Recession Fears Lead as 1-3-6mo Periods End

On Wednesday, markets opened flatish and essentially traded in a tight range all day.  (The QQQ was slightly more volatile, but still traded in a 1.5% range.)  This leaves us with indecisive Doji-like candles on the day, with the SPY and QQQ failing to climb back above their T-lines (8ema) and DIA managing to climb just back above and hold it.  Seven of the 10 sectors were in the red, with only Healthcare being more than half of a percent in the green.  Energy was by far the worst-performing of the sectors, being down more than 2.75% for the day.  On the day, SPY lost 0.12%, DIA gained 0.23%, and QQQ gained 0.10%.  The VXX was flat at 22.84 and T2122 dropped a bit further into the oversold territory at 7.58.  10-year bond yields fell significantly to 3.097% and Oil (WTI) fell 2.2% to $109.29 after having been up more than 1% early in the day. 

During the day, Fed Chair Powell reiterated the central bank’s pledge to fight inflation by raising rates.  Specifically, he said inflation was the biggest risk to the economy and while there is some risk of the Fed overshooting and causing a recession, it’s more important to prevent higher inflation from taking hold in the long term.  At the same event, ECB President Lagarde played down the risk of recession in Europe.  Instead, she too is more concerned about inflation and its impact on the economy of the region.  However, she also warned that the tight monetary policy required to fight inflation could be a strain on the countries with high debt levels (in particular Italy).

In business news, during the day, one of the FCC Commissioners called on AAPL and GOOGL to remove TikTok from their app stores.  In doing so, Brendan Carr cited a report that the Chinese government had accessed US TikTok users’ data.  After hours it was announced that the CEO of XRX died.  UBS also paid a $25 million fine to settle fraud charges levied by the SEC after the close.  Elsewhere, PFE and BNTX revealed they have signed a $3.2 billion deal with the US gov’t. for 105 million doses of vaccine with deliver starting in the late summer.  (There is also a US option to increase the order by another 195 million doses if needed.)  Finally, RH released a revised 2022 forecast, adjusting revenue growth projections down and also reducing the operating margin forecast.  RH stock was down as much as 8.5% in after-hours trading.

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In economic news, Bloomberg reports Senate Democrats are working to shrink the amount of tax increases (on corporations and the rich) in President Biden’s previously proposed economic plan.  This is a move to appease WV Senator Manchin and AZ Senator Sinema who were the real reason the package failed to pass earlier this year.  No timeline for a renewed proposal and vote on the package was offered by Bloomberg. Elsewhere, for what it’s worth, the CEO of WFC (Scharf) told a conference yesterday that he does not believe the economy is ready for the big Fed rate hikes he sees coming.  He went on to explain that he does not believe all the shocks caused by larger (bigger than 50 basis point) hikes have been factored into forecast models and that he feels small and mid-size businesses simply will not be able to handle the shocks that 75-basis-point or even 1% or more rate hikes as they come.

In cryptocurrency news, Bitcoin fell below $19,000 again Thursday as the digital currency selloff continues.  This rout caused crypto hedge fund Three Arrows Capital (3AC) to fall into liquidation, which added to the woes of that market.  For what it is worth, JPM crypto analysts have told customers that they believe the massive deleveraging they have seen in the crypto space is in an advanced state and may not last much longer. Finally, it was also announced overnight that the recent $100 million cryptocurrency theft at blockchain bridge Horizon is very likely a state-sponsored North Korean hack.

After the close, MLKN reported beats on both revenue and earnings.  So far this morning, AYI, STZ, and WBA all reported beats on both the top and bottom lines.  WBA specifically cited growth in its online sales channel.

On the Russian invasion story, Russia announced that its unemployment rate fell to 3.9% in May (a record low, and surely they would never cook the books).  The Russian Economic Minister also said he expects Russian GDP to contract by 7.8% for the year despite huge gains from energy sales and the impact of inflation.  (Western estimates have been 10%-35% contraction.)  In addition, according to Rosstat (a supposedly independent source), Russian Industrial production fell 1.7% for the month of May.  However, their biggest problem is that May Retail Sales fell 10.1% (after a 9.8% fall in April).  This contraction was far more than was forecast.  Elsewhere, NATO formally offered membership to Sweden and Finland after Turkey was appeased by the US promising to upgrade Turkey’s F-16 fleet.  Putin then warned that if NATO builds any defense infrastructure in either country Russia would “respond.”  On the ground, Russia retreated from Snake Island after they have repeatedly suffered heavy losses on that small, but strategic “unsinkable battleship.”

Overnight, Asian markets were mostly in the red with the exception of mainland China which popped on Chinese Manufacturing PMI rising for the first time in 4 months and President Xi declaring victory over covid.  Shenzhen (+1.57%) and Shanghai (+1.10%) were the only green in the region.  Meanwhile, Taiwan (-2.72%), Australia (-1.97%), and South Korea (-1.91%) led the region lower.  In Europe, stocks are sharply lower across the board at mid-day.  Russia (-5.70%) is an outlier.  However, the FTSE (-1.87%), DAX (-2.73%), and CAC (-2.81%) are typical and lead the region lower in early afternoon trading.  In the US, as of 7:30 am, Futures are pointing toward a strong gap lower at the start of the day.  The DIA implies a -1.18% open, the SPY is implying a -1.36% open, and the QQQ implies a -1.57% open at this hour.  10-year bond yields a plunging again to 3.046% and Oil (WTI) is off a half of one percent to $109.21 in early trading.

The major economic news events scheduled for release Thursday, include May PCE Price Index, Initial Jobless Claims, and May Personal Spending (all at 8:30 am), and Chicago PMI (9:45 am).  On the earnings front, we get reports from AYI, STZ, and WBA before the open.  Then, after the close, we hear from MU.

In economic news coming later this week, on Friday we get June Mfg. PMI and June ISM Mfg. PMI. 

On the earnings front, there are no reports on Friday, July 1.

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The worst half since 1970 is coming to an end today and Mr. Market seems to be in a “give ’em more of the same” mood this morning. With the periods ending and a long weekend ahead, we should expect volatility and quite possibly dying volume in the afternoon (if traders head out to stretch that long weekend). Moreover, it looks like price might be heading down to test a “Dreaded h” pattern in all 3 major indices. So, caution is the watchword for today.

Don’t chase gaps. Demonstrate patience and wait for confirmation. Stick with your trading rules, trade with the trend, and consistently take profits when you have them. Remember that trading is our job. So, do the work and follow the process. And always, always, always move your stops in your favor. Remember the “Legend of the man in the green bathrobe“…it’s NOT house money, it’s all our money (so don’t give very damn much of it back). Also, the first rule of making big money in the market is to not lose big money in the market. So, don’t be stubborn. If you have a loss, just admit you were wrong, respect your stop, and take the loss before it grows. As they say, the best time to have taken a $500 loss is when you are now staring at a $1,500 loss. 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: UNP, MOS, XOM, TWTR, CSX, MSFT, AXP. 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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🎯 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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