Short Week Starts With Bears Pushing

Markets were mostly flat Friday, but did diverge to an extent.  The SPY opened dead flat, DIA did the same, and QQQ “gapped” down 0.10%.  At that point, DIA sold off in a modest way until 12:30 p.m. before trading dead until 2:30 p.m., and then finally selling off again into the close.  Meanwhile, after the open, SPY meandered sideways all day but mostly on the down side of the flat line.  At the same time, after the open, QQQ chopped sideways until 12:30 p.m. before modestly rallying until 2 p.m. and then selling off back toward flat the rest of the day.  The biggest move of the day was a lock step selloff across all three major index ETFs the last 5 minutes of the day.  This action gave us a white-bodied Spinning Top in the QQQ, a small black-bodied candle in SPY, and a large, almost Bearish Engulfing candle in the DIA.  This all happened on less-than-average volume in all three major index ETFs.

On the day, nine of the 10 sectors were red as Financial Services (-1.14%) out in front leading the market lower.  Meanwhile, Utilities (+0.02%) was the only sector to cling onto the green area (barely) although Technology (-0.06%) was also barely in the red.  At the same time, SPY lost 0.19%, DIA lost 0.81%, and QQQ gained 0.08%. VXX rose by almost half a percent to close at a still very low 13.13 and T2122 dropped back into the mid-range at 62.60.  10-year bond yields fell again to 4.202% and Oil (WTI) fell just a fraction of a percent to close at $80.87 per barrel.  So, Friday seemed like markets took the day off and Thursday’s afternoon profit-taking.  Even so, QQQ managed to close at a new all-time high close (although it did not print a new all-time high).  Of the three major index ETFs, the only significant mover was DIA, which gave back ground all day after closing at all-time highs the previous two days.  Still, despite this action, SPY closed the week up 2.23%, DIA up 1.95%, and QQQ up 2.87%.

The major economic news scheduled for Thursday included Weekly Initial Jobless Claims, which came in just below expectations at 210k (compared to a forecast of 212k and a prior week 212k value).  On the ongoing side, Weekly Continuing Jobless Claims were a bit below predictions as well at 1,807k (versus a 1,820k forecast and up a bit from the prior week’s 1,803k reading).  At the same time, the Philly Fed Mfg. Index was better than anticipated at +3.2 (compared to the -2.6 forecast but still down from the February +5.2 value).  In terms of jobs, the Philly Fed. Mfg. Employment Index was down but better than the prior month at -9.6 (versus February’s -10.3 reading).  Later, the S&P Global Mfg. PMI came in better than expected at 52.5 (compared to a 51.8 forecast that the previous 52.2 value).  At the same time, the S&P Global Services PMI was slightly lower than predictions at 51.7.2 (versus the 52.0 forecast and down slightly from February’s 52.3 reading).  This gave us a S&P Global Composite PMI in line with anticipated numbers at 52.2 (compared to the 52.2 forecast and down a bit from the February 52.5 number).  Later, February Existing Home Sales were much stronger than was expected at 4.38 million (versus a 3.95 million forecast and the 4.00 million January reading). Finally, after the close, the Fed Balance Sheet showed a $28 billion reduction with a current balance of $7.514 trillion (down from the prior week’s $7.542 trillion).

There was no major economic news scheduled for Friday. However, Fed Chair Powell, Vice Chair Jefferson, and Governor Bowman heard from six businessmen in a “Fed Listens” roundtable.  All of the speakers, derided the FOMC for raising rates too fast and too far.  Among the speakers were a CO farmer/rancher, a MI small manufacturer consulting firm, a FL food bank operator, and three others.  That capped a big week for Central Banks where the Bank of Japan ended negative rates for the first time in decades, the Swiss National Bank surprised everyone by cutting rates (citing progress on inflation), and the Fed did nothing but struck a more dovish tone, reaffirming that they still foresee three rate cuts this year.

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In Fed-speak news, Atlanta Fed President Bostic (hawk) started what analysts expect to be a trend of Fed members talking more hawkish after the more dovish statement and Fed Chair Powell remarks Wednesday. (Analysts think the Fed members now need to reset or dampen market expectations.) Bostic said Friday, “I’m definitely less confident than I was in December” (that inflation will continue to fall to the 2% target).  He continued, “If we have an economy that is growing above potential, and we have an economy where unemployment is at levels that were deemed to be unimaginable without pricing pressures, and if we have an economy where inflation is moderating … those are good things. That gives us space for patience.”  He went on to say that he now expects a single quarter-point rate cut in 2024 (instead of the two he had projected in December). 

