year this kept us barely positive at +0.03% versus an upwardly revised December Year-on-Year reading of +1.17%.  At the same time, Dec. Business Inventories were just as predicted at +0.4%, which was up from November’s -0.1%.  The December Retail Inventories were lower than expected at +0.4% (versus a forecast of +0.6% but up significantly from November’s -0.9%).  Finally, after the close, the Fed Balance Sheet showed a modest increase of $3 billion (from $7.631 trillion to $7.634 trillion).

After the close, AEM, AL, AMN, AMAT, DBX, GLOB, IR, OPEN, ROKU, TXRH, and TOST all reported beats on both the revenue and earnings lines.  Meanwhile, BE, BIO, and ED missed on revenue while beating on earnings.  On the other side, DASH, LBTYA, TTD, and TROX beat on revenue while missing on earnings. Unfortunately, LNT, DKNG, DLR, and MERC missed on both the top and bottom lines.  It is worth noting that AMN, BE, DBX, and OPEN lowered forward guidance.  However, ROKU and TTD raised their guidance.

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In stock news, VCNX announced a 1-for-14 reverse stock split effective after the close Monday, February 19.  (This is part of the company trying to avoid being delisted for being priced less than $1.00 per share.  VCNX stock closed at $0.88 Thursday.)  At the same time, BRKB revealed it had sold 10 million shares of AAPL in Q4.  However, the company also released a statement saying AAPL is still a core holding and makes up about half of BRKB’s equity holdings.  Later, LCID (an EV maker) slashed the prices of its Air luxury vehicles by between 1% and 10% depending on the model.  At the same time, Open AI announced it is developing an AI-based search product to compete with GOOGL’s namesake Google and MSFT Bing.  Later, META announced it would begin charging 30% service fees to companies seeking to boost their AAPL app store exposure.  In other words, AAPL is charging META 30% on all app ad revenue.  So, since AAPL is now charging fees on all ad revenue generated via the Facebook and Instagram apps delivered via the AAPL app store, META either passes along the 30% fee or pays it out of its own pockets.  (To me, it’s more than a little scary to think AAPL has some way of finding out how much ad revenue META makes from just apps sold via the AAPL app store.) At the same time, LMT announced it was on track to expand production of HIMARS, Javelin, and GMLRS (multiple rocket launch system) weapon systems to meet demand from Ukraine, Israel, and Taiwan.  (It will increase HIMARS production by more than 50%, increase Javelin production by about the same percent, and GMLRS by about 40% this year.)  After the close, Reuters reported that AAPL plans to launch an AI tool for completing software writing similar to MSFT’s Copilot for Word and Excel.  Also after the close, AMZN announced that Co-founder Bezos has sold another $2.03 billion of AMZN stock for the third time.  This sale was done over the last “few days” and was his third tranche of stock sales this month totaling over $6 billion. Finally, overnight, NKE added itself to the list of companies doing job cuts. NKE announced a roughly 2% reduction in its global workforce.

In stock legal, governmental, and regulatory news, the FDA announced approval for MMSI’s SCOUT surgical guidance system for soft tissue cancer treatment.  At the same time, WATT announced it had passed the FCC compliance process for its wireless charging system for Internet-of-Things devices.  Later, the NHTSA announced that GOOGL’s Waymo unit has recalled 444 self-driving vehicles after two minor collisions in AZ.  The company said this was due to a software error and will be quickly corrected.  At the same time, PFE agreed to pay $93 million to settle antitrust claims made by wholesale drug distributors who accused the company of conspiring with an Indian generic maker to delay the availability of cheaper generic versions of Lipitor.  Later, WFC announced that the US Government has ended a 2016 consent order related to the company’s fake accounts scandal and how the bank has offered and sold accounts since then.  Elsewhere, FINRA fined MS $1.6 million for failing to cancel or close 239 failed inter-dealer municipal bond transactions.   At the same time, ARM and especially SOUN stocks both surged Thursday after NVDA disclosed having stakes in both AI companies.  (SOUN closed up 66.74%.)  After the close, Bloomberg reported that the US dept. of Justice will investigate the DIS-FOX-WBD joint streaming platform for sports for potential antitrust violations.

