PPI, Jobless Claims and Q1 Earnings Start

Markets gapped higher on Wednesday after good CPI data.  SPY gapped up 0.52%, the DIA gapped up 0.50%, and the QQQ gapped up 0.64%.  However, again we saw divergence at that point with the large-cap indices meandering sideways for an hour before selling off for 45 minutes, recrossing the gap in the process.  Meanwhile, QQQ had faded the gap-up within 20 minutes of the open and then kept heading lower until 11:15 am.  At that point, all three major indices put in a long, slow rally that lasted until just after 2 pm.  Then, the selloff was on with the bears driving prices lower the rest of the day.  This action gave us large-body, black candles in all three major indices.  This included an Evening Star signal in the SPY, a Dark Cloud Cover in the DIA, and a big, black, outside day candle in the QQQ.  QQQ also crossed back below its T-line while the other two major indices held above their own 8ema.

On the day, seven of the 10 sectors were in the red with Consumer Cyclical (-1.77%) leading the way lower while Industrials (+0.32%) held up best.  At the same time, the SPY lost 0.39%, DIA lost 0.09%, and QQQ lost 0.88%.  VXX gained 0.61% to 42.90 and T2122 fell back out of the overbought territory to 72.44.  10-year bond yields fell to close at 3.402% while Oil (WTI) was up 2.11% to $83.24 per barrel.  So, markets liked the CPI data falling more than expected, following the Fed’s preferred path.  However, as soon we got the three-week-old Fed takes from the day following the SBNY bank, the bears roared as (at that time) Fed members said they expected the banking crisis to push the economy into recession sometime this year.  This happened on less-than-average volume in the large-cap indices and slightly above-average volume in QQQ.     

In economic news, the March Consumer Price Index came in below expectations at 5.0% year-on-year (versus a forecast of 5.2% and the February reading of 6.0%).  This was the ninth consecutive monthly decline.  Later in the morning, the EIA Crude Oil Inventories came in above expectation with a build of 0.597-million-barrels (compared to a forecasted drawdown of 0.583-million-barrels and far higher than the prior week’s 3.739-million-barrel drawdown).  Then at 2 pm, the March Federal Budget Balance was larger than anticipated at -$378.0 billion (versus a forecast of -$302.0 billion and significantly worse than the February reading of -$262.0 billion).  At the same time, the FOMC Minutes basically followed Fed Chair Powell’s remarks from the March 22 press conference.  There was a broad consensus to raise rates by a quarter percent at that point.  However, the terminal level of the Fed Funds Rate was also tamped down by the banking crisis going on then.  Four of the regional Fed Presidents did not want any hike.  The other big news was that Fed Staff (not the voters) put forth that their base case was then expecting a “mild recession later this year” given their assessment of the impact of the banking turmoil on available credit.  Elsewhere, San Fran Fed President Daly told an audience Wednesday that more rate hikes may not be needed to tame inflation, saying “there are good reasons to think that policy may have to tighten more to bring inflation down.” 

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In stock news, a day prior to competitor DAL’s earnings report, AAL announced it is forecasting profits below market expectations.  AAL specifically cited high labor and fuel costs.  In other transport news, GOOGL got some bad press when some of their Waymo self-driving vehicles pulled over due to heavy fog in San Francisco Tuesday night, causing traffic problems during rush hour.  Meanwhile, WBD announced it is combining HBO Max and Discovery+ content to create a new streaming service called “Max” as the company attempts to compete with DIS, NFLX, AMZN, and PARA.  At the same time, the world’s largest luxury brand (LVMH, not US-listed) reported a 17% rise in sales in Q1 and specifically notes a strong rebound in the Chinese market.  In the electric market, an industry insider reported Wednesday that TSLA is about to launch a third generation of its home battery pack, named Powerwall 3.  (No pricing or specs were yet available since the equipment has not yet been approved for connection to the electric grid.)  Elsewhere, EMR agreed to buy NATI for $8.2 billion ($60/share).  Elsewhere, the Teamsters union told UPS it won’t begin national contract negotiations as (previously scheduled to start next week) until after regional supplemental contracts are completed.  30 supplemental contracts remain unsettled and the national contract expires July 31.

