Services PMI, JOLTs, and Fed Minutes Today

On Tuesday, the major indices all gapped down strongly on recession fear (following Europe which had the same fears).  After an hour or two (depending on the index) of bobbing along the lows, the bulls stepped in to drive a rally that lasted the rest of the day.  This caused the DIA to mostly close the morning gap, the SPY to fully close the opening gap, and the QQQ to close the gap and then travel the gap distance higher yet.  All 3 of those major indices closed on their highs with the SPY and QQQ printing outside day candles (and both closing above their T-line).  On the day, SPY gained 0.18%, DIA lost 0.36%, and QQQ gained 1.72%.  The VXX was flat at 22.55 and T2122 fell to just outside the oversold territory at 23.59.  10-year bond yields ell to 2.829% and Oil (WTI) plummeted 8.13% on that recession (demand destruction) fears to $99.59/barrel (closing below $100 for the first time since May).  

In economic news, May Factory Orders came in much higher than expected.  May was up 1.6% while a 0.5% gain was forecast and April had seen a 0.7% increase.  Unfilled orders also increased 0.4% (indicating strong demand) while orders for electrical equipment, appliances, and components declined 1.0%.  Meanwhile, bond yields again flashed a recession warning sign when the 2-year and 10-year bond yields closed inverted.  Related to President Biden dropping tariffs on Chinese goods, analysts are now estimating that eliminating those tariffs would only provide a one-time inflation reduction of 0.3%.  The small size of the reduction also makes the lifting less likely.

In business news, XOM raised its Q2 profit estimates, nearly doubling Q1 earnings. In an odd legal move, Ben & Jerry’s sued their parent company UL on Tuesday.  B&J is fighting to prevent the sale of its business to an Israeli licensee, saying that selling its ice cream in the occupied West Bank is against the company’s values.  In other legal news, JPM was fined $850,000 for not reporting certain types of forex swap trades to the CFTC.

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In energy news, on Tuesday, offshore oil and gas workers in Norway went on strike over pay, only to have the strike end a few hours later.  The Norwegian government stepped in to force a settlement.  This avoids what would have been a 1.2 million barrel per day loss of oil (almost exclusively in the European market).  Elsewhere, analysts at C are now predicting that oil prices that have soared this year will drop to $65/barrel before year-end (as a result of a recession).

In technical analysis news, today we will look at the QQQ 100.  Of those 99 stocks, 33 are trading above their 50sma.  The largest of these are GOOG, COST, AMGN, PEP, SBUX, MRNA, TMUS, CRWD, INTU, and GILD.  65 of that 99 are trading above their T-line (8ema), including the same 10, plus CHTR, PANW, PDD, VRTX, AZN, ORLY, ZM, BIDU, DDOG, and ATVI.  Of the QQQ 100, only ASML is trading at/near its own 52-week low.  None of those stocks are trading at/near their 52-week highs.

Mortgage demand fell for the second straight week and this decline could not even be stopped by a second straight week of rate drops.  The average 30-year, fixed-rate, conforming loan rate fell to 5.74% (down from 5.84% last week).  Nonetheless, loan applications fell 5.4% week-on-week.  Home purchase loan applications fell 4% for the week (17% year-on-year) while refinance applications dropped 8% for the week (down 78% from on year ago).

Overnight, Asian markets leaned heavily to the red side.  Taiwan (-2.53%), South Korea (-2.13%), and Shanghai (-1.43%) led the region lower.  However, New Zealand (+1.60%) and India (+1.13%) diverged from the rest of the region.  In Europe, stocks are strongly green across the board at mid-day.  The FTSE (+1.79%), DAX (+1.51%), and CAC (+1.56%) are leading the region higher with some of the minor exchanges moving either faster to the upside in early afternoon trading.  As of 7:30 am, US Futures are pointing towards a slightly red open.  The DIA implies a -0.15% open, the SPY is implying a -0.20% open, and the QQQ implies a -0.28% open at this hour.  10-year bond yields are down again to 2.809% while Oil (WTI)  has rebounded to $100.18/barrel in early trading.

The major economic news events scheduled for release Wednesday include June Services PMI (9:45 am), June ISM Non-Mfg. PMI and May JOLTs (10 am), and FOMC Meeting Minutes (2 pm).  We also get a Fed speaker (Williams at 9 am).  There are no major scheduled earnings reports either before the open or after the close.

In economic news coming later this week, on Thursday we get June ADP Nonfarm Employment, Imports/Exports, May Trade Balance, Weekly Initial Jobless Claims, Crude Oil Inventories and a couple of 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.  On Thursday we do get a report from HELE and LEVI.  Then once again, there are no reports on Friday.

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On the Russian invasion story, Ukraine has asked Turkey to investigate and seize 3 more cargo ships suspected of carrying grain stolen from Ukraine and shipped from Sevastopol in Crimea.  Meanwhile, Ukraine held back Russian ground forces at the border of the Luhansk and Donetsk regions.  Elsewhere, the strain is starting to show on the Russian military.  The Russian Duma passed two laws that demonstrate this strain.  The first law requires businesses to supply goods to the military for the war effort.  The second law changes Russian labor law allowing companies who supply the military to force workers to work nights, weekends, and holidays in addition to revoking vacation leaves if the company deems it necessary to support the war effort.  These laws are also a clue that the Kremlin expects this war to continue for at least months and likely longer.

With this backdrop, the market continues to chop around the respective T-lines the last 4-5 days. However, the longer-term trend remains bearish and it looks like price is having trouble getting past the resistance caused by the long, downward move. Normally, the FOMC Minutes can cause a reaction. However, we have had so many Fed speakers telling us how they each see things that it is unlikely any new clues come from the minutes today. So, focus on the trend, support/resistance, and price action. (Also, for swing positions, don’t forget that earnings season starts anew at the end of next week. In addition, we are likely to continue getting pre-reports to manage market expectations every day now.)

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 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: INTC, AMZN, XBI, KR, USO, ETSY, TUP. 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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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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