Tuesday saw the Bulls run after a better-than-expected CPI report. SPY gapped 1.37% higher, DIA opened 1.16% higher, and QQQ gapped up 1.72%. All three major index ETFs followed through for the first hour or two. At that point, all three began to slowly take profits, melting back toward the opening levels until 2 p.m. Then we saw a strong and steady rally that took all three to the highs of the day at about 3:20 p.m. in the SPY, DIA, and QQQ. From there, we saw more profit-taking the rest of the day. This action gave us huge gap-up, white-bodied candles in all three major index ETFs. The DIA printed a Spinning Top, the QQQ gave us sort of a large-body Spinning Top, and the SPY printed a large-body white candle with an upper wick. (QQQ also gave us the highest close since mid-July.) This all happened on average volume in all three major index ETFs.
On the day, all 10 sectors were in the green with Utilities (+4.19%) out in front leading the way higher while Energy (+1.20%) lagged behind the other sectors. At the same time, the SPY gained 1.94%, DIA gained 1.41%, and QQQ gained 2.15%. (It’s worth noting that IWM was up a massive 5.45%.) The VXX fell 0.76% (not as much as many would have thought) to close at 19.56 and T2122 shot up to the top of its overbought territory at 97.11. 10-year bond yields climbed dropped hard to 4.451% and Oil (WTI) was flat at +0.08% to close at $78.34 per barrel. So, Tuesday wasn’t even a fight. The major index ETFs gapped strongly higher, followed through (never testing the gap), and even after a little profit-taking put in the strongest day since April.
The major economic news reported Tuesday included October Core CPI, which came in lower than expected at +0.2% month-on-month (compared to a forecast and Sept. values of +0.3%). On a year-on-year basis, October Core CPI was also lower than was anticipated at +4.0% (versus a forecast and September reading of +4.1%). At the same time, the headline year-on-year October CPI came in below predictions at +3.2% (compared to a forecast of +3.3% and much better than the Sept. value of +3.7%). On a month-to-month basis, the October CPI was dead flat at 0.0% (versus the forecast of +0.1% and much better than September’s +0.4% reading). On top of all of this, note that the Bureau of Labor Statistics changed the way it estimates the cost of healthcare. So, these readings are about 0.1% higher than they would have been if they were calculated using last month’s method. In other words, inflation fell more than the decrease indicated above. Finally, after the close, the API Weekly Crude Oil Stocks report came in at +1.355 million barrels (compared to a forecasted build of 1.400 million barrels but far lower than the prior week’s +11.900 million barrels).
In Fed Speak news, early Tuesday, FOMC Vice-Chair Jefferson (a hawk) told a European conference that “monetary policymakers may need to take more forceful action to keep inflation expectations anchored.” (However, he was speaking to European central bankers and did not specify that his remarks were related to the US.) At the same conference, St. Louis Fed President Bullard (an ultra-hawk) warned that despite a period of “nice disinflation” the battle against inflation is not yet won. He pointed out that in the US, the PCE Inflation number has only fallen to 3.7%, which is still well above the Fed’s 2% target number. (To be clear, both presentations were made hours before the CPI data was released. However, both may well have had the numbers prior to release.)
In stock news, RENB and GEDiCube Intl. have agreed to a merger and will now be called Renovaro.AI. (This is the first merger of an AI company with a biotech firm.) At the same time, BXD announced it had agreed to sell its 45% interest in two MA properties for $1.66 billion. (The properties are in a biotech hotspot populated by MRNA among others and one of the properties has been pre-leased by AZN although still under construction.) Later, PFE announced it will cut 500 jobs in the UK as part of a $3.5 billion cost-cutting plan. At the same time, JAZZ struck a deal with a spinoff from GSK (Autifony Therapeutics). Under the deal, JAZZ will pay up to $770.5 million if Autifony develops two drugs according to schedule. JAZZ would then take over the clinical testing, manufacturing, regulatory approvals, and commercialization of the drugs. Elsewhere, RIVN revealed Tuesday that it will borrow $15 billion under a kind of “phantom bond” issued by its joint-development partner in order to pay for the construction of its GA production plant. Later, ABNB announced plans to acquire GamePlanner.AI (and AI startup) for an undisclosed sum. At the same time, Reuters reports that five sources tell it GS is strongly considering paying higher bonuses to top traders and dealmakers in order to prevent poaching by competitors.
In stock government, legal, and regulatory news, CTLT reported to the SEC that it is delaying its quarterly report due to taking an “impairment charge” of around $700 million related to acquisitions by its consumer health business. (CTLT delayed its annual results several times earlier in the year, blaming production problems.) The company told the SEC it would report on Wednesday instead of Tuesday. Later, a NY judge narrowed the scope of WBD’s lawsuit against PARA over the streaming rights to the adult cartoon “South Park.” At the same time, Reuters reported that ADBE will be given an EU antitrust warning in the next few days (related to its $20 bid to buy cloud-based platform Figma). The move is reportedly intended to pressure ADBE to offer divestment remedies to appease European competitors. Elsewhere, in a move that is contrary to what GOP-run states are doing, the ECB issued a stern warning to banks that operate in the Eurozone. The warning, issued by the central bank’s vice-chair, told of significant penalties if the banks do not improve their Climate and Environment risk management. At the same time, the US Dept. of Justice asked a judge to dismiss its suit brought against affiliates of UNH which had alleged the firms violated antitrust law by prohibiting employees from moving from one company to another. In a side note to a case, investment bank BCS (Barclays) has begun telling clients it believes GOOGL will lose its antitrust case brought by the US Dept. of Justice related to their browser market practices, which the US alleges breach antitrust law. Later, ACHR was hit with an investor lawsuit claiming the company misrepresented its electric VTOL aircraft. In the same vein, investors filed suit against BCLI alleging the biotech company issued misleading statements about the prospects for its ALS drug. Later, a US district judge in CA ruled against GOOGL, META, SNAP, and TikTok attempts to have a lawsuit dismissed. The judge ruled the suit, which alleges the companies illegally enticed and addicted millions of teens to their platform causing the users mental health damage, can proceed. (This ruling covers hundreds of suits that are likely to become a large single class action suit at some point.) After the close, the FDA warned AMZN about the sale of seven unapproved eyedrops on the company’s platform, citing both unproven claims (false advertising) and health risks in the letter. Also after the close, CHTR agreed to pay the SEC $25 million related to unauthorized stock buybacks between 2017 and 2021.
