Philly Fed, Jobless Claims, and Fed Talk

The market gapped higher and then was divergently indecisive on Wednesday.  The SPY opened 0.28% higher, the DIA gapped up 0.24%, and the QQQ opened 0.52% higher.  At that point, the QQQ wandered around below and returned to its opening level.  Meanwhile, SPY meandered back and forth around its opening level and DIA meandered above its open.  All that changed at about 11:30 a.m. when DIA began a slow, steady rally that lasted the rest of the day.  At the same time, QQQ sold off until 1:20 p.m. (recrossing its gap and prior close in the process) before rallying back into the gap and bobbing along the prior close the rest of the day.  And for its part, SPY traded sideways, briefly retested the opening gap, and returned to a sideways grind along the open before dropping back into the gap the last 20 minutes.  This action gave us a gap-up, black-bodied. Spinning Top in the SPY, a gap-up, black-bodied large-body Spinning Top in the QQQ, and a gap-up, white-bodied Spinning Top in the DIA.

On the day, eight of the 10 sectors were in the green with Consumer Cyclical (0.89%) out front leading the way higher while Energy (-0.42%) lagged well behind the other sectors.  At the same time, the SPY gained 0.16%, DIA gained 0.49%, and QQQ gained 0.08%.  The VXX fell more than 2% to close at 19.15 and T2122 backed off just a bit but remains deep in overbought territory at 96.43.  10-year bond yields climbed to 4.543% and Oil (WTI) dropped 2.2% to close at $76.53 per barrel. So, Wednesday was another in the two-week string of bullish says.  This one is more indecisive than most as we get extended from the T-line (8ema).  This was the least we could expect after such a strong bullish showing on Tuesday.  It is also worth noting that all three major index ETFs had lower-than-average volume, with SPY having significantly lower volume.

The major economic news reported Wednesday included Oct. Month-on-Month Core PPI, which came in much better than expected at 0.0% (versus a forecast of +0.3% and a Sept. reading of +0.2%).  At the same time, the headline Oct. Month-on-Month PPI was dramatically lower than expected at -0.5% (compared to a forecast of +0.1% and a September value of +0.4%).  In addition, Oct. Month-on-Month Core Retail Sales came in stronger than predicted at +0.1% (versus the -0.2% forecast but still well below the Sept. +0.8%). The headline Oct. Month-on-Month Retail Sales fell 0.1% (compared to a forecasted fall of 0.3% and down a full percent from September’s +0.9%).  At the same time, the NY Empire State Mfg. Index was much stronger than anticipated at 9.10 (versus a -2.80 forecast and a -4.60 September value).   Later, September Business Inventories held steady at 0.4% (the same as the forecast and prior reading).  However, September Retail Inventories were a bit higher than expected at +0.4% (versus the +0.3% forecast but still better than the August +0.5% value).  Later, the EIA Weekly Crude Oil Inventories showed a larger-than-predicted inventory build of 3.600 million barrels (compared to a forecast of +1.793 million barrels but still far lower than the prior week’s +13.869 million barrels).

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In stock news, MFC said Wednesday it will buy London-based alternative credit manager CQS for an unspecified amount.  (CQS had $13.5 billion in assets under management as of Oct. 31.)  At the same time, regulatory filings showed that BRKB has liquidated its entire GM (22 million shares) and ATVI positions.  BRKB also began a SIRI position by purchasing 10 million shares.  All this was during Q3.  Elsewhere, TM announced that its Camry (best-selling car in the US) will go all-hybrid in the 2025 model year.  Later, MSFT announced it is releasing its own AI chips (MSFT designed but made by other companies).  The new chip (Maia) will be used to power MSFT’s subscription for $30/mo. “Copilot” AI service.  MSFT said the chip will become available in 2024.  At the same time, CZNS (the 28th largest mortgage lender in the US) announced the closure of its wholesale mortgage lending channel.  CZNS cited declining mortgage volumes and intense competition in the announcement.  Later, SNES announced a reverse stock split, effective at the close on Nov. 16.  The board has not yet decided on the specifics but it will be between 1-for-2 and 1-for-12 shares. 

In stock government, legal, and regulatory news, NATO announced Wednesday that it will replace its aging fleet of 14 AWACS planes with a military version of the BA 737.  The deal of an unspecified value (billions) will be signed in 2024.  Later, AWKFN was given UK approval for a second phase of clinical trial on its severe alcohol Use Disorder treatment.  Later, a bipartisan group of US Senators asked META for documentation related to senior executives’ knowledge of mental and physical health harm associated with its platform before Nov. 30.  Meanwhile, NY state sued PEP, accusing the company of polluting the environment through its single-use plastic wrappers and containers.  At the same time, the FDA (which declined to approve the drug in January of 2022) noted concerns about the data MRK provided on its chronic cough drug.  The FDA said the data might not be enough to prove meaningful benefit.  Overseas, the French Supreme Court upheld serious charges but revised the previous $2 billion penalties against UBS for money laundering and illegal customer solicitation.  The move mandates a new trial at the Paris Court of Appeals to determine the correct damages.  In Greece, both JNJ and CL were fined for violating that country’s profit-cap law prior to the end of 2021 (COVID period).  This follows the same type of fines levied on UL on Nov. 2.  After the close, Reuters reported that ADBE will open remedy discussions with the EU in order to get its acquisition of Figma approved.

