OPEC Shocks Oil Markets With Sunday Cut

Friday was the bull’s day on Wall Street with a modest gap higher at the open from the large-cap indices.  The SPY gapped up 0.22% and DIA gapped up 0.32%.  Meanwhile, QQQ opened dead flat.  However, after the open, a slow, steady rally took hold and kept going the entire day. We closed very near the highs in all three major indices. This action gave us large-bodied, white candles, with no lower wick and a tiny upper wick.  So, nearly Marubozu (Shaved Head) candles in the SPY, DIA, and QQQ.  DIA crossed up through its 50sma during the day and the SPY and QQQ are now getting extended above their T-lines (8ema).  This happened on average volume in QQQ, a bit greater-than-average volume in the SPY but lower-than-average volume in the DIA.

On the day, all 10 sectors were in the green with Consumer Cyclical (+2.02%) leading the way higher while Communications Services (+0.29%) lagged behind other sectors.  At the same time, the SPY gained 1.41%, the DIA gained 1.26%, and QQQ gained 1.66%.  VXX fell slightly to 44.91 and T2122 climbed even further into the overbought territory to 95.39.  10-year bond yields fell again to 3.473% while Oil (WTI) rose 1.79% to $75.70 per barrel.  So, Friday saw the bulls in charge all day long, even though there was not a large gap higher at the open. 

In economic news, the February PCE Price Index came in a bit below expectation at +5.0% (year-on-year), compared to a forecast of +5.1% and the January reading of +5.3%.  Meanwhile, February Personal Spending increased less than expected at +0.2%, versus a forecast of +0.3% and far below the January value of +2.0%.  So, the Fed’s favorite measure of inflation fell three-tenths of a percent while consumer outlays also did not increase as much as expected.  Both are what the Fed wants to see.  Still, it is worth bearing in mind that inflation is still 3% above the Fed target of 2.0%.  Later, the Chicago PMI came in above expectation at 43.8 (compared to a forecast of 43.4 and the February value of 43.6).  Then the Michigan Consumer Sentiment came in below expectations at 62.0 (versus a forecast of 63.2 and the February reading of 63.4). 

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In stock news, STLA announced Friday that it will be spending $3.14 billion to launch eight brands of vehicles (43 total models) as of 2025.  The company claims this to be a larger investment in that region than all competitors combined.  Meanwhile, Chinese electric car maker XPEV announced it will upgrade and expand its Advanced Driver Assistance system to be available all across China by 2024.  This might give XPEV an advantage over TSLA whose driver assist software only has limited availability in China.  (Perhaps unrelated, TSLA CEO Musk announced Friday he will be making a trip to China.)  Elsewhere, after the close, GM said it expects a number of its EV models (including Cadillac Lyriq, Chevy Equinox, and Chevy Blazer) to qualify for the full $7,500 tax credit.  (TSLA had said on Wednesday that its Model-3 will only qualify for partial credit and F will provide more guidance on that matter soon.)  On Sunday, TSLA announced they had delivered 422,875 cars in Q1.  This was a 36% increase compared to Q1-2022 and a 4% growth compared to Q4 2022.  However, this was almost 10,000 cars short of the average analyst estimate.

In stock legal and regulatory news, a CA judge ruled against AMZN in their bid to have a CA state antitrust lawsuit dismissed.  The suit accuses AMZN of illegally forcing merchants to accept policies that caused consumers to pay artificially inflated prices.  Meanwhile, a new racial bias lawsuit was filed against TSLA on Friday by a former worker who claims he was fired for pushing back against racist comments made by his supervisor.  (This is a second suit filed making this claim. In the earlier case, TSLA lost, but the case is being reheard after the plaintiff rejected an appeals court reduction of the jury award.)  Elsewhere, AAPL won its appeal against Britain’s antitrust regulator who wanted to launch an investigation of AAPL and GOOGL mobile browser market dominance.  Late in the day Friday, the CA, MD, NJ, and NC state Attorneys General joined the US Dept. of Justice lawsuit to block the JBLU acquisition of SAVE for $3.8 billion.  Separately, FL closed its probe into the deal aver JBLU and SAVE agreed to increase seat capacity in both Orlando and Ft. Lauderdale.  At the same time, the National Labor Relations Board announced it has found ATVI violated US Labor Laws by illegally spying on employees and threatening to shut down internal communications channels (chat and email) as workers sought to organize.  After the close, JNJ lost its bid to have its subsidiary stay in Bankruptcy (to avoid legal liability) while it waits on an appeal to the US Supreme Court.  Finally, AAPL convinced a US Appeals court to throw out a $502 million verdict for patent infringement against VirnetX.

