Sitting at All-Time High Closes in SPY and QQQ

Tuesday started off with a Bear trap.  SPY gapped down 0.30%, DIA opened 0.16% lower, and QQQ gapped down 0.32%.  However, at that point, SPY and QQQ began a steady all-day rally.  Meanwhile, DIA chopped sideways in the gap until 1 p.m. when it followed the other major index ETFs higher.  All three posted a strong rally into the close.  This action gave us large white-bodied, Marubozu candles in the SPY, DIA, and QQQ.  SPY and DIA also printed Bullish Engulfing signals.  All three crossed back above their T-line after a retest and SPY and QQQ both gave us new all-time high closes.  This happened on well below-average volume across the board.

On the day, nine of the 10 sectors were in the green again with Financial Services (+0.92%) out in front leading the way higher.  Communications Services (-0.38%) was the only sector in the red.  At the same time, SPY gained 0.67%, DIA gained 0.47%, and QQQ gained 1.05%.  VXX dropped another 1.14% to a very low 10.37 and T2122 climbed back into the center of its mid-range at 43.09. On the bond front, 10-year bond yields fell to 4.431% and Oil (WTI) fell 0.41% to close at $83.04 per barrel.  So, what we saw on Tuesday seemed like a very low volume pre-holiday rally after a gap down. 

The major economic news scheduled for Tuesday was limited to May JOLTs Job Openings, which came in higher than expected at 8.140 million (compared to a 7.960 million forecast and an April value of 7.919 million).  Then, after the close, the API Weekly Crude Oil Stocks report showed a huge, unexpected drawdown of 9.163 million barrels (versus a forecasted 0.150-million-barrel drawdown and the previous week’s 0.914 million inventory build).

In Fed speak news, Fed Chair Powell told a conference that US inflation is now falling again.  Powell said, “I think the last reading … and the one before it to a lesser suggest that we are getting back on the disinflationary path.”  However, Powell indicated the Fed still needs to see more before cutting rates, saying, “We want to be more confident that inflation is moving sustainably down toward 2% … before we start … loosening policy.”  He went on to say that, while there is two-sided risk, there is still no need to rush into rate cuts.  Powell said, “Given the strength we see in the economy we can approach the question carefully.” Finally, he concluded with the point that the Fed does not want to wait too long, saying “we don’t want to lose the expansion.”  Elsewhere, Chicago Fed President Goolsbee told CNBC that he sees some “warning signs” of weakening in the economy.  Goolsbee said, “You only want to stay this restrictive for as long as you have to.”

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In stock news, on Tuesday, AAL agreed to a deal to purchase 100 hydrogen-electric engines for its regional jets (made by BDRBF).  (It is unclear how new “green” engines would be fitted onto or approved for use on those regional jets.)  At the same time, Reuters reported that major Japanese insurance companies are planning to sell $3.1 billion of HMC stock.  Later, RIVN shares popped as it reported vehicle deliveries that modestly beat analyst estimates for Q2.  At the same time, TSLA stock gapped up more than 4% after it reported deliveries that exceeded expectation, 443,956 actual versus 439,302 (consensus estimate).  Those deliveries were still down 5%, but better than expected.  At the same time, CONN stock plunged on a Bloomberg report that the company is preparing to file bankruptcy.  Meanwhile, Bloomberg also reported that HOOD is considering offering “crypto futures” to the US and European markets.  (HOOD is hoping to use futures licenses from Bitstamp, a cryptocurrency exchange the company agreed to purchase last month.)  Elsewhere, GM reported slower sales growth in Q2, up just 0.6% from the same quarter in 2023.  However, TM posted strong 9.2% Q2 sales growth in North America. 

