PPI and Powell Speech Ahead

Markets gapped up modestly on Monday.  The SPY opened 0.33% higher, DIA gapped up 0.33%, and QQQ gapped up 0.44%.  From that point, the two large-cap index ETFs slowly faded the gap recrossing it by about 11:30 a.m.  Meanwhile, QQQ immediately recrossed the gap (by 9:50 a.m.). After the recross, all three ground sideways in a tight range until 1 pm.  At that point, we got a 15-minute selloff before the sideways grind in a tight range resumed.  This action gave us black body candles in all three major index ETFs.  The QQQ could be called a Black Hanging Man while the DIA printed a Bearish Engulfing candle.  All three remained well above their T-line (8ema).  This all happened on below-average volume in all three (far-below-average in the SPY and QQQ). 

On the day, five of the 10 sectors were in the green with Consumer Cyclical (+0.65%) leading the gainers higher while Industrials (-0.39%) was the laggard sector.  At the same time, SPY gained 0.01%, DIA fell 0.18%, and QQQ gained 0.23%.  VXX gained 1.08% to close at 12.19 and T2122 fell to just outside the lower edge of its overbought territory to close at 75.00.  At the same time, 10-year bond yields fell slightly to 4.487% and Oil (WTI) gained another 1.19% to close at $79.19 per barrel.  So, Monday was a gap-up, trade down, and then just grind sideways ahead of Tuesday’s PPI data.  One notable thing that happened is that “Meme stocks” trading came back in vogue.  GME gapped up 52%, was up as much as 120% at one point, traded in a 55% range, and it closed up 74 percent.  Following suit, AMC gapped up 20%, traded in an 86% range, and ended the day up 78.35%.

The major economic news scheduled for Monday was limited to the NY Fed’s 1-Year Consumer Inflation Expectations, which came in at 3.30% (compared to a April’s 3.00% reading).  

After the close, NATL reported beats on both the revenue and earnings lines.  At the same time, TLNE missed on revenue while beating on earnings.  On the other side, AHR beat on revenue while missing on earnings.  However, STNE missed on both the top and bottom lines.

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In stock news, on Monday, as expected OpenAI released a new AI model called GPT-4o.  The new model reportedly is capable of realistic voice conversation and able to interact across text and vision.  (This comes a day ahead of GOOGL’s developer Conf. where that company is expected to announce its own new AI tools.)  Giving GPT-4o a search engine-like capability to compete directly with Google Search is the next step according to Reuters reports.  Later, GM announced its Cruise autonomous vehicles have resumed testing on public roads with its robotaxis in AZ.  (GM had suspended all operations in October after one of its robotaxis dragged a pedestrian, who was already knocked down by a human-driven car, in San Francisco.)

In stock legal and governmental news, on Monday, AAL, DAL, UAL, JBLU, HA, ALK and an airline industry group files suit against the US Dept. of Transportation alleging the agency’s new rule requiring airlines to disclose their fees in addition to just airfares is beyond the department’s authority. At the same time, the 5th-Circuit Court of Appeals dismissed a Republican-led State lawsuit that had sought to block the SEC’s requiring investment funds to categorize and disclose their proxy votes on issues, including ESG matters.  (The three-judge panel concluded that none of the states had any standing to challenge the agency’s rules over listed company reporting.)  Later, META was sued by RFK Jr. and his superPAC, claiming Facebook was guilty of election interference for blocking a political ad.  (META claims the blocking, which lasted less than two days was a result of a mistake and was quickly restored as soon as the issue was found.)

Overnight, Asian markets leaned toward the green side with only five of the region’s 12 exchanges in the red.  Taiwan (+0.61%), India (+0.51%), and Japan (+0.46%) led the region higher on the day.  Meanwhile, in Europe, the bourses are more evenly split with seven green and eight in the red at midday on very modest moves.  The CAC (-0.06%), DAX (-0.18%), and FTSE (+0.06%) are typical of a region likely waiting on US data to drop.  In the US, as of 7:30 a.m., Futures are just on the green side of flat.  The DIA implies a +0.09% open, the SPY is implying a +0.05% open, and the QQQ implies a +0.02% open at this hour.  At the same time, 10-year bond yields are just on the red side of flat at 4.479% and Oil (WTI) is likewise down slightly at $78.99 per barrel in early trading. 

