OPEC+ Deal and JNJ Doing the Texas 2-Step

Friday was the bears day.  A modest gap higher was met by immediate and all-day selling as options prepared to expire.  This left us with ugly black candles in all 3 major indices that closed near the lows of the day.  The DIA printed a Bearish Engulfing candle, the SPY printed a Bearish Engulfing of a Doji, and the QQQ just printed an ugly black candle.  On the day, SPY lost 0.78%, QQQ lost 0.81%, and DIA lost 0.91%.  The VXX rose 4% to 30.55 and T2122 remains in the overbought territory at 17.03.  The 10-year bond yield was flat at 1.30% and Oil (WTI) fell three-tenths of a percent to $71.45/barrel.

During the day Friday, the Treasury Department announced that Sec. Yellen will meet with the President’s Working Group to discuss “stablecoins.” This meeting will include Fed. Chair Powell, the FDIC, Office of the Comptroller and various US Regulators. The meeting will essentially discuss how a US digital currency can be pegged to the dollar and how other cryptocurrencies can be controlled and made less volatile.  Ostensibly, the idea is to mitigate market risks (to companies) caused by volatile cryptocurrencies like Bitcoin, Dogecoin, and Ethereum.  V has already announced they will support payments made using a dollar-pegged stablecoin.

On Sunday, Reuters reported that JNJ is considering spinning off its “Johnson’s Baby Powder” business that would then immediately seek bankruptcy.  The idea is to offload potentially massive litigation liability related to JNJ talc business (the Supreme Court refused to hear the JNJ appeal to a $2 billion finding in one case already) amid claims the products contained asbestos and other carcinogens.  This strategy has been used before to hide from liability, in fact it has been used so often it was given the name “the Texas Two-Step Bankruptcy.”

OPEC+ held a short-notice meeting this weekend amid agreement on increasing the production limits of various members.  The deal that passed will end oil production limits by September 2022, while immediately increasing production by 400,000 barrel per day per month.  The IEA estimates there will be a 1.5 million barrel per day deficit during the second half of 2021.  This would indicate a deficit (and likely elevated prices the rest of 2021.)

Overnight, Asian markets were red almost across the board.  However, the results were very mixed.  Shanghai (-0.01%) and Malaysia (-0.16%) joined Shenzhen (+0.14%) on the better side of performance.  Meanwhile, Hong Kong (-1.84%), Singapore (-1.30%), and Japan (-1.25%) paced the low end of performance.  In Europe, markets are down sharply across the board as of mid-day.  The FTSE (-2.01%), DAX (-2.15%), and CAC (-2.17%) are typical of the continent but the range is wide from Athens (-3.43%) to Denmark (-1.21%).  As of 7:30 am, US Futures are pointing to a gap lower.  The DIA is implying a -1.02% open, the SPY is implying a -0.83% open, and the QQQ is implying a -0.62% open.

There is no major economic news scheduled for release on Monday.  The major earnings reports scheduled for the day include AN, CALM, PLD, and TSCO before the open.  Then, after the close, CCK, IBM, JBHT, PPG, STLD, and ZION report.

There was a rise in Covid cases in every state over the last week (by 50% on average), a reintroduction of masking mandates in some locations, and continued disdain for vaccinations in some populations. (Notably, the contempt toward vaccination is more prevalent in red states, as there is a decided political view of mitigation in the country.) So, markets are looking bleak to start the week, hit with the twin fears of inflation on one side and lower economic activity (driven by Covid) on the other. This looks to be leading to a clear break of trend on a Monday morning.

With the longer-term bullish trend broken in the QQQ and being tested in both large-cap indices, it's time to press pause and rethink. Manage your current positions first and remember that you don't have to trade every day. Bearish moves tend to happen fast and be over quick. So, do not chase and remain nimble. Stick to your trading rules, don't bail on your trade plans, and maintain your discipline. Remember, success is all about consistency and at a time of market direction change that can mean taking smaller lumps to avoid big ones.

Ed

Swing Trade Ideas for your consideration and watchlist: No trade ideas today. You can find Rick's review of tickers on his YouTube Channel here. Trade your plan, take profits along the way, and smart. Also, remember to check for impending earnings reports. Finally, remember that any tickers we mention and talk about in the trading room are not recommendations to buy or sell.

🎯 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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