In energy news, on Friday the Biden Administration auctioned off 73 million acres of drilling rights in the Gulf of Mexico. On Sunday, first came some good news, as Iraq and its Kurdish Regional Government agreed in principle to resume oil exports through Turkey.  This will increase global supply by one-half or one percent.  However, then in a surprise announcement, OPEC+ announced production cuts of about 1.2 million barrels per day (around 3.7% of global daily consumption).  The oil cartel expects to maintain this additional level of production cuts (3.2 million barrels per day in total) through the end of 2023.  The new cuts will begin in May and analysts predict it will cause a $10/barrel increase in oil prices.  All of this comes after oil posted a good week, but a bad month and a terrible quarter.  WTI was up 1.8% on the day Friday, up 9.2% for the week but was down 5% for the month of March and down 7.3% in Q1.  For its part, Natural Gas also had a strong day Friday, surging 5.3% on the day.  Still, it fell 6% on the week, lost 19% in March, and posted a historic record 50% loss in the first quarter. 

Overnight, Asian markets were mixed but leaned toward the green side.  Thailand (-0.55% paced the three losing exchanges while Shenzhen (+1.39%), Malaysia (+0.76%), and Shanghai (+0.72%) led the gainers.  Meanwhile, in Europe, a similar story is taking shape at midday.  The CAC (+0.40%), DAX (-0.04%), and FTSE (+0.73%) are typical and lead the region modestly higher in early afternoon trade.  As of 7:30 am, US Futures are pointing toward a mixed start to the day.  The DIA implies a +0.36% open, the SPY is implying a -0.09% open, and the QQQ implies a -0.66% open at this hour.  At the same time, 10-year bond yields are up to 3.505% and Oil (WTI) is skyrocketing (+0.608%) on the OPEC+ news to $80.27/barrel.

The major economic news events scheduled for Monday include Manufacturing PMI (9:45 am) and ISM Mfg. PMI (10 am).  The major earnings reports scheduled for the day include SAIC before the open.  Then after the close, there are no earnings reports scheduled.

In economic news later this week, on Tuesday we get February Factory Orders, Feb. JOLTs Job Openings, and the API Weekly Crude Oil Stocks Report. Then Wednesday, ADP March Nonfarm Employment Change, Feb. Imports/Exports, Feb. Trade Balance, March Service PMI, S&P March Global Composite PMI, March ISM Non-Mfg. PMI, and EIA Weekly Crude Oil Inventories are reported.  On Thursday, we get Weekly Initial Jobless Claims and Bank Reserve Balances with Federal Reserve Bank.  Finally, on Friday, US markets are closed but March Avg. Hourly Earnings, March Nonfarm Payrolls, March Participation Rate, March Private Nonfarm Payrolls, and the March Unemployment Rate are reported.

In terms of earnings, on Tuesday, AYI and MSM report.  Then Wednesday, we hear from CAG and SCHN.  On Thursday, LW, STZ, RPM, and LEVI report.  There are no reports scheduled for Friday.

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On Sunday CNBC reported that EDR (the parent of the UFC) is very near a deal to acquire WWE (“professional wrestling”).  A deal may be announced as soon as Monday.  However, this morning, the deal is being characterized as a merger with EDR as the senior partner and its leader remaining CEO, while the current leader of UFC (Dana White) would continue to run UFC and the CEO of WWE (Vince McMahon) would continue to run WWE.  Elsewhere, a Swiss newspaper (Tages-Anzeiger) reported Sunday that the new bank created by the UBS acquisition of CS is set to cut 20%-30% if its workforce (11,000 jobs in Switzerland).  US jobs will also be affected, but no details were available.  Meanwhile, China urged Japan not to support the US chip and chip-making equipment embargo on China after Tokyo announced new restrictions Friday.  The new restrictions would prohibit Japanese companies from selling 23 types of chip-making equipment (but avoided naming China specifically).

The short week ahead contains three stories of major note on the political front. Ex-President Trump will be arraigned on 30 charges related to fraudulent bookkeeping on Tuesday. I’m sure there’s no chance that will be turned into a circus but, given what Trump has said/written pre-arraignment, there is always hope for a gag order from the judge. In addition, there are two elections of note Tuesday. The most important is the election of the swing vote to the Wisconsin Supreme Court. At stake will be redistricting and potential future “election was stolen” decisions in that purple (swing) state. It is worth noting that the two sides of this election have spent $40 million total…for the election of a state judge. The other election is the runoff for the new Chicago Mayoral race after the incumbent was defeated during the initial round of voting.

With that background, it looks like the markets are still digesting the OPEC+ surprise production cut (pseudo inflation hike). Tech holders seem nervous (and most impacted), the market-leading SPY appears unsure how that news shakes out, and the mega-cap DIA (secure in the ability to pass on price increases) look unimpressed by the new threat. Remember, today is the first day of the new quarter/month after what could easily be seen as a “Window Dressing” run the last three days of last week. So, it would be natural (and maybe even expected) that we see a pullback or at least consolidation to start April. Bullish overextension was also an issue as of Friday’s close. As a result, we should keep an eye open for bearish action this week.

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.


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

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🎯 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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