Monday gave us a morning roller-coaster. The SPY gapped 0.24% higher, DIA opened just 0.04% higher, and QQQ gapped up 0.40%.  The SPY and QQQ then rallied until 10:10 am.  Meanwhile, DIA only managed to grind sideways until 9:45 am.  Then, all three major index ETFs sold off steadily until 12 pm.  At that point, QQQ was back at the opening level, SPY had crossed back below Friday’s close, and DIA had fallen significantly below Friday’s close.  However, at noon, the Bulls stepped in to drive a strong, steady rally that lasted until a modest pullback in the last 15 minutes.  This action gave us a large, white-bodied candle in the QQQ which barely failed a retest of its T-line on the last-minute profit-taking.  For its part, SPY gave us a white Spinning Top candle.  Finally, the DIA printed a black Spinning Top candle.

On the day, six of the 10 sectors were in the red with Utilities (-0.66%) leading the way lower while Technology (+1.42%) was far out front, holding up better than the other sectors.  At the same time, the SPY gained 0.65%, DIA lost 0.13%, and QQQ gained 1.61%. VXX fell 2.64% to close at 25.03 and T2122 climbed slightly but remains deep into the oversold area at 8.66.  10-year bond yields spiked higher to close at 4.342% while Oil (WTI) fell 0.43% to close at $80.90 per barrel.  This happened in average volume in the QQQ and below-average volume in the SPY and DIA.  So, volatility reigned in the morning, but the Bulls took over for the second half of the day.      

There was no major economic news reported Monday.  However, Reuters did report that a “feud” between centrist and hardline Republicans in the US House has raised the risk of a government shutdown.  The “Freedom Caucus” are pushing for spending $120 billion less than the deal agreed in June between the President and House (taking another bite of the apple).  That group also announced its opposition to any stopgap measures to keep the government open.  Other Republicans are looking for spending on top of the June level for defense, veteran benefits, and border security.  If those two ideas were taken together, it would result in a 25% budget cut in the rest of the budget (including the infrastructure spending the President and Congress have been actively taking credit for recently).  The centrist group (who now call themselves the “Governing Republicans”) say the hardliners ignore the reality that Senate Democrats are not going to go along with their priorities.  As a result of this schism, GS reported Monday they now feel a shutdown is more likely than not.  Current funding ends on September 30 for all 12 appropriations bills and Congress does not return from recess until September 12.  At the same time, the National Federation of Independent Business released the results of its quarterly small business owner survey.  The survey found 52% believe the US is already in recession, which is actually down slightly from 55% in April.  However, 80% said the economy was “okay” or better, and most said their own business financial situation was “strong.”  More than half also said they were less concerned about the health of their own bank, which is a dramatic increase from 31% which had that opinion in April.

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In stock news, NKLA announced it will be selling $325 million in notes that can be converted into stock. NKLA fell almost 23% on the news. Later, Investing.com reported that GS is looking into selling its investment advisory unit.  GS acquired the unit almost 5 years ago for $750 million. (That unit’s profit fell 60% in Q2, but this was partly driven by write-downs related to GS Consumer businesses.)  At the same time, MU pulled a quasi-extortion move by announcing its previously announced $100 billion (over two decades) investments into memory manufacturing plants in ID and NY won’t be possible without federal funding and tax credits for the two projects.  (MU has asked for billions of dollars in support from the CHIPS Act funds.)  By mid-morning, ESTE announced it has agreed to be acquired by PR for $4.5 billion, which comes to $18.64 per share. ESTE closed Friday at $16.23 and closed Monday at $18.94.  Elsewhere, Reuters has reported that WMT is investigating its supply chain based on credible reports that part of its apparel products are being made by Cambodian prison labor, which is illegal in both countries.  Other retailers, including UA and AHRO (Izod), may be using the same supplier according to the article.  Elsewhere, DD announced it has agreed to sell an 80.1% stake in the chemical giant’s Delrin Resin business for $1.8 billion.  (The buyer is a private company.)  At midday, UNP announced that two rail lines into the Los Angeles region have been closed due to washouts caused by flooding.  At the same time, Reuters reported C is now considering removing an entire level of management when the current leader of its largest division retires next year.  Later, META said it will soon launch a web-based version of its Instagram Threads to better compete against X (Twitter). Meanwhile, negotiations between the UAW and “Big 3” automakers are again getting tense.  The UAW reported Monday that STLA has threatened to move all Ram 1500 pickup production to Mexico unless they get an acceptable offer from the union.  For their part, STLA did not deny the report, instead saying “Product allocation for our U.S. plants will depend on these negotiations as well as a plant’s ability to meet specific performance metrics including improving quality, reducing absenteeism and addressing overall cost.”   After the close, SCHW said it plans to lower its headcount in order to cut costs.  (SCHW did not disclose the number of employees or the exact timing, although it did say it expects to realize a $500 million charge for the move in the second half of 2023.)

