SI Collapse, Biden Budget, and CS Delay

Markets opened flat on Wednesday and then proceeded to undulate sideways the rest of the day.  This left the large-cap indices just on either side of where they closed on Tuesday and the QQQ managed a small gain by rallying the last 30 minutes of the day.  This action gave us indecisive, Spinning Top candles in all three major indices.  The QQQ managed to cross back above its T-line (8ema).  Meanwhile, the SPY is retesting its 50sma.  All of this happened on just below-average volume.

On the day, six of the 10 sectors were in the green as Utilities (+0.80%) led the way higher and Energy (-0.58%) lagged behind the other sectors.  At the same time, the SPY was up 0.16%, the DIA was down 0.12%, and QQQ was up 0.50%.  The VXX fell 1.64% to 43.05 and T2122 rose but remains in the oversold territory at 14.29.  10-year bond yields climbed to 3.989% and Oil (WTI) dropped 1.38% to $76.51 per barrel.  So, Wednesday was an indecisive or “wait and see” day where the market might be waiting on the February Payrolls data.

In economic news, the February ADP Nonfarm Employment Change saw a greater than expected increase at +242k jobs (compared to a forecast of +200k and the Jan. reading of +119k).  Later the January Exports came in up to $257.50 billion (up from $249.00 billion) while the January Imports were also up at $325.80 billion (up from $316.20 billion).  As a result, the January Trade Balance came in very slightly better than expected at a deficit of $68.30 billion (versus a forecast of a $68.90 billion deficit but also worse than the December reading of $67.20 billion deficit).  A little later in the morning, the January JOLTS (Job Openings) came in higher than expected at 10.824 million (compared to the forecast of 10.500 million but down from the December value of 11.234 million openings).  Then the EIA Weekly Crude Oil Inventories showed a drawdown of 1.694 million barrels (versus a forecast inventory build of 0.395 million barrels and much lower than the prior week’s 1.165-million-barrel build).  On the Fed front, Chairman Powell testified again and was questioned (mostly political theatre for many Congressmen) for hours.  Basically, he said nothing new.  He reiterated if (and emphasized only if the totality of) data warrants it, the Fed might increase the pace of rate hikes.  Again, the basic idea is that inflation is not falling as fast as the Fed would like.  So, the terminal rate likely will be higher than the old 5.1% estimate, but he did not say how much higher.  He also said many times that no decision has even been made even on the size of the rate hike to be announced on March 22.

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In stock news, on Wednesday, PYPL instructed its real estate agents to sell its main office (headquarters) in Ireland according to the Irish Times.  The company responded saying the move is a result of the remote work nature of the last three years. However, PYPL did lay off 2,000 Irish employees at the end of January.  Later, Reuters reported that JPM is cutting ties with the Gemini cryptocurrency exchange.  In other news, Reuters also reported that Japan Airlines has decided (but has not announced yet) that it will buy 20 of the 737 Max jets from BA.  Elsewhere, CSX was the latest railroad to suffer an accident as one of their trains derailed in West Virginia, spilling diesel fuel into the New River. After the close, Reuters reported that UBER is exploring whether to sell its logistics unit (Uber Freight) or spin off and IPO the unit.  (The unit was started when UBER acquired logistics firm Transplace in 2017.)  In other news, Bloomberg reports that AAPL has reshuffled the management of its international businesses in order to put a bigger focus on India.  Also after hours, SI announced it is winding down operations and will voluntarily liquidate.  The stock plummeted in post-market trading.

In stock legal and regulatory news, the NHTSA opened a “special investigation” into a February fatal crash in CA involving a TSLA Model S where the so-called auto-pilot feature was suspected of being used.  Meanwhile, the CEO of LUV told reporters that the airline is not counting on being able to deploy BA MAX 7 planes in 2023 as the plane still has not completed the FAA certification process.  He went on to say LUV expects some of the BA-promised plane deliveries for 2023 will now slip into 2024 and regardless of the delivery date, it then takes six months from delivery until the plane is in use.  Across the pond, MSFT told the UK it will license the “Call of Duty” video game franchise to SONY for 10 years as part of the company’s efforts to get UK approval for the purchase of ATVI.  (The UK ruling is due in April.)  After hours, the US International Trade Commission banned the import of video-streaming fitness devices made by PTON after a judge found those devices infringed on patents held by DISH.  The Administration has 60 days to review the decision before it takes effect.  However, Presidents rarely reverse such rulings.

