PPI, Philly Fed, and Jobless Claims Lead

On Thursday, markets gapped lower at the open (down 0.55% in the SPY, down 0.46% in the DIA, and down 0.55% in the QQQ).  After a volatile first half hour, which saw the QQQ recross the gap twice, all three major averages settled down into a slow, protracted rally until 2:20 pm.  The next hour saw a modest pullback.  However, a strong rally the last 30 minutes of the day took all three major indices out on their highs.  This action gave us white-bodied, gap-down Marubozu-type candles in all three indices.  They all held above their T-lines (8ema) and the QQQ is starting to look like a J-hook in the making.

On the day, seven of the 10 sectors were in the green as Technology (+1.29%) led the way higher and Energy (-1.21%) lagged behind the other sectors.  At the same time, the SPY was up 0.34%, the DIA was up 0.14%, and QQQ was up 0.77%.  The VXX lost 2% to 11.07 and T2122 fell just a bit and remains just outside of the overbought territory at 77.22.  10-year bond yields spiked again, this time to 3.795% and Oil (WTI) is down 0.59% to $78.59 per barrel.  So, on the day, we’ve seen a bear trap open that turned into a slow, steady rally the rest of the day.  Overall, the trend remains bullish and volume remains low.

In economic news, the New York Fed Empire State Mfg. Index came in better than expected at -5.80 (compared to a forecast of -18.00 and a January reading of -32.90).  Meanwhile, January Retail Sales also beat expectations, coming in at +3.0% (versus the forecast of +1.8% and the December value of -1.1%).  At the same time, January Industrial Production came in worst than expected at dead flat (compared to the forecast of +0.5% but still better than the December reading of -1.0%).  December Business Inventories reported as expected at +0.3% (right on the forecast and matching the reading from November).  However, December Retail Inventories grew more than expected at +0.4% (versus a forecast of +0.3% and November reading of -0.3%) Later, the EIA Crude Oil Inventories report was even worse than had been signaled by the Tuesday API report.  EIA showed an inventory build of 16.283 million barrels of crude (compared to a forecasted increase of just 1.166 million barrels and worse than the prior week’s 2.423-million-barrel build).

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In stock news, the CFO of F told a conference that they identified ways to improve its cost by over $2.5 billion in 2023 through better management of production schedules as well as F expecting a drop in commodity prices. In other F news, the company said its F-150 Lightning production will remain halted through at least next week as they continue investigating “battery issues.”  Meanwhile, Reuters reports that the CEO of TX is considering northern Mexico for the location of a new $2.2 billion steel plant.  At the same time, TSLA CEO Elon Musk said he will unveil the third part of his “Master Plan” for the company on March 1.  This will include bold goals for the growth of the electric car company.  Elsewhere, the Wall Street Journal reported that BLCO is set to name a new CEO (Brent Saunders, who was also previously BLCO CEO) as of March 6.  And finally, STLA announced a recall of 340,000 diesel Dodge Ram pickup trucks over electrical connector failures following six fires.

In stock legal and regulatory news, the US Dept. of Justice told a Delaware court that the US government should face a patent lawsuit over COVID-19 rather than MRNA.  ABUS had filed the lawsuit against MRNA for patent infringement.  Meanwhile, the Wall Street Journal reports that the Justice Department has sped up its investigation into AAPL antitrust complaints.  Elsewhere, the EPA set a new soot pollution rule and Reuters reports the KMI and BRKA (for subsidiary PacifiCorp) both sent letters to the EPA warning of the costs they would incur complying.  At the same time, the NTSB announced it is opening an investigation into a runway incursion in Honolulu Hawaii where a UAL 777 crossed a runway as a Cessna 208B was landing.  Finally, after hours, FDA advisors unanimously voted in favor of allowing the EBS anti-overdose drug Narcan to be sold over the counter nationwide.  The FDA is expected to release its final decision on March 29, but it almost always follows unanimous recommendations from the advisory panel.

In energy news, as reported above, oil prices closed down a little despite a massive oil inventory build.  This EIA report was the fourth largest oil inventory build ever reported and almost 10 times the forecasted inventory increase.  In addition, the US Dollar also climbed to a new 6-week high.  So, the disconnect between WTI prices and the news is perplexing.  In related news, US refineries are running at 86% of capacity when they would normally be over 90%.  As a result, US gasoline inventories rose 2.317 million barrels which was not quite twice the 1.543 million barrels forecasted.  However, distillate (diesel and heating oil) stockpiles fell for the first time in five weeks, dropping 1.285 million barrels compared to an expected build of 0.447 million barrels.