In stock legal and regulatory news, across the pond, the Swiss parliament rejected the Swiss government’s $121 billion aid package that had been part of UBS’s buyout of failing CS.  (That government commitment cannot be overturned, but the vote signals that the large house of parliament is not happy with the deal.)  Meanwhile, the US Dept. of Labor (in cooperation with other federal agencies) sent a letter to meat companies TSN, JBSAY, and 16 other meat companies Wednesday, ordering those companies to inspect their supply chains in order to root out illegal child labor.  The letter said the Dept. of Agriculture is exploring enforcement mechanisms and will take action in the near future.  At the same time, US Senator Wyden called for an investigation by Congress and the Administration following a Reuters report that Russia is using facial recognition technology based on chips from NVDA and/or INTC to identify and detain political dissenters. Russian customer records showed that NVDA products continued to arrive in Russia at least through Oct. 31, 2022.  (NVDA responded by saying that if it finds a customer who violated US Export Laws, it will cease doing business with that customer.)  Elsewhere, a Del. Superior Court Judge imposed sanctions on FOX for withholding evidence in the $1.6 billion defamation case brought against it by Dominion Voting Systems.  No fine dollar amount was mentioned, but the cost of added legal work by Dominion following newly the disclosed information will be borne by FOX.  In banking news, head of the National Economic Council (and former Fed Vice-chair) Brainard told reporters Wednesday the banking crisis now has eased in terms of deposit outflows. However, she also called for stronger stress testing (liquidity) requirements that include regional banks.  Finally, CO became the first state to pass “right to repair” legislation for farmers on Wednesday.  The bill will force farm machinery makers like DE and CNHI to provide manuals, diagnostic equipment, and parts to farmers who want to repair (or have local mechanics repair) their farm machinery.  Other states are now expected to follow suit and similar legislation may impact other consumer electronics (like phones, tablets, Mac computers, etc.).

In miscellaneous news, Wednesday evening, CNBC reported that a Univ. of Florida finance professor (Lopez-Lira) told them that he used Chat-GPT to predict the next day’s market directions (based on analyzing all news headlines).  Reportedly, the results were “much better than random chance.”  The professor’s paper has not yet been peer-reviewed.  However, Lopez-Lira said his research suggests AI could be trained to predict stock movements.  (For what it is worth, this research was done using the older ChatGPT 3.5 model.  The professor found less than a 1% chance the model could have achieved the results it attained by mere chance.)  Elsewhere, Bloomberg announced overnight that it will integrate a “ChatGPT-style” AI into its Bloomberg Trading Terminal.  No timeline was mentioned.

Overnight, Asian markets were mixed in very uneven trading.  Shenzhen (-1.21%) and Taiwan (-0.80%) were by far the largest losers.  Meanwhile, South Korea (+0.43%) was the biggest gainer.  Still, the green exchanges outnumbered the red exchanges in the region.  Over in Europe, we see a similarly mixed picture taking shape, but most of the bourses lean toward the green side at midday.  The CAC (+0.93%), DAX (-0.08%), and FTSE (+0.01%) lead on volume as usual in early afternoon trading.  In the US, as of 7 am, Futures are pointing toward a flat to green start to the morning (ahead of PPI data).  The DIA implies a +0.01% open, the SPY is implying a +0.10% open, and the QQQ implies a +0.24% open at this hour.  At the same time, 10-year bond yields are back up to 3.424% and Oil (WTI) is down half a percent to $82.86/barrel. 

The major economic news events scheduled for Thursday are limited to March PPI and Weekly Initial Jobless Claims (both at 8:30 am).  The major earnings reports scheduled for Thursday include DAL, FAST, INFY, and PGR before the open.  There are no major earnings reports scheduled for after the close.

In economic news later this week, on Friday, March Retail Sales, March Import/Export Price Indexes, March Industrial Production, Feb. Business Inventories, Michigan Consumer Sentiment, and Feb. Retail Inventories are reported.

In terms of earnings reports later this week, on Friday, BLK, C, JPM, PNC, UNH, and WFC report.

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So far this morning, FAST beat on both the revenue and earnings lines.  Meanwhile, DAL beat on revenue while missing on earnings.  Unfortunately, INFY missed on both the top and bottom lines.  (PGR is scheduled to report at 8:15 am.)

With that background, at least before the PPI data release, traders seem to be continuing their “wait and see” stance. All three major indices are starting to form tiny Bull Harami-type inside candles, staying within the recent consolidation range. Little has changed in the large-cap indices. The 3ema is still above the 8ema, which is above a rising 17ema, which is above the 50sma and that is above the 200sma. The QQQ has nearly the same bullish moving average stack. However, the QQQ 3ema has fallen below the T-line, perhaps giving an indication that the bullish trend has cracks. We also have to recognize that all three major indices are sitting on a potential support level. Over-extension does not appear to be a problem either in terms of the T-line or T2122 indicator. So, the consolidation continues, but the bullish trend has not yet broken. New data or news could change that picture in a heartbeat. However, this is what the chart tells us now. So, again, putting aside fear and prediction, the chart is telling us to maintain a long bias on a swing trading horizon while keeping a sharp eye out for trend breaks.

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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