Markets gapped significantly higher at the open (+2.25% in SPY, +2.05% in DIA, and +2.70% in the QQQ) on Tuesday.  However, this was a bull trap.  All 3 major indices immediately sold off hard.  The QQQ had more than faded the gap, while the SPY got within a quarter of one percent and the DIA got within one-third of one percent of doing so by 11:40 am.  From there, we saw a modest rally that lasted until 2:30 pm, regaining about half of the original gap during that time.  Then the bears stepped in to sell off all 3 major indices again at 2:30 pm, revisiting the lows of the day within 15 minutes.  After a pause at the lows, the bulls stepped in for a rally to end the day.  This action gave us large, black candles with a large lower wick in all major indices.

On the day, all 10 sectors were in the green with Communication (+0.50%) lagging and Industrials (+2.03%) leading the charge.  The SPY and DIA both gained 1.13% and the QQQ gained 0.79% on the session.  The VXX fell almost 2% to 20.44 while the T2122 (4-week New High/Low Ratio) jumped back up into the overbought territory at 87.68.  10-year bond yields fell back to 3.998% and Oil (WTI) was down 2.6% to $83.23/barrel.  So, overall, it was a bull trap day with a “gap and crap” action perhaps with some short profit-taking at the end of the day.

In economic news, September Monthly Industrial Production came in much hotter than forecast at +0.4% (versus +0.1% expected and -0.1% in August).  After the close, API reported Weekly Crude Oil Stocks fell 1.270 million barrels (versus an expected build of 1.551 million barrels and compared to last week’s 7.054-million-barrel build).  Atlanta Fed Pres. Bostic spoke before the Urban Institute Tuesday, speaking to Main Street rather than Wall Street and explaining current problems and the potential upside of recession.  He said the economy is still trying to deal with the turmoil caused by the wage and job trends that stemmed from the Pandemic.  The basic problem is that large numbers of workers quit, retired, moved, or changed fields during the pandemic, which put real labor pressure on all companies.  However, the large (deep-pocketed) companies were in the position to raise wages and move to a remote work model.  In that way, they drew workers away from lower wages and less flexible jobs when the economy picked back up. The issue was aggravated this year by inflation, where again the large profitable companies were in a better place to raise wages.  All of this has put small and medium-sized firms in serious trouble, unable to find workers at the lower wages they had been paying (and could afford) in the past.  He did not say so, but he did imply that a recession cycle will help lessen the problem for the SMEs that survive.

SNAP Case Study | Actual Trade

In stock news, Bloomberg reported that CS will be working with MS and RBCI to increase capital.  The details were not available, but previous reporting said CS needs at least $2 billion to shore up its balance sheet and to do restructuring.  Meanwhile, the FAA told BA that some of the company’s documentation submissions for the “737 Max 7” are incomplete and others need reassessment by BA. It was reported Tuesday that AAPL has told its main phone manufacturer in China to halt production and the two main component makers to drastically reduce the production of the iPhone 14 Plus (the cheaper, $899 model) as AAPL reevaluates product demand.  Elsewhere, TWTR froze its employee stock award accounts ahead of an anticipated closing of the Musk buyout will happen at $54.20 on or before Oct. 28.  Finally, AMZN workers in NY have rejected unionization by a 2-to-1 margin.

In stock IPO and M&A news, for the second day in a row, INTC lowered its outlook for the IPO of its self-driving car division Mobileye.  The April expectation was for $50 billion, on Monday it was $20 billion, and on Tuesday at the IPO roadshow, the company said it was now targeting a $16 billion valuation.  Meanwhile, an activist fund (Third Point) announced it has taken a significant position in CL and has urged the company to spin off its Hills Pet Nutrition division via IPO.  Third Point said in an open investor letter that it expects Hills to be worth $20 billion as a standalone company.  Finally, the US Senate Judiciary Committee expressed concerns over the KR acquisition of ACI and said it will hold hearings on the deal next month.

After the close, UAL, NFLX, OMC, JBHT, ISRG, IBKR, and WTFC all reported beats on both the revenue and earnings lines.  It is worth noting that NFLX crushed expectations and also reversed its subscriber losses, adding 2.41 million new subscribers during the quarter.  However, the company did also lower its forward guidance.  Meanwhile, UAL significantly raised its forward guidance on air travel trends.  In less good news, FHN beat on the top line while missing on earnings.

