Rail Deal, Jobless Claims, and Fed Reports

Stocks gapped very modestly higher at the open Wednesday following the extremely bearish gap and run Tuesday.  However, all 3 major indices spent the rest of the day crossing back and forth that gap space.  With that said, the bears picked up a little strength in the afternoon to take us back down to new lows…only for the bulls to step in and rally markets for the last 30 minutes of the day.  This action left us with indecisive (Doji-like) candles in all 3 major indices.

On the day, seven of the 10 sectors were green.  However, Energy (+2.64%) was far and away the most bullish sector while Basic Materials (-0.96%) was by far the most bearish sector.  The SPY gained 0.38%, The DIA gained 0.11%, and the QQQ gained 0.79%.  Meanwhile, the VXX was up less than half of a percent to 19.09 and T2122 climbed a bit, but remains oversold at 17.99.  10-year bond yields have pulled back after being up earlier to 3.41% and Oil (WTI) is up 1.58% to $88.69/barrel.  All-in-all, the bears did not get any follow-through from Tuesday’s massacre.  However, there was also nothing for bulls to really hang their hat on at all…the bears are clearly still in charge.

In Economic news, August wholesale prices (as measured by the PPI) fell 0.1% which is in contrast to Tuesday’s CPI increase.  (The annual rate was 7.3%, down from the July reading of 7.7% annualized.)  This was modestly encouraging to bulls during the premarket.  Later in the morning, EIA Weekly US Crude Oil Inventories showed a 2.442-million-barrel build.  Elsewhere, Amtrack has canceled all long-distance trains until after the railroad strike expected Friday is resolved.  In related news, CSX, UNP, and NSF have stopped rail shipments of refrigerated and volatile or decay-sensitive products like food, chemicals, hazardous materials, etc. until the same potential strikes are resolved.  (9 of 12 unions have reached a tentative deal with the railroads, 1 has rejected the management offer, and the other 2 are undecided as of Wednesday night.)

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In stock legal news, TSLA was sued by owners over alleged false “Autopilot” and “Full Self-Driving” claims made by the automaker.  Elsewhere, CA sued AMZN over violations of the state’s antitrust law for blocking price competition.  Meanwhile, WFC reached a $94 million settlement to resolve a class-action lawsuit over impacting credit ratings by putting 213,000 mortgage borrowers in forbearance without the customer’s request or approval during the pandemic.  Finally, the Wall Street Journal reported that Fed regulators are frustrated with the progress of C since it was reprimanded over its risk management system.  Sources told the paper that C has been told it will face charges if it does not fix its risk management process very soon.

In miscellaneous news, 4 companies announced share repurchase plans Wednesday.  These include JNJ (up to $5 billion), CHH (5 million shares, bringing the total to 6.7 million), CMCSA (increased to $20 billion), and NETI ($50 million).  Elsewhere, GOOGL announced it will cut project funding and jobs in its “New Idea Incubator.”  Meanwhile, the Ethereum merge (shifting from “proof of work” to “proof of stake”) is expected today.  This merge will essentially kill Ethereum mining operations and dramatically limit the supply of the coin that is available.

In Energy news, oil was up Wednesday on talk of oil being used for heating in Europe if natural gas supplies remain cut by Russia.  Meanwhile, in Congress, Senate Majority Leader Schumer announced that the stop-gap government funding bill (which must be passed and signed before Sept. 30 to avoid a shutdown) will include plans demanded by WV quasi-Democrat Manchin.  Those riders will ease environmental protections and energy project permitting requirements.  (This was part of the deal to get Manchin’s vote for the Inflation Reduction Act earlier this year.)  However, progressive House Democrats (who must also pass any stop-gap bill) have not been consulted and are opposing the amendments on environmental grounds.  Across the pond, the EU has now proposed a windfall profit tax for wind, solar, nuclear, and coal electricity generators by capping the price they could charge to $180/MWh (current prices are just below $500/MWh) in the region.

Overnight, Asian markets were mixed on mostly very modest moves.  Shenzhen (-2.10%) and Shanghai (-1.16%) were the outliers with most exchanges moving only slightly in either direction.  In Europe, we see the same picture taking shape (minus the Chinese outliers) at mid-day.  The FTSE (+0.26%), DAX (-0.12%), and CAC (-0.28%) are typical and lead the region 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 -0.14% open, the SPY is implying a -0.20% open, and the QQQ implies a -0.32% open at this hour.  10-year bond yields are back up to 3.449% and Oil (WTI) is off six-tenths of a percent to $87.95/barrel.

The major economic news events scheduled for Thursday include August Imports / Exports, Weekly Jobless Claims, NY Empire State Mfg. Index, Philly Fed Mfg. Index, and August Retail Sales, (all at 8:30 am), August Industrial Production (9:15 am), July Business Inventories and July Retail Inventories (both at 10 am).  The major earnings reports scheduled for the day are limited to ADBE before the open.  There are no major earnings reports after the close.

In economic news later this week, on Friday, we get Michigan Consumer Sentiment.  Friday is also Quadruple Witching.  In terms of earnings later this week, there are no earnings reports scheduled for Friday.

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Wednesday was an indecisive, blah day in the market. Premarket futures are implying a similar start today, but we do have quite a bit of data coming before the opening bell. Overall, I would say it looks like traders are still trying to digest the surprise CPI number and prejudge what the Fed will do next week. Talking heads keep bringing up a 1.00% increase by the FOMC, but Fed Funds Futures have priced in 0.75%. In last-minute news, President Biden announced that a tentative deal has been reached between the Rail Worker Unions and the CSX, NSF, and UNP. This deal will avert a strike and avoid serious pain for US supply chains. This should be very good for the bulls (who had worried about impacts). However, I’m not sure many traders understand the real implications of a rail shutdown…so response could be muted.

With that backdrop, we should note that all 3 major indices remain below their downtrend lines and below their T-lines. The market bias is bearish. However, while the bears have control on the daily chart, the bulls have support just below to help them fight that momentum. So, keep an eye on that in the premarket news. Beyond that, trade the chart (the actual price action) and not what you predict will happen. We can’t be first or last over the hill if we want to succeed.

Remember that trading is our job, not a pastime or 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: SQQQ, SPXU, DXD, EOG, TWTR, RCL, CCL, AMZN, AAPL. 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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🎯 Dick Carp: the scanner paid for the year with HES-thank you

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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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