Powell Back After Slapping Market Tues.

On Tuesday, all three major indices opened flat.  Markets then treaded water until 10 am, when the bears sold us off very hard for 15 minutes as Fed Chair Powell’s remarks were absorbed.  From that point (10:15 am), we saw a slow, meandering selloff the rest of the day, closing near the lows.  This action gave us large, black-bodied candles which completed Evening Star-type signals in the SPY, DIA, and QQQ.  The SPY and DIA both crossed back below their T-lines (8ema), while the QQQ is still right at that retest.  SPY is also back down to retest its 50sma.

On the day, all 10 sectors were in the red with Basic Materials (-2.36%) led the way lower, while Industrials (-0.99%) and Technology (-1.03%) held up better than the other sectors.  At the same time, the SPY was down 1.52%, the DIA was down 1.70%, and QQQ was down 1.23%.  The VXX rose 2.40% to 43.87 (after a 1-for-4 split) and T2122 dropped back deep into the oversold territory at 9.59.  10-year bond yields climbed to 3.968% and Oil (WTI) plummeted 3.82% to $77.39 per barrel.  So, Tuesday was a “wait and see” day that was then owned by the bears once Fed Chair Powell delivered his remarks and answered questions.

In economic news, Fed Chair Powell’s testimony before the Senate stole the show.  In his remarks, Powell said US interest rates will probably have to rise further than the Fed previously thought in order to tame inflation.  He also said that (if the totality of the data were to indicate faster tightening was warranted) “we would be prepared to increase the pace of rate hikes.”  Further, he said that FOMC policy will need to stay restrictive “for some time” and ”the historical record cautions strongly against prematurely loosening policy.”  This testimony flipped market bets, which had been strongly predicting a 25-basis-point hike in March but which now show 29.5% of bets are on a quarter-point hike and 70.5% are betting on a half-percent increase.  Later, during questioning, Powell said a US debt default would have dire consequences for the economy and would likely cause long-lasting harm.  Specifically, he said “Congress really needs to raise the debt ceiling.  If we fail to do so, I think the consequences could be…extraordinarily adverse and could do long-lasting harm.”  Other questions focused on each political party’s pet agenda items, but most were not noteworthy.  Then, after the close, the API Weekly Crude Oil Stocks Report came in with a larger drawdown than expected.  API reported the draw was 3.835 million barrels (compared to an expected drawdown of 0.308 million barrels and the prior week’s inventor build of 6.203 million barrels).

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In stock news, MULN announced it will be unveiling both an electric cargo van and a class 3 low-cab truck this week at an Indianapolis truck show.  Elsewhere, ON shares gained Tuesday after announcing a long-term deal to supply technology to BMW for the carmaker’s electric vehicles. Meanwhile, Reuters reported that BA is facing delivery problems for both 767 freighters and KC-46 tanker planes.  The issue centers around center fuel tanks made by TGI, which had not completed cleaning and paint adhesion processes prior to delivering the components.  The problem will significantly impact deliveries of 30-40 aircraft. At the same time, BX and TRI are selling $2 billion worth of their holdings in the London Stock Exchange to raise cash for other projects. In the Auto industry, TSLA CEO Musk announced Tuesday the company’s next-generation small car “would operate mostly autonomously.”  (However, this is the same claim he has made for many years.)  After hours, Reuters reported that WE is in talks with investors to restructure more than $3 billion in existing debt as well as looking to raise more cash from those investors.  Finally, FDIC officials spent Tuesday at SI, looking for ways to save at least part of the bank.

In stock legal and regulatory news, META failed to get a lawsuit thrown out Tuesday and will need to proceed to trial.  The suit alleges META stole confidential information from AI startup Neural Magic.  As of last year’s filing, Neural Magic was seeking $766 million, but that number has likely skyrocketed as META recently rolled our new AI features. In possibly related news, the META AI model (LLaMa) leaked online Tuesday and was available for anyone to download the code.   Elsewhere, a panel of US federal appellate judges questioned whether the SEC should have rejected the application by Grayscale to convert its GBTC into a Bitcoin spot-price ETF.  (A ruling is not expected until the fall.)  Meanwhile, as expected, the Dept. of Justice filed suit to stop the JBLU acquisition of SAVE on grounds it violates antitrust interests. At the same time, Reuters reports that AMD and NVDA are scrambling to determine whether they need to halt product sales to Chinese-listed Inspur Group after that company was added to the US export blacklist.  (Inspur is the third-largest supplier of servers in the world as of Q3 and, therefore, would be a major customer for both NVDA and AMD.)  It is unclear if INTC also supplies Inspur.  Finally, Bloomberg reported that AMZN has defeated an attempt by employees to sue as a group as they try to recoup internet expenses they incurred while working from home during the pandemic.

