Russia Defaults, Durable Goods on Tap

Major indices gapped 0.8%-1% higher at the open Friday and followed-through sharply to the upside the first 30 minutes of the day.  However, from that point, all 3 major indices ground sideways in a tight range until the bulls stepped in at about 3:30 pm to surge into the close.  All 3 are now well above their T-line (8ema) and printing large, gap-up, white candles with no lower wick and little upper wick.  The SPY definitely qualifies as a Marubozu candle.  On the day, SPY gained 3.18%, DIA gained 2.70%, and QQQ gained 3.43%.  The VXX fell more than one percent to 23.12 and T2122 remains in the mid-range, but are now near the top-end of that range at 70.29.  10-year bond yields rose to 3.136% and Oil (WTI) pulled back late, but still closed up 2.75% to $107.14/barrel.  All-in-all, this completed the first up week of the month for any of the major indices, delivering 5.5% to 7.25% gains for the week of needed over-extension relief.  However, with 30 minutes left in the day, all this action has taken place on low volume.

In economic news, on Friday Fed member James Bullard (extreme hawk) said that the fears of a recession are overblown, with “consumers flush with cash built up over the pandemic.” In a similar vein, the IMF announced that they forecast the US will narrowly escape from having a recession in both the remainder of this year and 2023.  However, in data released by the Census Bureau Friday, it was reported that 15% of renters (8.4 million Americans) are behind on rent payments, with 3 million at risk of eviction within the next two months.  In a tangentially related story, on Friday, Fed Dove Daly joined the FOMC members who publicly say they are open to a 75 basis point hike in July.

In business news, after the close Friday, ULCC sweetened its offer to buy SAVE.  The new offer is $4.13/share ($2/share higher than the original bid).  This comes after JBLU had also increased its own bid for SAVE.  Shareholders of SAVE are set to vote on the takeover offers on Thursday.  Also, after the close, CVX announced it will sell it its CA campus and move the company headquarters to TX.  The company cited real estate market values and the opportunity to “right-size” its headquarters staff and facilities.  The move is expected to come during Q3 of 2023.

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As the month, quarter, and half-year all come to a close this week, some analysts (JPM and GS for example) are calling for a pop.  (Unless we rally hard early this week, we are looking at the worst market performance for six months since 1970.)  The idea behind these analyst calls is that both funds and individual investors will be reallocating their accounts to take advantage of the better valuations and to prepare for the slower economy expected ahead.  They also note that this reallocation will be coming in front of another long holiday weekend, meaning they expect traders to be in a better mood (potentially feeling better about buying).  However, remember that for any longer-term trades, earnings season kicks off again in mid-July. 

On the Russian invasion story, we are now more than 4 months into Russia’s “4 day war.”  The grace period on Russian bond debt payments expired Sunday. This means that Russia is now technically in default.  It also means that bond giant Pimco is now on the hook for about $2 billion in credit default swaps it bought up just prior to the February invasion.  In sanction news, Russia has decided to block rail traffic to Poland in retaliation for Lithuanian blocking of sanctioned cargo being shipped from Russia to Kaliningrad (Konigsberg) by road or rail.  While the EU tried to back down after the threat to Poland, the Lithuanian PM is standing strong on the sanction.  Elsewhere, Russian hackers stepped up attacks on western (mostly US) targets last weekend. The (likely FSB-controlled) hackers claim they have successfully hacked US infrastructure.  Specifically, they say they hacked XOM (shutting down XOM “Rewards+” fuel cards) nationally and hit SHEL systems in Texas.  Then on Sunday, the G-7 announced more sanctions on Russia, including a prohibition on importing Russian Gold.

In cryptocurrency news, (and as reported here in the past), Three Arrows Capital (a large crypto-focused hedge fund) is in jeopardy of defaulting on $675 million in loans.  With the Monday payment deadline at hand, the company is facing a liquidity crisis after its entanglement with the collapse of the TerraUSD and Luna stablecoins.  This plus the (perhaps related) collapse of cryptocurrency prices has 3AC hurting for cash as it already missed a 6/24 payment, meaning the whole $675 million loan is due today.

In technical analysis news, 10 of the DJIA 30 are trading above their 50sma.  These include MSFT, CRM, V, VZ, JNJ, UNH, IBM, MCD, MRK, and AMGN.  Interestingly, only 3 of the DJIA have a 50sma that is rising, including JNJ, IBM, and MRK. However, all but 3 of the 30 are trading above their T-line (8ema).  Those 2 laggards are CVX, CAT, and DOW.

Overnight, Asian markets were green across the board.  Hong Kong (+2.35%), Australia (+1.94%), and New Zealand (+1.70%) paced the gains with Malaysia (+0.10%) a lagging outlier.  In Europe, stocks are mostly following Asia at mid-day.  The FTSE (+0.67%), and DAX (+0.87%), are leading the region higher with the CAC (+0.01%) and two minor exchanges either red or barely green in early afternoon trading.  As of 7:30 am, US Futures are pointing toward a modest gap higher to start the day.  The DIA implies a +0.36% open, the SPY is implying a +0.47% open, and the QQQ implies a +0.61% open at this hour.  10-year bond yields are off a bit to 3.166% and Oil (WTI) is up half of a percent to $108.12/barrel in early trading.

The major economic news events scheduled for release Monday are limited to May Durable Goods Orders (8:30 am) and May Pending Home Sales (10 am).  On the earnings front, there are no reports scheduled before the open.  However, after the close, we hear from SNXC, JEF, NKE, and TCOM.

In economic news coming later this week, on Tuesday we get May Goods Trade Balance, May Retail Inventories, and Conf. Board Consumer Confidence.  Then Wednesday, we get Q1 GDP, Crude Oil Inventories, and 2 Fed speakers.  On Thursday, we get May PCE Price Index, Initial Jobless Claims, May Personal Spending, and Chicago PMI.  Finally, on Friday we get June Mfg. PMI and June ISM Mfg. PMI.  There will also be the ECB Central Banking forum (6/27-6/29) where both Fed Chair Powell and ECB President Lagarde speak.

On the earnings front, on Tuesday, we hear from SNX.  Then on Wednesday, we get reports from BBBY, GIS, MKC, MSM, PDCO, PAYX, SCHN, UNF, MLKN, and SGH.  Thursday, we get reports from AYI, STZ, WBA, and MU.  There are no reports on Friday, July 1.

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The bulls may well be following the weekend forecasts of GS and JPM and rallying into the coming end of the period and holiday. However, volatility is still the watchword in both the stock and bond markets. Intraday reversals and whipsaw action have been almost daily occurrences recently. So, caution and nimbleness remain the smart plays. Don’t be in a hurry to chase that gap. As the saying goes, slow is smooth, and smooth is fast. The mid-term and long-term trends remain strongly bearish, while the trend this week is strongly bullish. Just consider whether this is a market where you have an edge before you get into too many or too large of a position.

As always, remember that trading is our job. So, do the work and follow the process. Demonstrate patience and wait for confirmation. Stick with your trading rules, trade with the trend, and consistently take profits when you have them. 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: ACCD, CHWY, PLTR, DKNG, ARKK, TTWO, SBUX, ZS, ZM, SNOW. 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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🎯 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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