Whiplash was the order of the day in markets Monday. Stocks gapped down by more than one-half of a percent to start the week. However, the bulls immediately stepped in to rally sharply until 11 am. They then managed to grind sideways for about an hour…until a strong selloff started at 11 am. By 1:50 pm, the original gap-down level was reached again, but only to whipsaw back the other direction to recross the gap and then start back lower about 3:20 pm. All 3 major indices closed modestly on the downside of flat.
This left us with something like white body, Spinning Top candles with more wick than body, and at least some of the wick on each end. And once again, volume remains well below average. Three of the 10 sectors are green with Consumer Cyclical by far the biggest winner and Energy by far the biggest since sector on the day. On the day, SPY lost 0.31%, DIA lost 0.20%, and QQQ lost 0.07%. The VXX surged almost 4% to 21.77 and T2122 fell but remains in the overbought territory at 90.63. 10-year bond yields fell sharply to 2.584% and Oil (WTI) plunged over 5% to $93.65/barrel.
In economic news, both the July Mfg. PMI and the July ISM Mfg. PMI came in stronger than was expected. However, both also came in lower than the June readings. This news out of the US, in combination with worse-than-expected factory data from China and Europe Monday, resulted in a huge correction in Oil prices ahead of the coming OPEC+ meeting.
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After the close, AFL, BCC, DVN, CAR, TA, FANG, SANM, AMKR, SPG, CNO, MATX, ANET, SBAC, KMT, CACC, VNO, MPWR, AMRC, RRX, ENSG, STRL, TWI, RIG, NSP, UNVR, and RHP all reported beating on both the top and bottom lines. Meanwhile, DVA, WMB, CF, LEG, and KFRC all missed on revenue while beating on earnings. On the other side, ATVI, and KMPR beat on revenue while missing on earnings. However, MOS, PINS, EHC and WWD missed on both the revenue and earnings lines.
In stock legal news, West Virginia’s counties and cities reached a $400 million settlement with the 3 main medical distributors (MCK, ABC, and CAH) resolving more than 100 lawsuits over liability for the fueling of opioid use. (This is separate from the $26 billion national settlement that the 3 companies plus JNJ had reached, which excluded WV.) Elsewhere, AAPL was sued for violations of US Antitrust Law by a French App Development company. This suit closely resembles one brought by the same law firm against AAPL, which resulted in a $100 million settlement for a smaller app developer last August as well as one the law firm settled with GOOGL for $90 million in June. Finally, OPEN was fined $62 million by the FTC for cheating potential home sellers between 2017 and 2019.
On the Russian war story, Ukraine was able to launch its first ship full of grain since the start of the invasion. Ukrainian President Zelenskyy said this was a positive sign and that 16 ships are already loaded with grain and other agricultural products and ready to sail, but that only 3 ships will leave port per day for the next two weeks as per the agreement. In Russia, the Russian Central Bank (which has been lying already about the state of the economy) told Reuters that the 4.3% economic contraction will likely increase to 7% in Q3. (Overall, they claim the Russian GDP will fall only 4-6% in 2022 and 1-4% in 2023.) In addition, Russia has instituted a “stealth national mobilization.” New edicts require each of Russia’s 85 provinces to raise a new brigade for deployment to Ukraine. In addition, some major factories are being asked to recruit a battalion each. (Each battalion represents 500 – 1,000 men and each brigade 2,000 – 8,000 men.) If actually implemented, that 200,000 fighting-age men would be a significant drain on the Russian economy.
Overnight, Asian markets leaned to the red side. Chinese markets lead the drop as House Speaker Pelosi visits Taiwan and Chinese reaction is not yet clear. Shenzhen (-2.37%), Shanghai (-2.26%), and Hong Kong (-2.36%) led the region lower but losses were widespread. In Europe, stocks are nearly red across the board at mid-day with only Norway (+0.34%) and Greece (+0.23%) managing green. The FTSE (-0.02%), DAX (-0.72%), and CAC (-0.47%) are leading the region lower in early afternoon trade. As of 7:30 am, US Futures are pointing to another lower start to the day. The DIA implies a -0.54% open, the SPY is implying a -0.59% open, and the QQQ implies a -0.72% open at this hour. 10-year bond yield continue to fall to 2.552% and Oil (WTI) is up three-fourths of a percent to $94.64/barrel in early trading.