After the close, CSCO, CPA, JJSF, PANW, SNEX, and TTEK all reported beats on both the revenue and earnings lines.  However, MMS missed on both the top and bottom lines.  It is worth noting that CSCO lowered and PANW raised forward guidance.

Overnight, Asian markets were mixed but leaned toward the red side on the strength of moves.  Hong Kong (-1.36%), Shenzhen (-1.23%), and Shanghai (-0.71%) led the region lower while India (+0.46% paced the gainers.  In Europe, only two of the 15 bourses are in the green at midday.  The CAC (-0.46%), DAX (+0.31%), and FTSE (-0.49%) lead the region lower in early afternoon trade.  In the US, as of 7:30 a.m., Futures are pointing toward a lower start to the day.  The DIA implies a -0.22% open, the SPY is implying a -0.19% open, and the QQQ implies a -0.34% open at this hour.  At the same time, 10-year bond yields are down to 4.504% and Oil (WTI) is off another percent to $75.86 per barrel in early trading.

The major economic news scheduled for Thursday includes the Oct. Export Priced Index, Oct. Import Price Index, Weekly Initial Jobless Claims, and Philly Fed Mfg. Index (all at 8:30 a.m.), Oct. Industrial Production (9:15 a.m.), and the Fed’s Balance Sheet (4:30 p.m.).  We also hear from Fed member Williams (9:25 a.m.), Fed Governor Kroszner (10 a.m.), Waller (10:30 a.m.), and Mester (noon).  The major earnings reports scheduled before the open include BABA, ARCO, BBWI, BERY, BV, DDL, DOLE, M, NICE, WMT, and WSM.  Then, after the close, QFIN, AMAT, BZH, CPRT, GPS, GLOB, HI, MATW, POST, ROST, UGI, WWD, and ATO report. 

In economic news later this week, on Friday we get Oct. Building Permits and Oct. Housing Starts.  Friday is also options expiration day.

In terms of earnings reports later this week, on Friday we hear from ATKR, BJ, and SPB.

In miscellaneous news, Chinese President Xi Jinping met with President Biden on Wednesday.  The meeting was mostly symbolic although the two countries agreed to high-level military-to-military contacts.  (However, the top Chinese military posts, Minister of Defense and Head of the Chinese Army are both vacant at the moment.)  China also agreed to take action to curb fentanyl chemical export in exchange for sanctions relief on a Chinese state security agency.  Later, Xi was schmoozed at dinner by the CEOs of BLK, BX, MSFT, C, V, XOM, TSLA, PFE, QCOM, AVGO, and others hoping to curry favor at a $40,000/plate dinner.  Elsewhere, the Senate was scheduled to vote on the stop-gap CR to avert a government shutdown Wednesday night.  Leaders of both parties support the House bill. However, a single Senator could cause a shutdown by requiring procedural moves that would prevent a vote before Saturday. (In late-breaking news, the Senate did overwhelmingly approve the bill and has now sent it to President Bibden’s desk for signature to avert the government shutdown until at least January.)

In UAW news, oh what a difference a day makes. Just a day after it seemed on the brink of failure, the union’s contract with GM is now on the verge of approval.  More than 60% of GM’s huge Arlington TX plant approved the contract.  This increased the approval margin to 54% vs 46% opposed, giving approval a 2,500 vote lead with only nine facilities left to vote.  (GM voting ends Thursday at 4 p.m. Eastern, but the majority of votes have already been cast.)   Approval of the F contract is ahead with 66% in favor of approval (the F vote ends Friday, but again, most votes have already been cast) and STLA approval is essentially a lock with 72% voting in favor with that vote scheduled to end next Tuesday.

So far this morning, BABA, ARCO, BBWI, M, NICE, WMT, and WMG have all reported beats on both the revenue and earnings lines.  Meanwhile, BERY, DDL, DOLE, and NTES all missed on revenue while beating on earnings.  On the other side, PLCE, ONEW, and SIEGY all beat on revenue while missing on earnings.  Unfortunately, BV missed on both the top and bottom lines.  It is worth noting that BBWI and BERY both lowered their forward guidance.  However, M and NICE both raised their guidance.  

With that background, all three major index ETFs are trading lower in the premarket session and have printed black-bodied candles that are now at or near the early session lows. The SPY, DIA, and QQQ all remain well above their T-line (8ema) and 50smas. So, the Bulls still have control of the short-term trend, and the bullish breakout of consolidation is still in play. All three also remain significantly above the downtrend line going back to summer. In other words, the longer-term downtrend remains broken. So, the Bulls are back in control of the longer-term trend on the strength of a hard rally of the last two weeks. In terms of extension, all three major index ETFs are still stretched far above their T-line (8ema). At the same time, the T2122 indicator is at the top end of its overbought territory. So, we are definitely still in need of at least a rest, if not a pullback soon. With that said, remember the market can remain overbought longer than you can last predicting a reversal too soon.

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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