The major economic news scheduled for Tuesday includes April Core PPI and April PPI (both at 8:30 a.m.), and API Weekly Crude Stocks (4:30 p.m.).  We hear from Fed Governor Cook (9:10 a.m.) and Fed Chair Powell (10 a.m.).  Major earnings reports scheduled for before the open include BABA, BKKT, CGAU, HD, IGT, MNSO, ONON, SE, SONY, and TCEHY.  Then, after the close, NXT and NU report. 

In economic news later this week, on Wednesday, April Core CPI, April CPI, April Core Retail Sales, April Retail Sales, NY Empire State Mfg., March Business Inventories, March Retail Inventories, and EIA Weekly Crude Oil Inventory are reported.  We also hear from Fed member Bowman speaks.  On Thursday, we get April Building Permits, April Housing Starts, April Import Price Index, April Export Price Index, Weekly Initial Jobless Claims, Weekly Continuing Jobless Claims, Philly Fed Mfg. Index, April Industrial Production, Fed Balance Sheet and we hear from Fed members Vice Chair Barr, Mester, and Bostic.  Finally, on Friday, April US Leading Economic Indicators Index is reported and we hear from Fed member Waller.

In terms of earnings reports later this week, on Wednesday, ARCO, DOLE, CSCO, CPA, GRAB, and ZTO repot.  On Thursday, we hear from BIDU, DE, IQ, JD, NICE, UA, UAA, WMT, AMAT, CPRT, DXC, FLO, GLOB, and TTWO.  Finally, on Friday, HTHT reports.

So far this morning, HBM, IGT, and ONON reported beats on both the revenue and earnings lines.  Meanwhile, HD and MNSO missed on revenue while beating on earnings.  On the other side, BABA beat on revenue while missing on earnings.  However, CGAU and SE missed on both the top and bottom lines.

In miscellaneous news, on Sunday, Chinese April Inflation numbers (CPI up 0.1% while PPI fell 2.5%) were released which, in turn, boosted Oil on Monday.  Markets interpreted the Chinese data as a recovery in progress…albeit a slight recovery so far.  Elsewhere, the Federal Energy Regulatory Commission (FERC) voted to overhaul the national electrical grid system.  The new rules are expected to expand transmission (by defining how to cover the cost of transmission), encourage more renewable energy, and require regional planning and cost allocations which have been woefully absent for decades.  The changes are expected to improve the resilience of the grid by allowing more transmission between regions, as needed (reducing brow and blackouts). 

With that background, it looks as if the market is waiting on PPI data (or maybe even waiting on Wednesday’s CPI data) before committing one way or the other. All three major index ETFs are within spitting distance of flat and on either side at this moment. In addition, all three have printed very indecisive candles so far in the early session. However, all three major index ETFs do remain above their T-line (8ema). So, the short-term trend remains bullish. Meanwhile, the mid-term is modestly bullish again now. The longer-term market remains very Bullish as all three major index ETFs have returned within a percent (give or take) of all-time highs. In terms of extension, the SPY, DIA, and QQQ are all back near above their T-lines. The T2122 indicator has also pulled back to just outside the overbought area. So, both sides have room to run, if they can gain the momentum to do it. However, the Bears have more slack to play with in that regard. In terms of those 10 big dog tickers, eight of the 10 are in the red this morning with only INTC (+0.69%) appreciably in the green. Remember, regardless of what knee-jerk we may get from PPI data, Fed Chair Powell speaks at 10 a.m. and he always has the ability to reverse markets or cause volatility. Also bear in mind, CPI data comes tomorrow and traders may be waiting on that number more than PPI.

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 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 gains are 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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