The major economic news events scheduled for Tuesday we get June JOLTS (10 am), API Weekly Crude Oil Stocks (4:30 pm), and Fed voter Bullard speaks (6:45 pm). The major earnings reports scheduled for the day include AME, ARNC, BP, CAT, CNP, CMI, DBD, DD, ETN, ENTG, EXPD, RACE, IT, GEO, GPRE, HSC, HSIC, HUN, IDXX, ITW, INCY, IGT, JBLU, KBR, KKR, LCII, LEA, LDOS, LGIH, MPC, MAR, TAP, MPLX, PEG, SPGI, SABR, SEE, SGRY, SYNH, BLD, TSEM, VSH, WAT, WEC, WLK, XYL, ZBRA, and ZBH before the open. Then, after the close, AMD, ABNB, ANDE, AIZ, BXC, BFAM, CZR, CWH, CHK, CLW, CNDT, CTRA, CXW, DCP, EA, EXAS, FMC, GILD, GXO, THG, PEAK, LFUS, LPLA, MTCH, MCY, MCHP, OI, OSH, OXY, PYPL, PFSI, PXD, PRU, RNG, SCI, SKY, SEDG, SBUX, STE, TEX, TX, UNM, VRSK, VOYA, and WCN report.
So far this morning, BP, MPC, CMI, LEA, DD, TAP, LDOS, MAR, WLK, MPLX, ZBH, HUN, CNP, WEC, AME, ZBRA, XYL, RACE, IT, LCII, BLD, VSH, GPRE, INCY, WAT, ATKR, and GEO have all reported beats on both lines. Meanwhile, CAT, ETN, HSIC, KBR, SEE, SYNH, IGT, DBD, IDXX, LGIH, and TSEM all missed on revenue while beating on earnings. On the other side, UBER, PEG, ARNC, JBLU, ENTG, AQUA, and WLKP all beat on revenue while missing on earnings. However, SPGI, RDSMY, and SGRY all missed on both the top and bottom lines.
In economic news later this week, on Wednesday we get the July Services PMI, June Factory Orders, July ISM Non-Mfg. PMI, and Crude Oil Inventories. Then on Thursday Import/Exports, Weekly Initial Jobless Claims, and the June Trade Balance are announced and Fed voter Mester speaks. Finally, on Friday we get July Avg. Hourly Earnings, July Nonfarm Payrolls, July Participation Rate, and July Unemployment Rate.
Markets started August on a very volatile day. Today, geopolitical fear of Chinese reaction to House Speaker Pelosi’s Taiwan visit (highest ranking US visitor in 25 years) has global markets on edge as China’s Foreign Minister has now said the PLA (Chinese Army) won’t sit idly by if she did make the visit. The other uncertainty is US political games as Republicans look to use obscure rules to block the Democrat’s tax, health prices, and climate deal they are trying to pass through reconciliation (which only requires 50 votes instead of 60). With that backdrop and pretty strong earnings coming in again today, look for another low volume, volatile day. So, either look for longer horizons (loose stops and ability to ride fluctuations) or tighten up on the bat and take smaller, faster swings. Overall the trend remains bullish, even if we are pausing or pulling back a tick to ease over-extension.
Remember that trading is our job. So, do the work and follow the process. Stick with your trading rules, trade with the trend, and take those profits when you have them. Demonstrate patience and wait for confirmation. So, don’t be stubborn. If you have a loss, just admit you were wrong, respect your stop, and take the loss before it grows. Always move your stops in your favor (remember the “Legend of the man in the green bathrobe“…it is NOT HOUSE MONEY, it’s all our money!). Lastly, remember that you get rich slowly and steadily in Trading…not by striking it rich on one or two trades. So, give up that lottery ticket mentality.
See you in the trading room.
Swing Trade Ideas for your consideration and watchlist: VIPS, KWEB, FUTU, BABA, PDD, BZ. 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.
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