Stocks gapped down very modestly (0.25% – 0.35%) Friday and followed through for 5 minutes.  However, then volatility stepped in to rally us to the highs of the day by 11:15 am.  At that point, the market reversed again as the bears led a selloff the rest of the day.  This took us to a series of new lows at about 2:30 pm and took us out on the lows.  This action has left us with black-bodied, indecisive, inverted hammer-type candles in all 3 major indices.  It is also worth noting that all 3 indices are again getting extended from their T-lines.

On the day, 9 of 10 sectors are in the green with Basic Materials (+0.15%) as the only sector able to hold onto a gain and Consumer Cyclical (-1.63%) leading the charge lower.  At the same time, SPY was down 1.55%, DIA was down 1.70%, and QQQ was down 1.70%.  The VXX gained almost 3% to 21.21 and T2122 has actually risen to 5.06 (which is still deep in the oversold territory).  10-year bond yields are down, but way up off the early morning lows to 3.821%, and Oil (WTI) is down almost 2% to $79.61/barrel.  Overall, it was a very volatile and bearish day.

So, with inflation high and the Fed on a super-sized hike cycle (while saying they are not going to let up until inflation is clearly headed to 2%), Mr. Market is not a happy camper.  That brought us to the end of a rough week, a brutal month, and a tough quarter.  On the week, SPY lost 2.93%, DIA lost 2.89%, and QQQ lost 2.99%.  For the month, SPY lost 9.62%, DIA lost 8.98%, and QQQ lost 10.70%.  For the quarter, SPY lost 5.32%, DIA lost 6.67%, and QQQ lost 4.65%.

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In economic news, the August Month-on-Month PCE Price Index came in at +4.9%, which was above the +4.7% forecast (and the previous reading of 4.7%).  In addition, the August Mon-on-Month Personal Spending was up +0.4% (compared to a +0.2% forecast and previous reading of -0.2%).  (It is worth noting that core PCE is the Fed’s favorite gauge of inflation and what its 2% target is set against.)  Meanwhile, August Year-on-Year PCE Price Index came in a +6.2%, which was better than the previous reading of +6.4%.  Then the Chicago PMI came in at 45.7 (versus a 51.8 forecast) and Michigan Consumer Sentiment came in at 58.6 (versus a 59.5 forecast and a previous reading of 59.5).  So, that information tells us inflation is up, business is contracting, and the general public is pessimistic.

Speaking of the Fed, Vice Chair Brainard added her full endorsement of the current “higher rates for longer” approach the Fed is undertaking.  She went on to say “Monetary policy will need to be restrictive for some time to have confidence that inflation is moving back toward the target.”  Earlier, Richmond Fed President Barkin had said there were some promising signs of inflation progress.  However, he said that “festering inflation” remains a bigger threat to the economy than us (the Fed) over-correcting.”  Earlier, Fed Governor Bowman (a Republican) suggested averaging bank stress tests to determine bank capital requirements (as opposed to setting them every time they are tested).  Her generally suggested approach was toward lighter regulation of banks.  This stands in stark contrast to Fed Bank Supervisor Barr (Democrat), who has called for more scrutiny of bank risk-taking given the history of financial crises that banks have led the economy into in the past.

In stock news, on Friday, UAL announced it will cancel service from JFK airport as of October because the FAA will not give them additional flights out of that airport.  (UAL had only resumed service from JFK in 2021.)  Meanwhile, EU regulators announced they would publish a decision on whether to allow (or what mandated stipulations must be met to allow) the MSFT acquisition of ATVI by November 8.  Elsewhere, after hours, SWK announced it is cutting 1,000 finance jobs.  (It makes you wonder either who will do the books…or why they had so many since they only have 71,000 total employees.)  On Sunday, TSLA reported that it delivered 343k new vehicles in Q3 which was about 20k fewer vehicles than analysts had been expecting.  However, it was also a 35% increase over Q3 2021. TSLA blamed employee turnover in management positions (after Musk’s “work at least 40 hours per week in the office” decree) and logistics snarls for the shortfall.