After the close, CSCO, SHOP, RSG, AR, EQIX, WCN, AEE, RUSHA, WELL, HST, AIG, AWK, ROKU, TWLO, ALSN, ROL, INVH, NEX, CPA, KGC, QDEL, RGLD, Z, SPWR, and SGEN all reported beats on both the revenue and earnings lines.  At the same time, CYH, CF, MRO, ALB, AMED, NUS, SUM, TNET, and RNG all missed on revenue while beating on earnings.  On the other side, EQT, SNPS, NTR, and AJRD all beat on revenue while missing on earnings.  Unfortunately, ET, REZI, and TROX missed on both the top and bottom lines.  It is worth noting that CSCO, RSG, EQIX, WCN, and ALSN all raised their forward guidance.  However, NTR, WELL, HST, NUS, AMED, and SGEN all lowered forward guidance.

Overnight, Asian markets were mixed but mostly green.  Shenzhen (-1.30%), Shanghai (-0.96%), and Malaysia (-0.26%) were the only red. Meanwhile, South Korea (+1.96%), Hong Kong (+0.84%), and Australia (+0.79%) led the larger group of exchanges to the upside.  In Europe, with the exceptions of Greece (-0.18%) and Switzerland (-0.16%) the rest of the region is green at midday.  The FTSE (+0.19%), DAX (+0.46%), and CAC (+0.97%) lead the region higher in early afternoon trade.  As of 7:30 am, US Futures are pointing to a slightly red start to the day ahead of data.  The DIA implies a -0.17% open, the SPY is implying a -0.27% open, and the QQQ implies a -0.33% open at this hour.  At the same time, 10-year bond yields are flat at 3.795% and Oil (WTI) is also flat at $78.68/barrel in early trading.  

The major economic news events scheduled for Thursday include January Building Permits, January PPI, January Housing Starts, Weekly Initial Jobless Claims, and the Philly Fed Mfg. Index (all at 8:30 am), and a couple Fed speakers (Mester at 8:45 am, Bullard at 1:30 pm, and Mester again at 6 pm).  The major earnings reports scheduled for the day include ARCH, BLMN, CVE, CEG, CROX, CNB, ETR, EPAM, FOCS, GGR, GVA, HAS, HSIC, H KBR, KELYA, LH, NSRGY, NGD, NMRK, DNOW, NRG, OGN, PARA, PBF, POOL, POR, RCM, RS, STNG, SO, SCL, SYNH, TOST, USFD, VC, VNT, VMC, WSO, WST, WE, and ZBRA before the opening bell.  Then after the close, AEM, AL, AEL, COLD, AMN, AMAT, ATR, BIO, BFAM, ED, CLR, DASH, DKNG, DBX, FBIN, GLOB, IAG, TDS, TXRH, USM, and VALE report.   

In economic news later this week, on Friday, January Import Price Index and January Export Price Index are reported.  In terms of earnings later in the week, on Friday, ASIX, AMCX, AXL, AN, CNP, CRBG, DE, MD, and PPL report.

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So far this morning, SO, RS, HSIC, ETR, ZBRA, SYNH, EPAM, H, ARCH, VNT, GVA, POR, CROX, DNOW, and DDOG have all reported beats on both the revenue and earnings lines.  Meanwhile, EADSY, REPYY, USFD, LH, KBR, HAS, BLMN, WST, and SCL have all reported missed on revenue while beating on earnings. On the other side, CVE, KELYA, VC, TOST, RCM, STNG, CEG, and PARA all beat on revenue while missing on the earnings line.  Unfortunately, VMC, OGN, POOL, DNB, and WE all missed on both the top and bottom lines.  It is worth noting that HSIC, RS, SYNH, BLMN, VC, GVA, and CROX all raised their forward guidance.  However, HAS, ZBRA, EPAM, and WE all lowered forward guidance.

In late-breaking news, ASML (Dutch, chip fab lithography leader) reported that a China-based employee stole data from one of its internal software systems used to store technical information about chip-making machinery.  This is the second breach of ASML linked to China in the last year and comes very shortly after ASML agreed to the announcement of President Biden’s ban on selling chip-making technologies to China.  TSLA fired dozens of workers at its Buffalo NY plant one day after workers at the facility they plan to unionize.  The Workers United union has filed a complaint with the NLRB over the obvious retaliation and effort to discourage organizing.

With that background, it looks like markets are flat to modestly lower in pre-open trading. However, all three major indices remain above their T-line (8ema) in an uptrend (although the DIA certainly be called more of a consolidation than a bullish trend). So, apparently, traders are waiting on more clues from the 8:30 am data dump before pushing hard in either direction. We do have generally good earnings as a tailwind, especially from CSCO last night. However, the PPI, Jobless Claims, and Philly Fed reports are likely to call the tune early. Beware of volatility early regardless of which way the post-data, premarket knee-jerk goes. The good news is that the volatility around PPI is likely to be less than that which surrounded CPI. Nonetheless, be cautious and remember that in the long run, your fortune will not be made in the first 30 minutes of the trading day.

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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