Stocks gapped down Monday (about 0.40% in the large-cap indices and about 0.20% in the QQQ). After an hour of rallying up to the day’s highs, the selloff to the lows took over from 10:30 am to 2 pm. At that point, we chopped our way sideways with a very slight bullish trend until a massive selloff in the last 5 minutes of the day. This action left us with black-bodied Spinning Top type candles. However, the SPY and DIA closed at the lowest level for a close since December 2020. On the other hand, all 3 of the major indices remain very extended below the T-line (ema).
On the day, all 10 sectors were red, with the Energy (-2.68%) and Utilities (-2.46%) sectors leading the way lower. At the same time, the Consumer Defensive (-0.44%) and Consumer Cyclical (-0.83%) sectors lagged the decline. Meanwhile, the SPY lost 0.95%, DIA lost 1.06%, and QQQ lost 0.41%. The VXX rose by 3.73% to 20.56 and T2122 remains deeply oversold at 1.56. 10-year bond yields spiked to 3.924% and Oil (WTI) fell 2.88% to $76.47/barrel. So, overall, it was an ugly, down but still indecisive day.
In Fed news, Boston Fed President Collins told a New England business group that she expects a more modest economic slowdown as the Fed continues to tighten. She went on to say inflation could be tamed without a pronounced spike in layoffs as part of a “soft landing.” Meanwhile, Atlanta Fed President Bostic told the Washington Post he doesn’t know if the Fed is being too optimistic or pessimistic, but that the important thing is that we need to get inflation under control. He also went on to say the new UK government’s decision to do major tax cuts will cause both further inflation and stoke market volatility more broadly than just in the United Kingdom. (“The key questions will be what this means for ultimately weakening the European economy, which is important for how the US economy will perform.”) Later, Cleveland Fed President Mester told an MIT audience that inflation will continue to be hard to predict and she was going to be very cautious before declaring victory over inflation. She went on to say we need to have rising rates until we see several months of declining inflation and “we can’t avoid pain.”
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In stock news, the CEO of UL has announced he will retire at the end of 2023 after a bungled attempt to buy GSK’s consumer healthcare business. Then, after the close, BIIB finalized a $900 million settlement with the US Dept. of Justice for paying doctors kickbacks in return for prescribing BIIB products. Elsewhere, the US Forest Service also started a federal investigation into the “Mosquito” fire. The agency seized some of PCG’s equipment from a transmission pole. PCG said they are fully cooperating. Elsewhere, SBUX sent a letter to the unions that represent employees at more than 230 of its US stores. The company invited the unions to begin contract negotiations in October. In other union news, the Intl. Assn of Machinists and Aerospace Workers filed an application to hold an organizing vote among 3,000 of JBLU’s ground crews. The company opposes having a vote. At the same time, the UAW has sought speedier recognition by GM at a new battery manufacturing facility in Ohio. The faster process would forgo a vote if more than half of the plant employees sign a card requesting union representation.
In Energy news, SU announced Monday that it will buy back $1.27 billion in bonds it had previously issued even as S&P had just downgraded SU debt to a BBB rating. In weather-related issues, BP and CVX both shut down Gulf of Mexico oil production Monday as Hurricane Ian bears down on the top-producing area of the gulf. This shutdown accounts for about 15% of US daily oil production. Meanwhile, OXY said it was also implementing its storm protocols “designed to safeguard the environment and personnel safety” (but did not say whether that meant shutting down production). For their part, SHEL said it is closely monitoring the storm, but is not taking action at this point. Finally, European investigators are rushing to identify the cause of mysterious (potentially sabotage) leaks in the Nord Stream One pipeline under the Baltic Sea. Similar leaks were found in the nearby (and not yet opened) Nord Stream Two pipeline. Shipping in the area has been restricted.
In miscellaneous news, during the day, eight State Attorneys General filed cease and desist orders and lawsuits against crypto lending platform Nexo. The AGs charged Nexo with offering customers interest on deposits without filing the paperwork to register as a security or to disclose financial disclosures. Meanwhile, US farmers are lobbying the US government to challenge the looming Mexican ban on importing genetically-modified grain (specifically corn) via the USMCA. The ban is scheduled to be fully implemented by 2024 and would eliminate about $1.65 billion per year in US corn exports. The largest companies impacted would be ADM and BG.
Overnight, Asian markets were mixed but the larger exchanges were green led by China. Shenzhen (+1.94%), Shanghai (+1.40%), and Japan (+0.53%) led the region higher while New Zealand (-1.93%) was an outlier to the downside. In Europe, stocks are mostly green at midday. The FTSE (-0.01%) lags due to continued fear over the new Truss government tax cuts impacts. However, the DAX (+0.73%), and CAC (+0.67%) lead the region higher (with only Russia -0.07% and the FTSE red) in early afternoon trade. As of 7:30 am, US Futures are pointing toward a gap higher to start the day. The DIA implies a +0.85% open, the SPY is implying a +1.08% open, and the QQQ implies a +1.32% open at this hour. 10-year bond yields are down to 3.821% and Oil (WTI) is up 1.36% to $77.75/barrel in early trading.
The major economic news events scheduled for Tuesday include August Durable Goods Orders (8:30 am), Cond. Board Consumer Confidence and August New Home Sales (both at 10 am), and API Weekly Crude Oil Stocks (4:30 pm). There are also 2 Fed speakers (Chair Powell at 7:30 am and Bullard at 9:55 am). The major earnings reports scheduled for the day include CBRL, FERG, JBL, SNX, and UNFI before the open. Then after the close, BB and CALM report.
In earnings reports later this week, on Wednesday, we hear from CTAS, HEPS, PAYX, THO, CNXC, JEF, and MLKN. Then Thursday, BBBY, KMX, RAD, WOR, MU, and NKE report. Finally, on Friday, BKR and CCL report.
So far this morning, FERG reported a beat on revenue while also missing on the earnings line. On the opposite side, UNFI missed on revenue while beating on earnings. JBL, SNX and CBRL all report later, but before the open.
With this backdrop, don’t be fooled by a gap higher. The strong bear trend remains in place across all 3 major indices. So, at this point, this move looks like nothing but relief from over-extension and perhaps a little support from the June Low in the large-cap indices. Expect more volatility and even though everything looks good early, do not forget the trend is not broken. Markets always move in a zig-zag motion and, so far, this doesn’t even qualify as a relief rally. This is just a pause in the run lower until proven otherwise.
Keep in mind that trading is our job. It’s not a hobby. So, treat it that way. Do the work and follow the process. Stick with your trading rules, trade with the trend, and take those profits when you have them. Demonstrate patience and wait for confirmation. Don’t be stubborn. If you have a loss, just admit you were wrong, respect your stop, and take the loss before it grows. When price does move in your direction, always move your stops in your favor (remember the “Legend of the man in the green bathrobe“…it is NOT HOUSE MONEY, it’s all OUR MONEY!). Lastly, remember that you get rich slowly and steadily in Trading…not by striking it rich on one or two trades. So, give up that lottery ticket mentality.
See you in the trading room.
Ed
Swing Trade Ideas for your consideration and watchlist: No Trade Ideas today. You can find Rick’s review of tickers on his YouTube Channel here. Trade your plan, take profits along the way, and smart. Also, remember to check for impending earnings reports. Finally, remember that any tickers we mention and talk about in the trading room are not recommendations to buy or sell.
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🎯 Friday 6/21/19 (10:09 am) Aaron B: Today, my account is at +190% since January. Thanks, RWO HRC Flash Malcolm Thomas Steve Ed Bob S Bob C Mike P and everyone that contributes every day. I love our job.
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