After the close, NKE reported beating on both the revenue and earnings lines.  However, MU missed on revenue while beating on earnings.  MU also lowered its forward guidance.  It is also worth noting that despite beating on both lines, NKE reported that they have way too much inventory (44% globally and 65% too much in North America) across multiple seasons of apparel) due to severe supply chain problems. The company said it will be forced to aggressively discount in order to liquidate the excess inventory. Later this morning, CCL reports (9:15 am).

Overnight, Asian markets were mostly in the red.   Japan (+1.07%) was a clear outlier to the upside with only one other exchange managing any green.  However, Thailand (-1.98%), Shenzhen (-1.29%), and India (-1.21%) led the region lower.  Meanwhile, in Europe, we see a similar story taking shape at midday.  Russia (+3.43%), Norway (+1.34%), and Portugal (+0.96%) are the only green to be found on the continent.  At the same time, the FTSE (-0.56%), DAX (-0.59%), and CAC (-0.88%) are leading the region lower in early afternoon trade.  As of 7:15 am, US Futures are pointing toward a mixed start to the day.  The DIA implies a +0.57% open, the SPY is implying a +0.42% open, and the QQQ implies a +0.04% open at this hour.  At the same time, 10-year bond yields are down to 3.75% and Oil (WTI) is up 4.26% to $82.88/barrel in early trading.

The major economic news events scheduled for Monday is limited to September Mfg. PMI (9:45 am) and Sept. ISM Mfg. PMI (10 am).  There are no major earnings reports scheduled for the day.

In economic news later this week, on Tuesday, we get August Factory Orders, August JOLTs, and API Weekly Crude Oil Stocks.  Then Wednesday, the Sept. ADP Nonfarm Employment Change, August Imports/Exports, August Trade Balance, Sept. Services PMI, Sept. ISM Non-Mfg. PMI, and EIA Weekly Crude Oil Inventories are reported.  Thursday, we get the Weekly Initial Jobless Claims.  Finally, on Friday, Sept. Avg. Hourly Earnings, Sept. Payrolls, Sept. Participation Rate, and Sept. Unemployment Rate are reported.

In earnings reports later this week, on Tuesday we hear from AYI.  Then on Wednesday, HELE, LW, and RPM report.  Thursday, we hear from CAG, STZ, MKC, and LEVI.  Finally, on Friday, there are no major earnings reports scheduled.

In late-breaking news from across the pond, the new government of UK PM Truss has scrapped its radical shift to large-scale tax cuts for top-end tax rates and “trickle down” economics. It seems the new PM (who even on Sunday had said she was absolutely committed to her plan) was told to drop it or get out by her fellow Torry party ministers amidst a public backlash, cost of living protests, and market rejection of the plan. The British pound briefly jumped on that news. Elsewhere, Reuters reports that CS is in bad financial health and is seeking to raise capital saw the stock drop 10% at one point during the premarket. Finally, Oil (WTI and Brent) is challenging its downtrend with a major gap this morning. This seems to be driven by rumors coming out of OPEC+ that point to the group announcing major production cuts at their Wednesday meeting.

With this backdrop, and as we start the fourth quarter, markets seem headed toward an inside candle at the open in the large-cap indices and a slight continuation of the down move in the tech-heavy QQQ. Once again, this is not showing a major change in sentiment. The trend remains strongly bearish across the market, but last week’s volatile chop may be continuing. Expect more volatility and even though everything looks bearish early, do not forget that we still need over-extension relief.

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: OXY, VLO, MPC, META, NFLX, BE, EGO, JBHT, TWTR. 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.

🎯 Mike Probst: Rick, Got CTL off the scanner today. Already up 30%. Love it.

🎯 Dick Carp: the scanner paid for the year with HES-thank you

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🎯 Malcolm .: Posted in room 2, @Rick… I used the LTA Scanner to go through hundreds of stocks this weekend and picked out three to trade:  PYPL, TGT, and ZS.   Quality patterns and with my trading, up 24%, 7% and 12%…. this program is gold.

🎯 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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