On Wednesday, markets opened just on the green side of flat. All three major indices say 20 minutes of modest rally followed by 45 minutes of a slightly stronger selloff. However, at 10:40 am, a slow, steady rally took over the market that eventually took us to new highs by 2 pm. Unfortunately, after buying the rumor all morning, traders sold the news after the Fed Minutes release. This selloff took us back down to new lows by 3 pm where we stayed until a bounce that last 15 minutes. This action is giving us black-bodied, indecisive Spinning Top candles in the SPY, DIA, and QQQ.
On the day, six of the 10 sectors were in the red as Energy (-0.60%) led the way lower and Consumer Cyclical (+0.50%) held up better than the other sectors. At the same time, the SPY was down 0.12%, the DIA was down 0.22%, and QQQ was up 0.07%. The VXX fell 2.86% to 12.22 and T2122 has climbed but remains well into the oversold territory at 13.72. 10-year bond yields have fallen slightly to 3.916% and Oil (WTI) is down 3.23% to $73.89 per barrel. So, we saw a “wait and see” open (despite good earnings reports) and then a slow, but steady rally into the Fed Minutes. However, at that point, we sold off to take all three major indices out near the lows. All this took place on a little below-average volume.
In economic news, the FOMC Minutes from the Feb 1 meeting was the only show in town Wednesday. As mentioned, their release moved markets lower, despite us not learning anything we didn’t know before the release. All participants expressed that they welcomed the signs of moderating inflation leading up to the meeting. However, the sentiment that “substantially more evidence of progress on inflation” would be required before they were confident inflation was on a downward path toward 2%. The vast majority favored a 25-basis-point hike (which is what they announced). However, three members (including non-voters uber-hawk Bullard and Mester) were in favor of a continuation of 50-basis-point hikes (or at least said they could support a 0.50% hike). We knew those two had been in favor of a 50-basis-point hike prior to the minutes because they flat-out told us as much last week. With that said, the minutes also gave us a clue that there was concern over financial stability, both from increasing rates too quickly and potentially from the upcoming Federal Debt Ceiling showdown. The most heated exchanges were related to the risk of recession with a few attendees seeing an “increased likelihood” of recession while the majority pointed to the labor market which has remained hot implying that businesses still see demand and are working to hold onto or in some cases increase their number of employees and also pointed to excess savings, even noting that some local governments have “sizable budget surpluses.”
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In stock news, Reuters reported that the CEO of MKC told them during an interview that the company is seeing pushback from retailers on price increases for its products. Specifically, WMT and KR (two largest grocery chains) were mentioned as fighting any increase in prices. Elsewhere, Reuters also reported that CMCSA took advantage of the recent “AI craze” to sell more than 11 million shares of BZFD so far in the month of February. This came after BZFD has announced it was partnering with OpenAI on ads. Later, Bloomberg reported that AAPL has made a breakthrough in non-invasive (no blood sample) glucose monitoring. This would allow the phone maker to compete with current blood or prick required solutions from ABT, PODD, DXCM, and TNDM. At the same time, INTC announced a cut to its dividend by 65% (to the lowest level since 2007) in an effort to save cash. INTC has been losing ground to AMD in key markets, had many delayed and mediocre product launches in the last year and is currently facing the worst semiconductor market in a decade coming off the boom pandemic years of high sales and higher prices. Meanwhile, after the close, TM announced it has accepted union demands for the largest base salary wage hike in 20 years as well as an increase in bonuses. Shortly after the TM announcement, HMC said it also has agreed to a deal with unions. However, the HMC deal was only for a 5% pay increase. Finally, in early evening, GOOGL told “cloud employees and contractors” that they will be sharing desks (on alternate days) in order reduce real estate costs at its five largest locations. Workers will be in-office two days per week (Monday/Wednesday or Tuesday/Thursday) which is actually down from the currently required 3 days in-office. There was no word on the amount of expected savings or whether the workers will be 33% more productive on their two days in-office.
In stock legal and regulatory news, CRL shares plunged Wednesday after news broke that the company was subpoenaed by the US Justice Dept. in relation investigations of Cambodian supplier of monkeys for research. At the same time, AMZN completed its purchase of One Medical (primary care provider) a day after receiving FTC approval for the deal. Elsewhere, the US Supreme Court ruled that HLX is liable to pay overtime for an oil rig supervisor who earns $200k per year. The 6-3 majority ruled the person was being paid at a daily rate of $963 and was not on salary. The ruling could have serious implications for corporations employing non-contract staff. Meanwhile, NSC made several announcements Wednesday that it will take responsibility for the cleanup (as had been ordered Tuesday by the EPA. After the close, the CDC advisory panel recommended a BVNRY monkeypox vaccine be approved for use in all adults at risk. Such recommendations usually lead quickly to approval and if approved this would give BVNRY an advantage over EBS whose smallpox vaccine was competing for that market but which causes severe side effects. Finally, in non-specific corporate news, the NLRB ruled that laid-off workers cannot be required to sign confidentiality or any other (non-compete) agreements that could deter them from exercising their rights to find other employment as a condition for receiving severance pay. This overturned a pair of Trump-era rulings that had made non-compete and confidentiality contracts a valid condition for receiving severance.
In energy news, after the close the API Weekly Crude Stocks Report came out. This week saw another very large and unexpected rise in stocks. The report said crude oil inventories grew 9.895 million barrels (compared to a forecast of a 1.233-million-barrel build and following on the heels of the prior week’s 10.507-million-barrel build). The report also saw a 0.894-million-barrel build in gasoline inventories as well as a 1.374-million-barrel increase in distillate (diesel and heating oil) stocks. This report followed a day when crude prices fell 3.3% on fears of upcoming Fed rate hikes and a weakening of the China rebound. In addition, the Fed minutes also supported a strengthening dollar which rose against sterling, the yen and euro. (A stronger dollar reduces the price of nearly all dollar-denominated commodities.)