In stock news, on Friday, the Wall Street Journal reported that AAPL held talks with BIDU (Chinese) about using that company’s AI technology in its iPhones and other devices inside China. At the same time, GILD announced it completed its acquisition of CBAY for $4.3 billion.  (The deal was first announced February 12, 2024.)  Later, STLA said it will lay off about 400 salaried workers to cut costs, effective March 31.  (This is about 2% of STLA salaried workers.)  STLA cited both competitive pressures and the “unprecedented uncertainty” of the market (implying risk of change to electric vehicle markets under some political scenarios). At the same time, AXNX announced its board had approved a merger agreement with BSX during a special meeting.  The deal is expected to close in Q2 of 2024, subject to antitrust approvals.  Later, a digital marketing company partially owned by WMT (and which has PEP and KO as major customers) filed for an IPO to trade under the ticker IBTA.  At the same time, the MASI board of directors authorized the separation of its consumer business from its core healthcare operations.  No timeline or specifics were announced.  Later, Bloomberg reported that TSLA has cut production at its Chinese plant after sluggish growth in EV sales and intense competition from lower-priced competitors.  (Shanghai TSLA workers are now working 5-day instead of 6.5-day work weeks.)

In stock legal and governmental news, on Friday, the NHTSA announced SLTA (Chrysler) is recalling 286k vehicles due to airbag inflator manufacturing defects on side curtain airbags.  (The recall impacts 2018 – 2021 Dodge Charger and Chrysler 300 models.)   At the same time, the US Nuclear Regulatory Commission sent a 40-page pre-application readiness assessment to TerraPower (private and partially funded by Bill Gates as well as the US Dept. of Energy).  The assessment said the company’s planned application for a construction permit needs work, which critics told Reuters may significantly delay the project.  The natrium reactor they are developing uses low-cost, low-enriched uranium.  Later, AMZN filed an appeal of the $35 million fine from French regulators (in January) for setting up systems to monitor employee activity.  At the same time, the FDA granted emergency use approval to IVVD’s PEMGARDA antibody prophylactic for COVID-19 exposure.  At the same time, the FDA granted full approval to ABBV’s ELAHERE ovarian cancer drug.  Later, the Biden Administration (as one might expect) filed an amicus brief with the Supreme Court urging the court to refuse to hear Elon Musk’s appeal of lower court rulings that his consent decree with the SEC was valid.  (Musk is appealing the SEC’s right to act against him for deceiving investors when he tweeted that he had “funding secured” to take TSLA private in 2018, when no such thing was true.  Musk paid a $20 million fine, was removed as TSLA’s Chair, and agreed to let TSLA lawyers approve his posts about TSLA.)

Overnight, Asian markets were mostly in the red.  Shenzhen (-1.49%), Japan (-1.16%), and Shanghai (-0.71%) led the region lower.  Meanwhile, New Zealand (+0.74%), Australia (+0.53%), and India (+0.39%) were the only gainers.  In Europe, a similar picture is taking shape at midday with only three of 15 exchanges in the green.  The CAC (-0.40%), DAX (-0.05%), and FTSE (-0.42%) lead the region lower in early afternoon trade.  In the US, as of 7:30 a.m., Futures are pointing toward a down start to the day.  The DIA implies a -0.22% open, the SPY is implying a -0.35% open, and the QQQ implies a -0.61% open at this hour.  At the same time, 10-year bond yields are at 4.232% and Oil (WTI) is up four-tenths of a percent to $80.96 per barrel in early trading.

The major economic news scheduled for Monday are limited to Feb. Building Permits (8 a.m.) and Feb. New Home Sales (10 a.m.).  There are no major earnings reports scheduled for before the open.  After the close, BKKT reports.

In economic news later this week, on Tuesday, we get Feb. Core Durable Goods Orders, Feb. Durable Goods Orders, Conf. Board Consumer Confidence, and API Weekly Crude Oil Stocks.  Fed member Bostic also speaks.  Then Wednesday, EIA Crude Oil Inventories are reported and Fed member Waller speaks.  On Thursday, we get Weekly Initial Jobless Claims, Weekly Continuing Jobless Claims, Q4 GDP, Q4 GDP Price Index, Chicago PMI, Michigan Consumer Sentiment, Michigan Consumer Expectations, Michigan 1-Year Inflation Expectations, Michigan 5-Year Inflation Expectations, Feb. Pending Home Sales, and the Fed Balance Sheet.  Finally, on Friday, despite being a market holiday, Feb. Core PCE Price Index, Feb. PCE Price Index, Feb. Personal Spending, Feb. Goods Trade Balance, Feb. Retail Inventories are reported and Fed Chair Powell speaks.

