Rally Continues With More Indecision

Markets gapped higher at the open on Thursday.  The SPY gapped up 0.44%, DIA opened 0.31% higher, and QQQ gapped up 0.40%.  At that point, SPY wobbled sideways around that opening level, visiting the highs of the day again at 1 p.m.  At the same time, QQQ sold off and then bounced back to the open level at about 12:50 p.m.  DIA actually trended modestly higher all morning reaching the high of the day at about 12:50 p.m.  From there, all three major index ETFs sold off sharply reaching the low of the day at 2 p.m.  Then all three rallied the remainder of the day.  This action gave us gap-up, indecisive Doji or Spinning Top candles in all three.  All remain well above their T-line (8ema).  The action also left the DIA at another all-time high and all-time high close, QQQ within 1.3% of its all-time high, and SPY within 1.7% of its all-time high.

On the day, eight of the 10 sectors were in the green with Basic Materials (+2.65%) and Energy (+2.47%) out in front leading the way higher while Consumer Defensive (-0.79%) lagged behind the other sectors.  At the same time, the SPY gained 0.32%, DIA gained 0.43%, and QQQ lost 0.09%.  The VXX fell another 0.57% to close at 15.62 and T2122 ticked down but remained in the top end of its overbought territory to close at 97.90.  10-year bond yields fell again to 3.921% and Oil (WTI) spiked another 3.15% to close at $71.65 per barrel.  So, on Thursday, the market was very stretched and the Bulls needed rest.  However, we gapped higher again at which time markets became undecided as traders realized the market was very stretched.  This all came on above-average volume in the DIA and QQQ, as well as average volume in the SPY.

The major economic news reported Thursday included Weekly Initial Jobless Claims, which came in lower than expected at 202k (compared to a forecast of 220k and the prior week’s 221k).  Meanwhile, Weekly Continuing Claims rose to 1,876k (versus a forecast of 1,887k and the previous week’s 1,856k).  At the same time, Nov. Export Price Index came in better than expected a -0.9% (compared to the -1.0% forecast and the October reading of -0.9%).   On the other side, the Nov. Import Price Index also fell less than predicted at -0.4% (versus a forecast of -0.8% and October’s -0.6%).  At the same time, November Retail Sales remained strong at +0.3% (compared to a forecast calling for -0.1% and October’s -0.2%).  Later, October Retail Inventories were right in line with the anticipated at -0.9% (versus a forecast of -0.9% and much better than the September +0.4%).  At the same time, Oct. Business Inventories were better than we predicted at -0.1% (compared to a 0.0% forecast and a Sept. +0.2%).  Finally, after the close, the Fed Balance Sheet actually GREW by $3 billion this week as it was reported at $7.740 trillion (versus the prior week’s $7.737 trillion).

After the close, COST, LEN, and NASB all reported beats on both the revenue and earnings lines.  Meanwhile, SCHL missed on both the top and bottom lines.  It is worth noting that LEN raised its forward guidance while SCHL lowered its own guidance.  It is also worth noting that COST announced a special $15/share dividend for holders of record on 12/28 to be payable on 1/15/24.

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In stock news, on Thursday, GM fired nine executives and 900 employees (24% of its workforce) from the Cruise autonomous taxi unit amidst a continuing investigation of safety following an Oct. 2 incident where one of the taxis ran over and dragged a pedestrian 20 feet.  At the same time, C announced it would close its municipal business unit (which underwrites loans to state and local governments).  Meanwhile, INTC announced a new line of high-end AI products to be released in 2024, which they claimed were more powerful than the current pure performance leader from NDVA.  Later, T announced they would add RIVN electric vehicles to their corporate fleet in 2024.  (Financial details were not disclosed.)  Elsewhere, a coalition of Nordic institutional investment funds sent a letter to TSLA on Thursday, “expressing concern” that the company has refused to enter into collective bargaining, specifically with Swedish mechanics. (The letter stopped short of threatening to divest but that may be implied given the large funds involved and the region’s social and economic climate.)  Later, Reuters reported that WH franchise operators are expressing concern that the hostile takeover bid launched by CHH could hurt their business.  (80% of the franchisees surveyed said the merger would hurt their individual business.)  Late in the day, BP announced it had restarted a gasoline pipeline in WA state.  The pipeline had been closed after it leaked 25,000 gallons on Sunday.  After the close, GM announced it would lay off 1,300 workers at two MI plants in January.  