After the close, NVDA, PXD, EBAY, APA, CTRA, PARR, FIX, PDCE, RXT, ANSS, MYRG, CCRN, TDOC, PK, RUN, EXR, COKE, KALU, ICLR, VMI, OGS, STN, SUI, and SM all reported beats on both the revenue and earnings lines. Meanwhile, DVA, NTAP, CAKE, CDE, DVA, GSM, WES, and UCTT reported misses on revenue while beating on earnings. On the other side, MOS, OPAD, ETSY, CPE, CHDN, CHRD, BTG, DOOR, RYI, and PR all beat on revenue while also missing on earnings. Unfortunately, ATUS, SNBR, FNF, VAC, MATV, and OUT missed on both the top and bottom lines. It is worth noting that RYI raised its forward guidance. However, NTAP, VAC, OPAD, RXT, UCTT, and SUI all lowered their forward guidance.
Overnight, Asian markets were mostly in the red. Taiwan (+1.28%) and South Korea (+0.80%) were strong but the only green in the region. However, Japan (-1.34%) and Singapore (-1.06%) led the region lower with the rest of the exchanges down less than half of a percent. Meanwhile, in Europe, the regional bourses are mostly green at midday. FTSE (-0.18%) is one of three exchanges in the red while the DAX (+0.63%) and CAC (+0.48%) lead the region higher 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 +0.30% open, the SPY is implying a +0.54% open, and the QQQ implies a +1.00% open at this hour. At the same time, 10-year bond yields are back up to 3.947% and Oil (WTI) is up 1% to $74.75/barrel in early trading.
The major economic news events scheduled for Thursday includes Q4 GDP, Q4 GDP Price Index, and Weekly Initial Jobless Claims (all at 8:30 am), and EIA Crude Oil Inventories (11 am). The major earnings reports scheduled for the day include BABA, AMR, AEP, AMT, HOUS, AMBP, AAWW, BBWI, BHC, CBRE, CQP, LNG, COMM, DPZ, DTE, EME, AG, FCN, GPC, GFI, IRM, KDP, LKQ, MRNA, MODV, NTES, NEM, NICE, NOMD, OPCH, PZZA, PCG, PRMW, PWR, RCII, SPTN, SRCL, FTI, TFX, BLD, TAC, VIPS, W, and YETI before the opening bell. Then after the close, ACCO, ATSG, ACA, ADSK, BALY, BECN, SQ, BKNG, BWXT, CVNA, CE, CGAU, CENX, CHE, CWK, EIX, ERIE, FTCH, FND, INTU, LYV, MTZ, MELI, OII, ZEUS, OPEN, PBA, PRI, RHP, SEM, SWN, VICI, WBD, and INT report.
So far this morning, BABA, LYG, GPC, PWR, BBWI, AMT, BLD, SHOO, MODV, DTE, AEP, CQP, EME, RCII, OPCH, FCN, PZZA, and SATS all reported beats on both the revenue and earnings lines. Meanwhile, CBRE, VIPS, DISH, ARKAY, COMM, DPZ, IRM, TFX, OGE, PCG, and NICE all missed on revenue while beating on earnings. On the other side, KDP, W, FTI, NEM, SPTN, NOMD, and GRAB have reported beats on revenue while missing on the earnings line. Unfortunately, MRNA, NTES, LKQ, and PRMW have reported misses on both the top and bottom lines. It is worth noting that VIPS, GPC, PWR, IRM, BLD, and GRAB have all raised their forward guidance. However, BBWI, SPTN, RCII, and NOMD lowered their forward guidance.
In economic news later this week, on Friday, the January PCE Price Index, January Personal Spending, Michigan Consumer Sentiment, and January New Home Sales are reported. In terms of earnings later in the week, on Friday, we hear from CM, GTLS, CNK, EOG, EVRG, FMX, FYBR, GTN, DINO, IEP, LAMR, and CRC.
In late-breaking news, Elon Musk met with CA Governor Newsom Wednesday. As a result, the new TSLA Engineering Headquarters will be built in CA instead of in TX where the company Headquarters were moved in 2021 (in tax abatement wrangling). Meanwhile, NY Fed President (and voter) Williams toed the company line last night. In his evening presentation, he said it was important that the Fed remain committed to its 2% inflation goal. (He did not speak to the most recent data, what he thinks would be the appropriate next hike, or where he sees the terminal Fed Funds rate reaching.) At the same time, a PIMCO subsidiary has defaulted on $1.7 billion in mortgage loans. An industry analyst claims the value of the commercial properties (nationwide) covered by those loans had fallen 20% since the start of the pandemic in 2020. Finally, he CME Fed Watch Tool shows that fewer traders are betting on a quarter-point hike in March now. Still, the futures imply a 73% chance of a quarter-point hike with the odds of a half-point hike rising to 27%.
With that background, it looks like the bulls want to gap markets higher (back toward the T-line) in all three major indices. This is especially true in the QQQ when most of the T-line extension will be eliminated IF we open where premarkets sit now. All three major indices also have potential support levels not too far below. However, they also face resistance just above after the last few days of losses. The trend remains bearish in the short term while the basic character of the market has been “chop and thrash back-and-forth” in recent weeks. So, continue to show some caution.
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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