Markets gapped higher on Wednesday (0.4% in the QQQ, 0.5% in SPY, and 1% in the DIA). Then we saw strong follow-through until 11 am. At that point, we saw a sideways grind within a tight range for the rest of the day. This action gave us something that could be seen as a Morning Star type pattern in the SPY and QQQ. For the day, we got gap-up, white-bodied candles with smaller wicks on both ends. It is worth noting that the DIA did break up through its T-line (8ema) once again during the day.
On the day, all ten of the sectors were in the green with Energy (+2.21%) leading the way higher while the Consumer Defensive (+1.10%) sector lagged. Meanwhile, the SPY gained 1.48%, the DIA gained 1.59%, and the QQQ gained 1.45%. At the same time, the VXX fell 3.78% to 13.99 and T2122 has climbed up into the mid-range at 47.54. 10-year bond yields surged up to 3.671% and Oil (WTI) was up 2.94% to $78.47 per barrel. So, overall, it was a strong bullish morning and then a dead afternoon that gave markets some relief from bearish over-extension (call it a Santa Relief pop).
In economic news, Q3 Current Accounts (Exports minus Imports) came in better than expected at a $217.1 billion deficit (compared to a forecasted $222.0 billion deficit or the prior reading of a $238.7 billion deficit). Later in the morning, Conference Board Consumer Confidence came in well above expectations at 108.3 (versus the forecast of $101.0 and the previous reading of 101.4). Meanwhile, November Existing Home Sales came in below forecast at 4.09 million (compared to the expected 4.20 million and the October reading of 4.43 million). Finally, EIA Weekly Crude Oil Inventories showed a greater drawdown than expected at -5.894-million-barrels (versus the forecast of -1.657-million-barrels and far lower than last week’s massive 10.231-million-barrel inventory build). So, it seems the improvement in Import/Export ratio and an unexpected big jump in consumer confidence trumped concerns over slipping home sales.
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In stock news, GM recalled 140,000 Chevy Bolt electric cars (2017-2023) over fire hazard in the event of a crash related to seatbelt tensioners igniting the carpet. In other news, TSP (self-driving truck company) announced it will lay off 25% of its workforce. The move comes less than a month after TSP ended (or had terminated?) a deal to co-develop autonomous trucks with Navistar. In Europe, Germany announced it has now ended its proceedings against GOOGL related to the company’s online news service. This came after the company made changes to benefit German news publishers. Elsewhere, UAA has hired the current President of MAR to be the new CEO of UAA beginning in February. Finally, SLDP announced it has agreed to a $20 million deal with BMWYY (BMW automotive) to produce batteries in the carmaker’s German plants through 2024.
In Fed news, seven Republican Senators have introduced a bill that would dramatically change the Fed. The bill calls for all Fed Regional Bank Presidents to become political nominees of the President, which would then also require Senate approval. It also calls for reducing the number of Fed Regional Banks from 12 to 5 and instead of rotation, all 5 Presidents would then be permanent voting members of the FOMC. It’s unclear how this “politicizing in the name of depoliticizing” of the Fed would help remove politics (which was the stated goal of the seven Senators). However, it is clear the primary concern of the GOP Senators is stopping the Fed from researching the economic impacts of climate change and social factors. Speaking of the Fed, a survey of CFOs conducted by the Richmond Fed found that two-thirds of them say their firms will not curtail spending plans due to the Fed rate hikes. 30% said rate hikes have already caused them to reduce spending. However, on average, the CFOs said their companies would not reduce spending unless Fed rates hit 6.4% (a level far above the currently forecasted terminal rate at this point).
In miscellaneous news, Sam Bankman-Fried of FTX infamy has arrived in the US after extradition from the Bahamas. It is unclear if it is related to this, but overnight his co-Founder of FTX (Gary Wang) and his co-CEO of Alameda Research both pleaded guilty to charges and agreed to cooperate with prosecutors in their case against SBF. Elsewhere, China announced that in January it will cut quarantine requirements for overseas travelers. With that said, estimates are that China now has over 1 million active cases and is dealing with up to 5,000 virus deaths per day. Major cities (like Beijing and Shanghai) are also largely self-quarantining due to the post-repression massive outbreaks. So, it is uncertain how the Chinese economy is coping (growing on the opening or faltering on the resulting wave of illness).
After the close, MLKN reported beats on both the earnings and revenue line. However, MU missed on both the top and bottom lines. MU also lowered its forward guidance and announced a 10% reduction in its staff as well as the suspension of bonuses. So far this morning, KMX has reported significant misses on both lines. (PAYX reports at 8:30 am.)
Overnight, Asian markets were mostly green. Shanghai (-0.46%), India (-0.39%), and Shenzhen (-0.33%) were the only red in the region. Meanwhile, Hong Kong (+2.71%), Taiwan (+1.47%), and South Korea (+1.19%) led the region higher. In Europe, we see a similar picture taking shape at midday. The DAX (-0.18%), CAC (-0.04%), and FTSE MIB (-0.10%) are the only red in the region. Meanwhile, the FTSE (+0.45%) leads the bulk of the continent’s exchanges in modest gains in early afternoon trade. As of 7:30 am, US Futures are pointing toward a modestly red start to the day. The DIA implies a -0.17% open, the SPY is implying a -0.13% open, and the QQQ implies a -0.18% open at this hour. 10-year bond yields are retreating to 3.654% and Oil (WTI) is up more than 1.5% to $79.49/barrel in early trading.
The major economic news events scheduled for Thursday include Q3 GDP, Q3 GDP Price Index, and Weekly Initial Jobless Claims (all at 8:30 am). Major earnings reports scheduled before the open Wednesday include KMX and PAYX. Then, after the close, there are no major earnings reports scheduled.
In economic news on Friday, Nov. Durable Goods, Nov. PCE Price Index, Nov. Personal Spending, Michigan Consumer Sentiment, and Nov. New Home Sales are reported. Meanwhile, in earnings, on Friday, there are no reports scheduled.
With that background, it looks like all three major indices are fading from earlier bullishness with the DIA looking to retest its T-line (8ema) and the SPY failing its premarket test of that level. Keep in mind that the SPY still has its 50sma close overhead as another potential resistance. Overextension is not a problem at this point, either in terms of the T-line or T2122. Remember that the week is winding down with a half-day Friday and then the market is closed Monday. Also, note that with the huge storm wreaking havoc across the nation that traders may hit the door early in case of travel delays. That means it may be time to start hedging, flattening, or taking profits…and you will not be the only trader thinking that way. My point is, don’t go chasing too many new positions unless you can get your move very quickly or you are willing to ride the trade through a long weekend and likely dead week to follow.
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.
Swing Trade Ideas for your consideration and watchlist: TWKS, RIG, BKR, MDB, DOCU, CAT, OKTA, SPXS, SQQQ, BIDU, and RWM. 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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