Quad Witching and PMI Data Today

On Thursday, markets opened with strong gaps lower after disappointing economic news on top of follow through to the Fed announcements.  (SPY gapped down 1.26%, DIA gapped down 1.07%, and QQQ gapped down 1.43%.)   There was a strong follow-up selloff for the first 40 minutes of the day which then turned into a secondary, slow and steady selloff that lasted up until 2:30 pm.  At that point, the bulls stepped in to rally us up off the lows to retest the support/resistance level that had been broken in the large-cap indices at about 3:15 pm.  However, that retest failed and the bears stepped back in to retrace about halfway back to the lows by the close.  This action gave us large, black-bodied, candles that have fallen through a support level in all three major indices.  All three are also starting to get a little extended from their T-lines (8ema), especially in the QQQ.

On the day, all ten of the sectors are in the red with Technology (-3.70%) leading the way lower while the Energy sector (-0.50%) held up best.  In the meantime, the SPY was down 2.44%, the DIA was down 2.18%, and the QQQ was down 3.32%.  This action took place on greater than average volume.  The VXX spiked by 6.25% to 14.96 and T2122 dropped well inside the oversold territory at 8.85.  10-year bond yields were down as well to 3.448% and Oil (WTI) was down 1.42% to $76.18 per barrel.  So, overall, it was a bearish follow-through day where the QQQ gave up support and the large-cap indices continue to fight to hold onto their own support levels.

In economic news, there were several signs of a slowing economy Thursday.  Weekly Initial Jobless Claims did come in lower than expected at 211k (compared to a forecast of 230k and last week’s value of 231k).  However, at the same time, the NY Fed’s Empire State Mfg. Index came in significantly lower than was forecasted at -11.20 (versus -1.00 expected and the previous +4.50) and the Philly Fed Mfg. Index came in lower than expected at -13.80 (versus the -10.0 that was forecast, but better than the previous month’s -19.4).  November Retail Sales also came in lower than expected at -0.6% (compared to -0.1% forecasted and the previous reading of 1.3%).  In addition, November Industrial Production grew less than expected at +2.51% (compared to the previous month’s +3.34%).  Then Oct. Business Inventories grew less than expected at +0.3% (versus +0.4% forecasted and the prior reading of +0.2%).  Finally, Oct. Retail Inventories fell 0.5% compared to the Sep. fall of 0.4%.

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In stock news, Reuters reports that GRAB has frozen hiring in an effort to cut costs.  In another Reuters report, it was revealed that a joint venture involving the parent firm of  SHEL and Dutch energy company Eneco has won the right to build a large wind farm in the North Sea.  Elsewhere, NFLX fell 8.63% after an online trade magazine report said the streamer’s new ad business is suffering a slow start and is not delivering the viewership that had been promised to advertisers.  Later in the day, Bloomberg reported that GE is considering the purchase of two units that are in process of being spun off by MDT.  In other news, MULN announced it has received an order for 6,000 electric cargo vans.  In related auto news, F raised the base price of its cheapest F-150 Lightning electric truck to $56,000.  On the legal front, UL announced it has resolved litigation with its independent board (over the sale of its Ben & Jerry’s ice cream business in Israel).  Finally, French prosecutors raided the headquarters of GE in France late Thursday as part of a probe into GE tax fraud.

In energy news, TRP announced Thursday that its Keystone pipeline spill in Kansas spilled crude that was diluted with bitumen.  Bitumen sinks in water and in the ground, which complicates cleanup.  (The last major spill involving bitumen took years due to this complication.)  However, in good news for TRP, the pipeline partially reopened. In other energy news, the state of CA approved $2.9 billion to install 90,000 new charging stations in the state by 2025.  (This is part of the state’s goal to reach 250,000 charging stations in the state by then.)  Finally, after the close, NERC (North American Electric Reliability Corporation, in charge of the electric grid) officials said that both the Midwest and CA electric grids are being pushed to their limits and there are high risks of energy grid shortfalls both this winter and for the next five years.  In the Midwest, more electric generation capacity is being taken offline than is coming online.  Meanwhile, in CA, demand variability is the key risk.  Both areas are also being pressured by demand that is increasing due to climate issues.

In miscellaneous news, overnight the Senate passed (on a bipartisan 71-19 with 10 abstentions) a 1-week funding package to keep the government past today.  The House had passed its version of the same bill on Wednesday by 224-201 with far less bipartisanship on the part of the GOP in the House.  This will be a stop-gap until an omnibus spending bill can be passed on Dec. 23. (when Congress leaves for Xmas).  Elsewhere, Elon Musk has fully drunken the Kool-Aid as he banned journalists he did not like from Twitter overnight.  Those include CNN, The New York Times, Washington Post, Voice of America, and many independent journalists.  It seems the “free speech absolutist” really has some exceptions to his rule.  Finally, today is quad-witching.  So, look out for volatility as we have open interest of $8 trillion in options alone this week.  This is just shy of last year’s record levels where we saw huge volume jumps and a large increase in volatility.

After the close, ADBE came in just shy of estimates on revenue but beat on earnings estimates.  So far today, ACN, DRI, and WGO have all reported beat to both the top and bottom lines.  It is worth noting that the ADBE, CAN, and DRI beats were all the result of revenue and earnings growth (not lowered estimates).  However, the WGO beat was against lowered forecasts and actually showed significant negative growth on both lines.

Overnight, Asian markets were mostly in the red.  Japan (-1.87%), Taiwan (-1.40%), and Singapore (-1.01%) led the region lower while Malaysia (+0.78%) and Hong Kong (+0.42%) held up best.  Meanwhile, in Europe, with the sole exceptions of Russia (+0.03%), we see red across the board at midday.  The FTSE (-1.19%), DAX (-0.44%), and CAC (-1.18%) are leading the way lower in early afternoon trade.  As of 7:30 am, US Futures are pointing to another gap down to start the day.  The DIA implies a -0.98% open, the SPY is implying a -0.98% open, and the QQQ implies a -0.61% open at this hour.  At the same time, 10-year bond yields are back up to 3.497% and Oil (WTI) is down almost 2% to $74.63/barrel in early trading.

The major economic news events scheduled for Friday are limited to Mfg. and Services PMIs (both at 9:45 am).  The major earnings reports scheduled for before the open are limited to ACN, DRI, and WGO.  There are no reports scheduled after the close.

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With that background, it looks like an ugly start to the day, where all 3 major indices have given up support levels, the DIA seem to be reaching to retest its previously broken long-term downtrend line, and quadruple witching is going to throw extra volume and volatility into the mix. All 3 indices are also crossing back down through their 50sma (despite a “Golden Cross” just 2 days ago in the DIA). We are also closing out a second straight down week in all 3 of those. However, we are a little over-extended in the major indices both in terms of the T-line (8ema) and in terms of the T2122 indicator. So, the bears are in control, but be ready for more whiplash as we close out the week.

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: 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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