In terms of earnings reports later this week, on Tuesday we hear from ESLT, MKC, SNX, CNXC, GME, and NOAH.  Then Wednesday, CCL, CTAS, LE, PAYX, UNF, FUL, JEF, MLKN, and RH report.  On Thursday, we hear from AZUL, DOOO, MSM, and WBA.  Finally, on Friday, there are no major earnings reports scheduled since it is a market holiday.

In government shutdown news, on Friday, the House of Representatives finally voted to approve the six spending bills that make up 70% of the US budget for the period up until September 30.  This happened in the last morning with the 1,000 pages of bills delivered to the Senate just after noon.  Even this was only possible because House Speaker Johnson prohibited members from bringing their election posturing amendments to the floor for a vote.  In the Senate, rules don’t permit that kind of denial of proposing amendments, meaning that votes on headline-seeking Senators had written (none of which have a chance of approval) can only be stopped by a 60-vote supermajority.  The short version is that the Senate were unable to pass the bills by the midnight deadline and a partial government shutdown started.  However, the adults in the room (maybe read that as Senators not facing a close election in the fall) had more than 60 votes and were able to end the amendment proposal process and force a vote on the bills as sent from the House early Saturday morning (shortly after 2 a.m.).  They passed 74-24.  Fortunately, President Biden had anticipated this and told federal agencies to act as if there was a budget. So despite the technical shutdown, there was little if any impact.

In Budget passage fallout, GOP hardliners in the House immediately labeled the budget, which had passed the House by a 286-134 vote, a capitulation to Republicans and the deep state.  Representative Roy (TX), a leading MAGA member, said it the bill was a “complete and total failure and a capitulation by Republicans. And (GOP) leadership worked the deal, so it’s on leadership.”  He went on to say he would not be backing the reelection campaigns of any Republicans that had supported the budget.  The notorious “Jewish space laser” Rep. Greene (GA) went even further by submitting a motion to vacate the Speakership.  However, Greene did not file it as a “privileged motion” (which would have forced a vote within two business days).  This means, her action was just political theatre (about getting headlines rather than actually doing something). Her motion changed nothing and will never be called for a vote until she requests it. So, we are still in the situation where any GOP Rep. can file for a vote to vacate the Speaker within two days at any time in the future (just like before).  Of course, if a vote is ever called, Johnson has the option of reaching out to the Democrats for the votes to save his job (and at least one Dem. Rep. told reporters Friday that he’d vote for Johnson since the move to vacate was childish and idiotic).  Separately, Rep. Gallagher (GOP – WI), a Committee Chairman, announced he will resign on April 19 because he was tired of dealing with the MAGA-Headline part of his party.  This may or may not impact any future Speaker vacating vote, but will at least temporarily reduce the GOP majority to 217-213 when Gallagher leaves mid-April.

In miscellaneous news, the Equipment Leasing and Finance Assoc. said Friday that US companies borrowed 4% more in February to finance new equipment than they had in the same month of 2023.  This amounted to $7.9 billion.  The group also said that credit quality was better than 2023 with delinquencies and charge-offs moving in a positive direction.  The group also reported that credit approvals remained at 76%, not changed from January.  In market-related news, LSEG announced that global equity funds saw “substantial net inflows” in the week ended March 20 on optimism driven by good retail data out of China and anticipation of future rate cuts by the Fed.  LSEG says this included more than $14 billion of inflows into US equity funds (the highest since June 2023).  Elsewhere, Friday, the German Bundesbank President Nagel told Reuters it is increasingly likely the European Central Bank will be in a position to cut interest rates before it takes a summer recess, likely in June. 

With that background, it looks like the Bears are in control early this morning. All three major index ETFs opened lower and have printed black-body candles since that point. All three remain above their T-line (8ema) and all three T-lines are rising. However, they are getting close, especially the DIA. So, the short-term trend is still bullish, but is under pressure. Meanwhile, the longer-term trend in the three major index ETFs remain bullish. In terms of extension, none of the SPY, DIA, or QQQ are extended above their T-line and the T2122 indicator is back in its mid-range. So, both sides still have room to run if they can gather the momentum. Looking at those 10 Big Dog tech names, nine of the 10 are in the red during the premarket. INTC and AMD are leading that group lower with only NFLX clinging to the green territory. This will make it a heavy lift if the Bulls are going to try to turn the markets green Monday.

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 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 gains are 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.


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