So far this morning, ABT, ASML, PG, TRV, CFG, NDAQ, WGO, CMA, SC, and ELV have all reported beats on both the revenue and earnings lines.  Meanwhile, BKR missed on revenue while beating on the earnings line.  On the opposite side, MTB beat on the revenue side while coming in below analyst estimates on earnings.  However, ALLY reported misses on both the top and bottom lines

Overnight, Asian markets were mixed but leaned to the downside.  Hong Kong (-2.38%), Shenzhen (-1.43%), and Shanghai (-1.19%) paced the losses.  Meanwhile, Malaysia (+1.05%), New Zealand (+0.64%), and Japan (+0.37%) led the gainers.  In Europe, we see a similar picture taking shape at midday.  Russia (-3.12%) is an outlier.   However, the FTSE (-0.02%), DAX (+0.07%), and CAC (+0.17%) represent the middle ground with most smaller exchanges in the red, but also half a dozen of them modestly green in early afternoon trade.  As of 7:30 am, US Futures are pointing toward a down start to the day.  The DIA implies a -0.25% open, the SPY is implying a -0.30% open, and the QQQ implies a -0.26% open at this hour.  10-year bond yields are back up to 4.088% and Oil (WTI) is up 1.25% to $83.84/barrel in early trading.

The major economic news events scheduled for Wednesday include Sept. Building Permits and Sept. Housing Starts (both at 8:30 am), EIA Weekly Crude Oil Inventories (10:30 am), and Fed Beige Book (2 pm).  We also have 2 Fed speakers scheduled, Kashkari at 1 pm and Bullard at 7:30 pm.  The major earnings reports scheduled for the day include ABT, ALLY, ASML, BKR, CFG, CMA, ELV, LAD, MTB, NDAQ, NTRS, PG, PLD, SCL, TRV, UNF, and WGO before the open. Then, after the close, AA, CCI, EFX, IBM, KALU, KMI, KNX, LRCX, LSTR, LVS, LBRT, PPG, STLD, TSLA, and UMPQ report.

In economic news later this week, on Thursday, Weekly Jobless Claims, Philly Fed Mfg. Index, and Sept. Existing Home Sales are reported.  Finally, on Friday, Fed member William speaks.

In earnings reports later this week, on Thursday, ABB, ALK, T, BX, DHR, DOV, DOW, EWBC, ERIC, FITB, FCX, GPC, HRI, KEY, MAN, MMC, MSM, NOK, NUE, PM, POOL, DGX, SNA, SNV, TSCO, UNP, WSO, WBS, SAM, CSX, RHI, SNAP, SIVB, UFPI, WAL, and WHR report.  On Friday, we hear from AXP, ALV, EEFT, HCA, HBAN, IPG, RF, SLB, and VZ.

Last night’s big beat by NFLX had futures flying as traders read that turn-around as a sign for tech stocks in general. However, overnight trading soon came back to earth as the market continues to reset expectations for a recession. Another sign of that “recession fear” is that mortgage demand fell to a 25-year low last week as the average mortgage rate for a 30-year, fixed-rate loan rose to 6.94% (from 6.81%). So, it seems good earnings (in general) have only limited strength against a tide of economic pessimism.

With that backdrop, extension is not a factor, either in terms of the T-line or T2122. However, intraday reversals and daily chop are serious concerns. Remember that the downtrend remains intact in all the major indices. So, be cautious and demonstrate patience (wait for confirmation). With high volatility and less certainty, this may be the time to pursue more cautious trading strategies, including remaining hedged, quick, and/or small.

Don’t be stubborn. If you have a loss, just admit you were wrong and take it before it grows. And 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!). Also, keep in mind that trading is not a hobby. It’s a job. 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. 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: No trade ideas today (Rick is out). 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

🎯 Arnoldo Bolanos: LTA scanner really works $$, thanks Ed.

🎯 Bob S: LTA is incredible…. I use it … would not trade without it

🎯 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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Disclosure: We do not act on all trades we mention, and not all mentions acted on the day of the mention. All trades we mention are for your consideration only.

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