In stock government, legal, and regulatory news, the FDA approved an MDT treatment for atrial fibrillation (irregular heartbeat), which is a major market niche.  At the same time, Italian police seized $94.5 million from UPS over alleged tax fraud and illegal labor practices.  Later, the NRLB released a complaint against SBUX, alleging the coffee company closed 23 stores to discourage unionization as well as eight stores that had recently unionized.  This is now subject to a lawsuit.  At the same time, the FTC announced it would issue its decision on the KR acquisition of ACI for $24.6 billion on January 17.  However, sources reported that the agency is already working on a lawsuit that will be filed to stop that deal as soon as early January.  Later, the FDA issued a warning to CHWY and four other companies for selling (and in some cases making) unapproved animal antibiotics.  At the same time, the NHTSA announced it was opening an investigation into 447k VLKAF (Volkswagen) Golf and Audi A3 cars over fuel leaks.   (Some of these cars were subject to a 2016 recall that was supposed to solve the issue.)  Elsewhere, a judge in San Francisco ruled Thursday that Elon Musk must testify again in the SEC investigation of his $44 billion takeover of Twitter.

Overnight, Asian markets were mixed but mostly in the green.  Hong Kong (+2.38%) and India (+1.29%) led the gainers while Shanghai (-0.56%) and Shenzhen (-0.35%) paced the losses.  In Europe, we see a similar picture taking shape with 10 of the 15 exchanges in the green at midday.  The CAC (+0.60%), DAX (+0.28%), and FTSE (-0.28%) lead the region higher in early afternoon trade.  In the US, as of 7:30 a.m., Futures are pointing toward another green start to the day.  The DIA implies a +0.26% open, the SPY is implying a +0.24% open, and the QQQ implies a +0.33% open at this hour.  At the same time, 10-year bond yields continue to fall and are at 3.902% while Oil (WTI) is up a half of a percent to $71.97 in early trading.  

The major economic news scheduled for Friday includes NY Empire State Mfg. Index (8:30 a.m.), Nov. Industrial Production (9:15 a.m.), S&P Global Mfg. PMI, S&P Global Services PMI, and S&P Global Composite PMI (all at 9:45 a.m.).  The major earnings report scheduled for before the open is limited to DRI.  There are no major earnings reports scheduled for after the close.

In miscellaneous news, the International Energy Agency (IEA) revised the 2024 oil demand forecast Thursday, increasing the projected demand for oil upward by 130k barrels per day in the US.  In total, the IEA increased the global demand forecast by 1.1 million barrels per day.  This revised forecast reflected a more positive outlook on the US economy.  (This was the proximate cause of Thursday’s spike in oil prices.)  At the same time, the US average mortgage rate fell below 7% for the first time in four months.  Meanwhile, Bloomberg reported that US car dealer inventory of electric vehicles grew to a 114-day supply.  (This compares to a 71-day supply of cars overall and a 53-day supply of EVs one year ago.)

In geopolitical news, the European Union began formal talks with Ukraine over that country’s admission into the EU.  This was a surprise decision and well ahead of the planned schedule.  However, Putin-lackey Victor Orban of Hungary vetoed a critical EU aid $55 billion aid package for Ukraine. This comes the same week as Republicans blocked another attempt to pass more US aid to Ukraine over their domestic political agenda.  As one result of the loss of outside support for Ukrainian sovereignty and democracy, Russia’s Putin told a 4-hour live Q/A panel that Ukraine’s support is crumbling, his forces remain on the offensive on all fronts, and he has no intention of ending the war until he has conquered all of Ukraine, disarmed then, and installed a neutral (read Russia obedient) government.  In Israel, the defense minister told the press that the war will continue for about seven months according to their projections. Having already extracted a 30-40:1 retribution, and now publicly ruled out both the Palestinian Authority (from the West Bank), Hamas, and foreign troops as post-war governance for the area, the options in Gaza are bleak.  (Only annihilation, subjugation, annexation, or diaspora come to my mind.)  So, it seems Autocracy is all the rage on the political right across the world. 

So far this morning, DRI missed on revenue (slightly = 0.4%) while beating on earnings (significantly = 9.7%).

With that background, it looks like all three major index ETFs are looking to follow through on again. All three major index ETFs opened the premarket a bit higher. However, they are printing small, indecisive (Doji-like) candles so far in the early session. All three remain well above their T-line (8ema) this morning. So, overall, the Bulls remain well in control of both the longer-term trend and the short-term trends. In terms of extension, all three major index ETFs remain extended above their T-lines. The T2122 indicator also remains in the top of its overbought range. This means the Bulls need rest and consolidation to avoid exhaustion in order to keep the rally healthy. We just have to remember that the market can remain stretched too far in either direction a lot longer than we can stay solvent betting on a reversal that hasn’t happened yet. Also remember this is Friday, payday, and a two-day weekend news cycle lies ahead. So, prepare your account by taking profits, hedging, buying insurance, and/or lightening up positions. And keep in mind that chasing a bull after he’s been running is a good way to get gored.

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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