In stock legal and regulatory news, the FDA placed clinical trials of GILD blood cancer drug on hold.  (This comes a month after GILD had announced it was scrapping new late-stage trials of the drug on hold itself due to a lack of efficacy in earlier testing.)  GILD had acquired the drug as part of its $4.9 billion buyout of “Forty Seven Inc.” back in 2020.  Later, the NHTSA announced it opened an investigation into F over whether or not the company’s recall of 2022 Mach-E electric vehicles properly dealt with safety issues caused by high voltage contacts (which had been found to cause overheating that could lead to an abrupt loss of power while driving).  The NHTSA has received a dozen reports of the same problem on cars that had already undergone the F recall repair.  At the same time, the EU announced that it will require EU antitrust regulatory approval for the purchase of the German EEX exchange by NDAQ.  (This is notable because the deal falls under the normal threshold for antitrust review.)  In the UK, the British competition regulator finalized its approval of the AVGO $60 billion purchase of VMW.  (It has provisionally approved in July.)  Late in the afternoon, the US State Dept. approved the sale of $12 billion in military hardware to Poland.  BA and LMT will be the primary beneficiaries of the sale of 96 Apache AH-64E helicopters, 1,844 Hellfire missiles, and 508 Stinger missiles.  (No contract has been signed yet.)  Then, near the end of the day, the US 10^th District Court of Appeals upheld the dismissal of a shareholder lawsuit against SPR for misleading investors by withholding information about production cuts related to the two crashes of the BA 737 MAX.  After the close, AAPL won the dismissal of a lawsuit that had claimed the Apple Watch blood oxygen sensor exhibits “racial bias” toward people with darker skin tones.  Finally, also after the close, the US Dept. of Justice announced that TEVA will pay $225 million in fines and also divest a key generic cholesterol drug to settle price-fixing charges from the US Dept. of Justice.

After the close, FN and ZM reported beats on both the revenue and earnings lines.  At the same time, LU and NDSN both missed on revenue while beating on earnings.  On the other side, QFIN beat on revenue while missing on earnings.  It is worth noting that ZM raised its forward guidance while NDSN lowered guidance.

Overnight, Asian markets were green across the board. Thailand (+1.29%), Hong Kong (+0.95%), and Japan (+0.92%) led the region higher with India (0.01%) and Australian (+0.09%) lagging well behind.  In Europe, we see the same picture taking shape in the bourses at midday.  The CAC (+1.19%) and DAX (+1.06%) are more typical, with the FTSE (+0.68%) lagging in early afternoon trade.  In the US, as of 7:30 am, Futures are pointing toward a green start to the day.  The DIA implies a +0.19% open, the SPY is implying a +0.39% open, and the QQQ implies a +0.48% open at this hour.  At the same time, 10-year bond yields are down a bit to 4.318% and Oil (WTI) is off four-tenths of a percent to $80.40 per barrel in early trading.

