Recession Fears Welcome Traders Back

On Friday, markets opened roughly flat but sold off from 10 am to the lows of the day at about 10:45 am.  From that point forward the bulls rallied the rest of the day, closing very near the highs.  This left us with white candles having lower wicks in all 3 major averages.  The QQQ managed to print a Bullish Engulfing (of a Doji) candle and both the SPY and DIA managed to close back above their T-lines (8ema).  On the day, SPY gained 1.06%, DIA gained 0.98%, and QQQ gained 0.66%.  The VXX fell 2.34% to 22.54 and T2122 surged up into the mid-range at 49.53.  10-year bonds plunged to 2.889% and Oil (WTI) surged 2.5% to $108.47/barrel.

On the economic data front, June Manufacturing PMI came in better than expected (52.7 vs 52.4 est.).  However, ISM Manufacturing PMI came in well below estimates just 15 minutes later (53 vs. 54.9 expected).  Then the Atlanta Fed GDP tracker reported that we are likely in a recession now.  It estimates that Q2 GDP was -2.1% after Q1 GDP was officially announced as -1.6%.  This came after a massive 0.3% drop in the indicator on 6-27.

In business news, TLSA has temporarily closed its factories in both Germany and China, for several weeks to come.  This comes after the company also announced disappointing vehicle delivery numbers for Q2 (short of analyst estimates) over the weekend.  In China, the Model Y assembly lines will close for the next 2 weeks and then halt the Model 3 lines for 20 days starting on July 18.  Meanwhile, in Germany, the TSLA plant in Berlin will close for 2 weeks starting July 11.  However, sources told Bloomberg the company still expects to roughly double production at the Berlin plant in August

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In cryptocurrency news, on Friday afternoon, more turmoil hit the crypto market as major crypto broker Voyager Digital suspended all trading, deposits, and withdrawals. On Sunday, that company said it was pursuing “strategic alternatives” (i.e. buyout or bankruptcy).  This came as Bitcoin closed the day at about $19,300 (which, to be fair, was actually up 2.3% for the day).  In another story that does not help, it was reported Sunday that COIN has been selling geographic tracking data to the US government.  In this case, specifically selling it to the US ICE agency.  ICE has apparently been buying the ability to track every transaction of a dozen different cryptocurrencies (including Bitcoin, Ethereum, and Tether) that were processed through the COIN network since August 2021.  Then on Monday, yet another crypto lender (Vauld) also halted deposits, withdrawals, and trading. 

On the Russian invasion story, on the ground, Russian forces advanced to capture all of the Luhansk oblast (Eastern Ukraine) over the weekend.  This was a larger territorial gain than the invaders had made in the previous 2 months combined.  Meanwhile, on Sunday, Turkey seized a Russian cargo ship filled with grain stolen from the Ukraine port of Berdiansk.  On Monday, Russia is preparing to shut down the main natural gas pipeline (Nord Stream 1) to Europe for annual maintenance from July 11-July 21.  The fear in Europe is that the pipeline might not come back online if Putin plays games.  (If this happened, the European plan to fill gas storage tanks this summer in expectation of a Russian cutoff during winter would likely fail and Europe would be at serious risk.)

In Forex news, the Euro fell to its lowest level (against the dollar) since 2002 on fears of a major recession and potential natural gas shortages.  A July survey (Sentix) shows that European investor confidence has fallen to the lowest level since the early days of the pandemic shutdowns.  Meanwhile, dollar strength continues as global investors seek a safe haven for their cash reserves.

Overnight, Asian markets were mixed.  South Korea (+1.80%), Japan (+1.03%), and Taiwan (+0.93%) led the gainers.  Meanwhile, Thailand (-1.22%), Singapore (-0.52%), and Shenzhen (-0.41%) paced the losses.  In Europe, with the exception of Russia (+0.72%), the entire continent is in the red at mid-day.  The FTSE (-0.90%), DAX (-0.93%), and CAC (-1.19%) are leading the region lower in early afternoon trading.  As of 7:30 am, US Futures are pointing toward a red start to the day.  The DIA implies a -0.39% open, the SPY is implying a -0.43% open, and the QQQ implies a -0.57% open at this hour.  10-year bond yields are up to 2.919% and Oil (WTI) is down a half of a percent to $107.89/barrel in early trading.

The major economic news events scheduled for release Tuesday are limited to May Factory Orders (10 am).  There are no scheduled earnings reports either before the open or after the close.

In economic news coming later this week, on Wednesday we get June Services PMI, June ISM Non-Mfg. PMI, May JOLTs, FOMC Meeting Minutes, and a Fed speaker.  Then on Thursday we get June ADP Nonfarm Employment, Imports/Exports, May Trade Balance, Weekly Initial Jobless Claims, Crude Oil Inventories and a couple of more Fed speakers.  Finally, on Friday we get June Avg. Hourly Earnings, June Nonfarm Payrolls, June Participation Rate, June Unemployment Rate, and a Fed speaker.

On the earnings front, it is a very slow week.  There are no major earnings reports scheduled for either Tuesday or Wednesday.  On Thursday we do get a report from HELE and LEVI.  Then once again, there are no reports on Friday.

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As July really starts, markets are still expecting a 75-basis-point rate hike on July 28 and recession fears continue to grow, although the major banks and Fed say that still is not the base case for their forecasting. With a week two before earnings season kicks off again, do not be surprised if we get pre-announcements and the lowering of forecasts as companies scramble to lower expectations not only for the Q2 reports, but also for the rest of the year. Yet, there are also some indications that (in places) inflation rates (if not prices) may have peaked.

With this backdrop, the market trend is still bearish and it looks like price is having trouble getting past the resistance of the T-line in all 3 major indices (at least in pre-market today). So, while traders typically come back from a long weekend in a good mood (and that spirit tends to lift markets for at least a day), I don’t think that will necessarily be the case today. I’m just not so sure that the current environment with growing fears of recession will lend itself to a “feeling refreshed” bounce.

Either way, 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. Always, always, always move your stops in your favor and 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 while hoping for a home run.) Another way to put this is Buffett’s first rule of making big money in the market, which 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. 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. 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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