After the close, CRWD, CRGY, and MBC all reported beats on both the revenue and earnings lines.  Meanwhile, CASY missed on revenue while beating (significantly) on the earnings line.  It is worth noting that CRWD raised its forward guidance.

Overnight, Asian markets leaned heavily to the downside.  Hong Kong (-2.35%) and South Korea (-1.28%) were by far the largest losers and led the region south.  Still, Japan (+0.48%) and India (+0.24%) managed to eke our gains.  Meanwhile, in Europe, the bourses are mixed but the red outnumbers the green on the board at midday.  The FTSE (-0.07%), DAX (+0.30%), and CAC (-0.08%) are typical of the region in early afternoon trade.  As of 7:30 am, US Futures are pointing toward a start just on the green side of flat.  The DIA implies a +0.08% open, the SPY is implying a +0.09% open, and the QQQ implies a +0.15% open at this hour.  At the same time, 10-year bond yields are up to 3.972% and Oil (WTI) is off fractionally to $77.42/barrel in early trading.

The major economic news events scheduled for Wednesday include ADP February Nonfarm Employment Change (8:15 am), January Imports/Exports and January Trade Balance (both at 8:30 am), Fed Chair Powell testifies before Congress again and Jan. JOLTs Job Openings are reported (both at 10 am), EIA Crude Oil Inventories (10:30 am), WASDE Ag Report (noon), and Fed Beige Book (2pm).  Major earnings reports scheduled for the day include ABM, BF.A, CPB, GOL, KFY, LTH, REVG, and UNFI before the opening bell.  There are no major reports scheduled for after the close. 

In economic news later this week, on Thursday, Weekly Initial Jobless Claims are reported.  Finally, on Friday, we get Feb. Avg. Hourly Earnings, Feb. Nonfarm Payrolls, Feb. Participation Rate, Feb. Unemployment Rate, and Feb. Federal Budget Balance.

In earnings news later this week, on Thursday, BJ, GBTG, JD, WLY, TTC, QFIN, DOCU, GPS, ORCL, ULTA, and MTN report.  Finally, on Friday, we hear from, ERJ.

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So far this morning, CPB, KFY, and REVG have reported beats to both the revenue and earnings lines.  Meanwhile, ADDYY, ABM, and LTH all missed on the revenue line while beating on earnings.  On the other side, UNFI beat on revenue while missing on the earnings line.  (BF.A and BF.B report at 8 am.)  It is worth noting that UNFI has lowered its forward guidance while KFY raised its forward guidance.

In late-breaking news, after Powell’s remarks Tuesday, the bond market inversion has grown to the largest in more than four decades.  Talking heads are telling traders to brace for a full percent hike later this month, but the Fed Fund futures still don’t show that possibility as getting any betting.  (The Fedwatch tool shows a 26.5% probability of a quarter-point hike and a 73.5% probability of a half-percent hike.  So, no money even worth mentioning has been bet on three-quarters of a percent, let alone a full percent, hike on March 22.  Elsewhere, mortgage application volume increased 7.4% for the week with applications to refinance up 9% and new how purchase applications up 7%.  This came despite mortgage rates increasing to 6.79% (up from 6.71%) and points rising to 0.80 from 0.77 during the week (for a 30-year, fixed-rate, 20% down loan).  Finally, for the first time since 2016, a new nuclear reactor has come partially online (splitting atoms) in the US (GA).  The reactor is scheduled to be fully operational this summer.

With that background, it looks like the market is at least waiting on the morning data before showing any cards. Later, Fed Chair begins testifying (to the House this time) at 10 am. Do not expect him to say anything different from yesterday, but we may get a bit more political point-making from the House. Meanwhile, the downtrend is back in control after yesterday’s bearish signal, and the lower high (although it had broken the short-term downtrend line) in all three major indices. The T-line is still being tested in the QQQ, with the other indices being close enough they could be retested from below today. So, extension is no problem from the T-line standpoint. However, we are in the oversold area of T2122. As I see it, both SPY and DIA are at/in a potential support level. QQQ may have marginal support here, but it is far less obvious than in the large-cap indices.

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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