In energy news, the Wall Street Journal reported that new intelligence suggests that the Nord Stream gas pipelines were attacked by a pro-Ukrainian group made up of Ukrainian and Russian individuals.  As mentioned above, the EIA reported Wednesday that US oil inventories fell for the first time since December last week (10 straight weeks of build broken last week).  The report also said refineries operated at 86% of capacity (about 4% below the long-term average for this time of year).  Gasoline inventories fell by 1.134 million barrels after refineries cut gasoline production.  However, distillate (diesel and heating oil) inventories rose 0.138 million barrels compared to an expected drawdown of 1.038 million barrels.

Overnight, Asian markets were mostly in the red.  Japan (+0.63%) was the lone appreciable gainer in the region.  However, India (-0.93%), Hong Kong (-0.63%), and South Korea (-0.53%) led the vast majority of the region lower.  Meanwhile, in Europe, with the exceptions of Greece (+1.10%) and Denmark (+0.37%) the entire region is in the red.  The FTSE (-0.55%), DAX (-0.37%), and CAC (-0.31%) are leading the region lower in early afternoon trade.  As of 7:30 am, US Futures are pointing toward a down start to the day.  The DIA implies a -0.08% open, the SPY is implying a -0.28% open, and the QQQ implies a -0.55% open at this hour.  At the same time, 10-year bond yields are rising again to 3.997%, and Oil (WTI) is up fractionally to $76.75/barrel in early trading.

The major economic news events scheduled for Thursday are limited to Weekly Initial Jobless Claims (8:30 am).  Major earnings reports scheduled for the day include BJ, GCO, GBTG, JD, WLY, and TTC before the opening bell. Then after the close, QFIN, DOCU, GPS, ORCL, ULTA, and MTN report.    

In economic news later this week, on Friday, we get Feb. Avg. Hourly Earnings, Feb. Nonfarm Payrolls, Feb. Participation Rate, Feb. Unemployment Rate, and Feb. Federal Budget Balance.  In earnings Friday, we hear from, ERJ.

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So far this morning, BJ and SKHSY reported beats on both the revenue and earnings lines.  Meanwhile, JD and GCO missed on revenue while beating on the earnings line.  Unfortunately, HVRRY missed on both the top and bottom lines.  It is worth noting that BJ raised its forward guidance while GCO lowered its forward guidance.

In late-breaking news, other than SI deciding to liquidate, the big news of the day will be the release of President Biden’s budget proposal.  It is expected to contain a 25% minimum billionaire tax and a major increase in capital gains tax in order to achieve $3 trillion in deficit reduction over 10 years as well as bolstering Medicare and Medicaid to keep those programs solvent through 2050.  Elsewhere, CS is delaying the release of its annual report “after receiving a call from the SEC late Wednesday night.”  Details of the call were not released other than CS saying its management will need time to understand the SEC comments.  Meanwhile, executives from NSF will face a grilling from the Senate this morning (10 am) over the railroad’s safety problems that led to a spate of recent derailings and specifically the East Palestine OH crash that caused a major chemical spill.

With that background, it looks like the market is just on the bearish side of undecided at least until the Weekly Jobless Claims are released. Meanwhile, the downtrend remains in place as well as all three major indices being below their T-line (8ema). SPY also continues its test of its 50sma. Extention is not a problem from the T-line, but the T2122 indicator remains in the oversold territory. As I see it, both SPY and DIA are still in a potential support area. QQQ may have marginal support here, but it is far less obvious than in the large-cap indices. All three have potentially stronger support levels a little ways below. Of course, all three also have resistance to work through overhead if the bulls plan to make a run.

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.


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