After the close, NU reported beats on both the revenue and earnings lines.
Overnight, Asian markets were green across the board (following Tuesday’s US rally). Hong Kong (+3.92%), Japan (+2.52%), and South Korea (+2.20%) led that region higher but large gains were widespread with China being the laggard. Meanwhile, in Europe, the bourses lean toward the green side but four of the 15 are still in the red at midday. The CAC (+0.60%), DAX (+0.73%), and FTSE (+0.97%) lead the continent higher in early afternoon trade. In the US, as of 7:30 a.m., Futures are pointing toward another green start to the day. The DIA implies a +0.24% open, the SPY is implying a +0.31% open, and the QQQ implies a +0.50% open at this hour. At the same time, 10-year bond yields are back up a bit to 4.473% and Oil (WTI) is down 0.45% to $77.91 per barrel.
The major economic news scheduled for Wednesday includes Oct. Core PPI, Oct. PPI, and Oct. Retail Sales (all at 8:30 a.m.), Sept. Business Inventories and Sept. Retail Inventories (10 a.m.), and Weekly EIA Crude Oil Inventories (10:30 a.m.). The major earnings reports scheduled before the open include AAP, CTLT, FI, GFF, JD, TGT, TCEHY, TJX, XPEV, and ZIM. Then, after the close, SQM, CPA, MMS, PANW, and TTEK report.
In economic news later this week, on Thursday, Oct. Export Priced Index, Oct. Import Price Index, Weekly Initial Jobless Claims, Philly Fed Mfg. Index, Oct. Industrial Production, and the Fed’s Balance Sheet are reported. Finally, 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 Thursday, we hear from BABA, ARCO, BBWI, BERY, BV, DDL, DOLE, M, NICE, WMT, WSM, QFIN, AMAT, BZH, CPRT, GPS, GLOB, HI, MATW, POST, ROST, UGI, WWD, and ATO. Finally, on Friday we hear from ATKR, BJ, and SPB.
In government news, the US Postal Service reported a $6.5 billion net loss for the year ending September 30. USPS revenue was down 0.4% as first-class mail volume fell to the lowest level since 1968. Meanwhile, the US Dept. of Energy announced it plans to buy 1.2 million barrels of oil at an average price of $77.57/barrel to help replenish the Strategic Petroleum Reserve. However, the bid government news is that the House passed Speaker Johnson’s phased “2 cliff” approach in a bipartisan 336-95 vote (with 209 of those votes coming from Democrats). 93 Republicans voted against the stop-gap bill. (In October, the Speaker’s predecessor was ousted for working with the other side of the aisle. However, the embarrassing three-week show of ineptitude following McCarthy’s ouster has given Johnson more leeway as the GOP is hesitant to go back through that Speaker selection process again.) Johnson’s bill approach calls for no up-front cuts, extending current funding levels for military construction, veteran benefits, HUD, Agriculture, FDA, and Environmental programs until January 19. All other federal operations, including Defense, would have their current levels of funding expire on February 2. President Biden announced that he would sign the bill if it is approved by the Senate. That signal undoubtedly means Senate Democrats will likely pass the bill. Finally, it is worth noting that President Biden will meet with Chinese President Xi on the sidelines of an Asia-Pacific Economic Conference in San Francisco today. There are no planned outcomes from the meeting as both sides have downplayed expectations. However, anything is possible when the leaders of the two largest economies meet.
In miscellaneous news, while the overall vote count is still in favor of approving the deal, another plant (this one a GM facility in TN) narrowly voted against ratifying the UAW-Big3 tentative agreement. Overall, approval is leading with 82% support at STLA, 65% support at F, but only 52% at GM (with just over 30% of total GM votes now cast). Elsewhere, a study published by Boston Consulting covering 554 public companies across 20 sectors found that firms that allow remote work have had four times as much revenue growth as their counterparts with more stringent “work from the office” policies. Finally, Bloomberg reports that Beijing is planning to offer at least $137 billion of low-cost financing for village renovation and affordable housing programs. The idea appears to be both to stabilize the real estate sector and stimulate China’s economy through housing-sector construction projects.
So far this morning, TGT, TJX, and XPEV all reported beats on both the revenue and earnings lines. TGT is particular is noteworthy with a massive earnings beat on only slightly increased sales. (TGT comparable store sales declined for the second straight quarter.) Meanwhile, AAP and CTLT beat on revenue while missing on earnings. On the other side, JD missed on revenue while beating on earnings. Unfortunately, ZIM missed on both the top and bottom lines.
With that background, all three major index ETFs gapped up to start the premarket session and have printed white-bodied candles that are now at or near the early session highs. The SPY, DIA, and QQQ all remain 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 have also significantly reduced (or erased) the distance to their summer highs. So, the Bulls are back in control of the longer-term trend on the strength of a hard rally the last two weeks. In terms of extension, all three major index ETFs are now stretched far above their T-line (8ema). At the same time, the T2122 indicator is in the top of its overbought territory. So, we are definitely 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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