On Wednesday, stocks gapped down sharply in all 3 major indices after the June CPI number came in at 9.1%, much higher than expected.  However, the chop continued as all 3 had more than filled the gap before 11 am.  From that point, we saw volatile sideways chop the rest of the day, ending on a down-swing back into the gap.  This left us with white candles with upper wicks.  All 3 failed a retest of their T-line again.  On the day, SPY lost 0.52%, DIA lost 0.72%, and QQQ lost 0.21%.  The VXX was flat at 22.41 and T2122 climbed a bit to 31.00.  10-year bond yields fell to 2.932% and Oil (WTI) was on the green side of flat at $96.09/barrel.  It is worth noting that the 2-year, 5-year, and 10-year bond yields remain inverted, which is a recession indicator.  In fact, the 2s vs 10s inversion is the largest since 2000.

In economic news, as mentioned above the June CPI came in at 9.1% annualized compared to a expected 8.8% and a 8.6% CPI printed in May.  However, (and keeping with the more than month-long decline in gas prices) later in the day, crude oi inventories showed another build of 3.254 million barrels (when a drawdown of 155,000 barrels had been expected).  This shows that demand continues to decline and, at least in oil, price is following demand.  In other economic news, Canada’s Central Bank surprised markets with a rate increase of a full percent to 2.5%.  This is expected to put the breaks on Canada’s real estate market.  US futures markets are still pricing in a 72% chance of a 75-basis-point hike by the Fed on July 28.  However, the chance of a full percentage hike is now 28% according to futures.

In energy news, ERCOT (Texas power grid) was forced to take emergency actions Wednesday to avoid rolling blackouts.  ERCOT began paying $5,000/megawatt.  The action forced electric generators to turn on supply regardless of maintenance and other plans.  The state also forced large Bitcoin mining operations to go offline and pled with residents to raise thermostats and avoid large appliance use between 2 pm and 9 pm.

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I know we don’t want to hear it, but in Covid news, after Tuesday’s announcement from the WHO that they are worried about the newest variant (BA.5).  BA.5 is the most transmissible variant so far, being highly contagious.  Cases are climbing as Europe has seen a 25% spike in cases (which is significant since it is summer and people are outside more) and the US reports that 65% of new cases are of this new variant.  On Wednesday, China again ratcheted up lockdowns and testing after closing Macau casinos just 2 days earlier (they are not releasing timely case numbers).  The WHO called for countries to revisit mask mandates.  The point is that the economy, and therefore companies (or at least major employers) especially the public-facing ones, are not out of the woods yet.

In Forex news, the Euro was forced down to parity before recovering again on Wednesday, reaching its lowest level against the strong dollar in over 20 years. A weak European economy, the war-impact risks, and an unfavorable interest rate difference between the Fed and European Central Banks are stoking the flight to dollars. This situation is likely to get worse before it gets better and many analysts are predicting doomsday if Russia fails to turn back on the natural gas after the planned maintenance shutdown. While the strong dollar helps Americans who want to travel to Europe, it is a strong headwind for American companies trying to sell into the European market.

So far this morning, FRC beat on both the earnings and revenue lines.  Meanwhile, JPM beat on revenue while missing on earnings.  (It is worth noting that JPM more than explained away the down earnings by saying it was building up its “bad loan” reserves by $428 million. If even half of that was passed through to earnings they would have beaten estimates.) On the other side, TSM (the world’s largest chipmaker) missed on revenue while beating on earnings.  However, ERIC had a terrible quarter and missed on both lines.

Overnight, Asian markets were mixed on relatively modest moves.  Singapore (-1.22%) was an outlier with Thailand (-0.65%) pacing the losses.  Meanwhile, Taiwan (+0.79%), Shenzhen (+0.75%), and Japan (+0.62%) leading the gains in the region.  In Europe, stocks are red across the board at mid-day.  The FTSE (-0.85%), DAX (-0.99%), and CAC (-1.21%) are leading the region lower in early afternoon trading, but other than Russia every exchange is strongly lower.  As of 7:30 am, US Futures are pointing toward a gap down to start the day.  The DIA implies a -1.30% open, the SPY is implying a -1.22% open, and the QQQ implies a -0.85% open at this hour.  10-year bond yields have recovered to 2.961% and Oil (WTI) is off 2.9% to $93.58/barrel in early trading.

The major economic news events scheduled for release Thursday are limited to June PPI and Weekly Jobless Claims (both at 8:30 am).  However, there is a Fed speaker (Waller at 11 am).   Earnings season kicks off again with major reports scheduled from CTAS, CAG, ERIC, FRC, JPM, MS, and TSM before the open.  There are no major reports scheduled for after the close Thursday.

In economic news coming later this week, on Friday we get June Retail Sales, June Import/Export Price Index, NY Empire State Mfg. Index, June Industrial Production, May Business Inventories, and Michigan Consumer Sentiment.

In earnings reports later this week, on Friday we hear from BK, BLK, C, PNC, PGR, STT, USB, UNH, and WFC.   

Earnings season is here again and we are getting a mixed bag right out of the shoot. Futures are showing that markets did not like that news, but probably more eyes are on inflation as yet another Fed voter (Mester) called for “at least” a 0.75% hike when the Fed announces in 2 weeks. This comes hours after Canada hiked rates by a full percent. So, for the first time, Futures are considering that there might be a 1% hike and traders are need to (and are) starting to consider how that might impact the economy and stocks. Expect more volatility and chop because the vast majority of traders don’t remember a similar situation. So, markets are likely to whipsaw back and forth as the market re-learns the lessons taught in prior decades. There are only two things that we know for sure. First, the low volumes of the last few weeks tells us there is not a huge amount of conviction in either the bull or bear camps. Second, we know the trend remains bearish in both the longer and short-term views.

Stick with your trading rules, trade with the trend, and take those profits when you have them. Demonstrate patience and wait for confirmation. Remember that trading is our job. So, do the work and follow the process. Always move your stops in your favor and remember the “Legend of the man in the green bathrobe“…it is NOT house money, it’s all our money! One 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. Lastly, remember it is Friday. So, be prepared for the weekend news cycle.

See you in the trading room.

Ed

Swing Trade Ideas for your consideration and watchlist: MSFT, PANW, TSN, JNJ, CCJ, MOS. 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.

🎯 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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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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