In stock legal and governmental news, on Tuesday, President Biden called out NVO and LLY, specifically related to their blockbuster GLP-1 weight loss drugs, in an op-ed article.  Later, interestingly given all of its recent rulings, the US Supreme Court refused to hear a challenge to OSHA regulatory authority from an OH company that had claimed OSHA had exceeded its authority to regulate.  Two of the extreme right justices indicated they wanted to hear the case, but they could not find enough support (4 justices must indicate they want to hear a case for it to be taken up).  Later, the FTC announced it would sue to block the merger between TPX and retailer Mattress Firm as being detrimental to competition.  At the same time, a US Appeals Court threw out a dismissal of an antitrust lawsuit against 10 big banks due to a financial conflict of interest.  (The judge’s wife owned stock in at least one of the banks.)  So, the case against BAC, C, JPM, CS, DB, GS, MS, WFC, NWG, and BCS will proceed.  Later, PGR agreed to pay $48 million to settle a class-action lawsuit alleging it systematically undervalued wrecked cars to reduce claims paid.  Meanwhile, after the close, the FDA approved LLY’s early Alzheimer’s drug donanemab.  (Donanemab is priced at $32k per year, slightly higher than the only approved competitor.)  Also after the close, both SLB and CHX disclosed they have received a second set of requests for information from the US Dept. of Justice in connection with their $7.75 billion acquisition deal.

Overnight, Asian markets leaned heavily to the green side.  Only Shenzhen (-0.59% and Shanghai (-0.49%) were in the red.  Meanwhile, Singapore (+1.41%), Taiwan (+1.28%), and Japan (+1.26%) led the majority of the region higher.  In Europe, with the lone exception of Norway (-0.19%) we see green across the board at midday.  The CAC (+1.63%), DAX (+1.01%), and FTSE (+0.59%) lead the region higher in early afternoon trade.  In the US, as of 7:30 a.m., Futures are pointing to mixed, flat start to the day.  The DIA implies a +0.06% open, the SPY is implying a -0.01% open, and the QQQ implies a -0.02% open at this hour.  At the same time, 10-Year bond yields are at 4.433% and Oil (WTI) is flat at $82.78 per barrel in early trading.

The major economic news scheduled for Wednesday includes that MARKETS CLOSE AT 1 P.M.   In addition, JUNE ADP Nonfarm Employment (8:15 a.m.), Weekly Initial Jobless Claims, Weekly Continuing Jobless Claims, and May Trade Balance (all at 8:30 a.m.), S&P Global Services PMI and S&P Global Composite PMI (9:45 a.m.), May Factory Orders, June ISM Non-Mfg. Employment, and June ISM Non-Mfg. Prices (10 a.m.), EIA Weekly Crude Oil Inventories (10:30 a.m.), and FOMC Meeting Minutes (2 p.m.).  NY Fed President Williams also speaks at 7 a.m.  The major earnings reports set for Tuesday are limited to STZ before the open.  There are no major reports set for after the close.

In economic news later this week, on Thursday, MARKETS ARE CLOSED.  However, we still get the Fed Balance Sheet.  Then on Friday, June Avg. Hourly Earnings, June Nonfarm Payrolls, June Private Nonfarm Payrolls, June Participation Rate, and June Unemployment Rate are reported.  NY Fed President Williams also speaks. 

In terms of earnings reports later this week, there are no earnings reports Thursday or on Friday.

So far this morning, STZ missed slightly on revenue while beating handily on earnings.

In miscellaneous news, on Wednesday morning LUV announced it has adopted a “poison pill” policy to fend off activist investor Elliott Management.  IF Elliott were to acquire 12.5% of the LUV stock, all existing shareholders would be allowed to buy an additional share for every share they own…at a 50% discount to the market price.  At the same time, PARA is back in the deal arena as Skydance and Shari Redstone’s National Amusements (which owns 70% of the voting shares of PARA) have reached another “preliminary deal” for Skydance to acquire it.  (They had a preliminary deal in June that fell through and then the two sides walked away.)  The new deal reduces Redstone’s take to $1.75 billion with Skydance acquiring half of PARA voting stock at $15/share ($4.5 billion) and contributing another $1.5 billion toward PARA balance sheet debt.

With that background, it looks as if markets are undecided, sitting here at the all-time highs. All three major index ETFs opened flat and have printed small, indecisive candles so far in the premarket. DIA, the laggard, is showing the strongest candle in the early session, but that is hardly a big bull candle. All three remain above their T-line (8ema). So, the short-term trend is now bullish again and both the mid-term and especially the longer-term trend in all three major index ETFs remains very bullish. In terms of extension, none of those three are extended above their T-line and while the T2122 indicator is in the center of its mid-range. Therefore, the market has room to run in either direction. With regard to those 10 big dog tickers, they are evenly split between gainers and losers in the premarket. NVDA (-0.98%), the biggest dog, is the worst performer but TSLA (+2.10%), the second biggest trader is the strongest performer of the 10.

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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