The major economic news scheduled for Tuesday is limited to July Existing Home Sales (10 am) and API Weekly Crude Oil Stocks Report (4:30 pm).  We also hear from Fed members (Barkin at 7:30 am, Goolsbee at 2:30 pm, and Bowman at 2:30 pm). The major earnings reports scheduled for before the opening bell include BIDU, BJ, CSIQ, CTRN, COTY, DKS, IQ, LOW, M, MDT, and SCSC.  Then, after the close, LZB, TOL, and URBN report.

In economic news later this week, on Wednesday, Building Permits, Preliminary August S&P US Mfg. PMI, Preliminary August S&P Global Composite PMI, July New Home Sales, and EIA Crude Oil Inventories are reported.  On Thursday, we get July Durable Goods Orders, Weekly Initial Jobless Claims, Fed Balance Sheet, and Bank Reserve Balance with the Fed.  The Central Bankers Jackson Hole Conference also starts.  Finally, on Friday, Michigan Consumer Sentiment, Michigan Consumer Expectations, Michigan Consumer Inflation Expectation, and Michigan Consumer 5-year Inflation Expectations are reported.  Fed Chair Powell also speaks at the Jackson Hole Conference which continues until Saturday.

In terms of earnings reports, on Wednesday, we hear from ANF, AAP, ADI, BBWI, DY, FL, GRAB, KSS, LANC, PTON, WSM, ADSK, GES, NTAP, NVDA, SNOW, and SPLK report.  On Thursday, BURL, DLTR, NTES, WOOF, RY, TD, WB, GPS, INTU, MRVL, JWN, ULTA, and WDAY report.  Finally, on Friday, there are no earnings reports scheduled.

In miscellaneous news, one of the largest IPOs ever was filed late Monday as Japan’s SFTBY (SoftBank) filed for the long-awaited stock offering of its Arm chip designer unit.  (You may recall Arm as having been a $40 billion acquisition of NVDA before the deal was scuttled on antitrust grounds.  Arm’s chip architecture is the main competitor of the x86 standard from INTC and AMD and is the basis for AAPL’s so-called “self-designed” chip used in Macs as well as by NVDA for its AI market cards.  Elsewhere, in a hopeful possible read-through to China, overnight the CEO of Australian mining giant BHP said in his earnings call that BHP had seen solid growth in demand from some sectors in China.  He mentioned steel demand from housing starts, infrastructure, automotive, and commercial property development as “pretty strong.”  (They still expect China to produce a billion metric tons of steel this year, for the fifth straight year.)  He went on to say, “In the near term, while the outlook for the developed world is uncertain, we expect China and India to remain relative sources of stability for commodity demand.” Finally, S&P followed Moody’s (two weeks ago) in downgrading 10 US Banks, including KEY and CMA.

So far this morning, BIDU, M, MDT, and IQ all reported beats on both the revenue and earnings lines.  Meanwhile, LOW, CSIQ, and BJ missed on revenue while beating on earnings.  On the opposite side, COTY beat on revenue while missing on earnings.  However, DKS missed on both the top and bottom lines.  It is worth noting that DKS, CSIQ, and COTY lowered their forward guidance.  Meanwhile, MDT raised its forward guidance.

With that background, it looks like the Bulls are in control again so far in the premarket. All three major index ETFs show a premarket gap up and then are giving us white-bodied candles in the early session. The SPY and especially QQQ are retesting their T-lines (8ema) from below but the DIA Bulls still have more work to do before reaching that level. The short-term trend remains bearish. However, the QQQ and SPY are trying to break that three-week trend. Of course, the long-term trend is still clinging to a bullish inclination but it has been pushed hard by the Bears over the last three weeks. As far as extension goes, the premarket move gets rid of any concern about overextension below the T-line (8ema). Meanwhile, the T2122 indicator remains quite oversold, but it is not pegged to the bottom of its range. So, again we have room to move either direction, but the overdue pause or bounce may be here. Just remember the market can remain too extended a lot longer than we can remain solvent betting on a reversal that has not happened yet.

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.

Ed

🎯 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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