Note that the Chinese markets were closed for Lunar New Year again.  With that said, the rest of the region was mostly green Friday.  Hong Kong (+2.48%), Singapore (+1.42%), and South Korea (+1.34%) led the region higher with only two spots of red out of the 10 open exchanges.  In Europe, with the sole exception of Russia (-0.47%) we see green across the board at midday.  The CAC (+0.56%), DAX (+0.76%), and FTSE (+1.24%) lead the region higher in early afternoon trade.  In the US, as of 7:30 a.m., Futures are pointing toward a mixed start to the day.  DIA implies a -0.10% open, the SPY is implying a +0.14% open, and QQQ implies a +0.51% open at this hour.  At the same time, 10-year bond yields are back up to 4.267% and Oil (WTI) is down six-tenths of a percent to $77.52 per barrel in early trading.

The major economic news scheduled for Friday includes Jan. Building Permits, Jan. Housing Starts, Jan. Core PPI, and Jan. PPI (all at 8:30 a.m.), Michigan Consumer Sentiment, Michigan Consumer Expectations, Michigan 1-Year Inflation Expectations, Michigan 5-Year Inflation Expectations (all at 10 a.m.), and Fed member Daly speaks at 12:10 p.m.  The major earnings reports scheduled for before the open include ACDVF, AXL, CNK, POR, PPL, TRP, THS, and VMC.  There are no reports scheduled for after the close.

So far this morning, CNK, TRP, and VMC have reported beats on both the revenue and earnings lines.  At the same time, ACDVF, NWG, and THS reported misses on revenue while beating on earnings.  On the other side, POR beat on revenue while missing on earnings.  It is worth noting that THS also lowered its forward guidance.

In miscellaneous news, Japan and the UK unexpectedly slipped into recession.  This was the second straight quarter of recession in both of the countries.  However, in the US, Presidential Economic Advisor Brainard said the US will not follow them into recession.  Elsewhere, Atlanta Fed President Bostic seemed to concur with Brainard, saying the US labor market and economy remain strong.  As such, he said there was no rush to cut rates and that, given recent data, victory over inflation was “not (yet) clearly at hand.”  Meanwhile, in China, Bloomberg reports that data it collects annually saw the biggest increase in Lunar New Year travel in the last five years.  Among other data, Bloomberg says rail travel increased 61% over the first six days of the week-long holiday.  The news outlet speculates that this is a potential sign of some resurgence in the Chinese economy which has been struggling with deflation and poor consumer confidence.

In geopolitical news, Russian President Putin’s main critic and theoretically potential rival (who had already been jailed for decades on extremely dubious grounds), died mysteriously in his Northern Siberia prison. (That tends to happen to Putin critics. They are apparently a very criminal and unlucky group of people. On the bright side, he didn’t accidentally fall out of a window.)

With that background, it looks like the Bulls are trying to push toward a sixth straight week of gains. (SPY and DIA are already green for the week and the premarket gap has QQQ within 0.10% of breakeven for the week.) All three major index ETFs are giving us small, indecisive candles in the early session, after gaps higher in the SPY and especially the QQQ. All three remains above their T-line (8ema) and near all-time highs. So, the trend remains Bullish in both the short and long-term outlooks. In terms of extension, none of the three is too far from their 8ema yet. However, T2122 is now well into the overbought area. This means that we are due a pullback at some point soon. However, not necessarily today, and the market can remain overbought longer than we can stay solvent betting on a reversal too early. Once again, as I’ve been saying for months, keep an eye on those 10 huge tech stocks. If they walk in lock-step, whatever direction they decide to go is very likely to call the tune for the rest of the market. Finally, remember that it is options expirations Friday and that we have a long, 3-day weekend ahead with Markets closed Monday for President’s day. So, prepare for afternoon volatility and get your account ready for the weekend news cycles.

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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