Slow News Monday With CPI Ahead

Friday was a “much ado about nothing” day in the market.  All three major index ETFs opened flat.  Then they rallied to the highs of the day by mid-morning and slowly sold off, reaching the lows of the day at about 3:30 p.m. Finally, the SPY, DIA, and QQQ all rallied modestly in the last 30 minutes.  This action gave us white-bodied, indecisive candles in all three major index ETFs.  The SPY and QQQ printed high-wick, Inverted Hammer type candles while the DIA printed more of a white-bodied Spinning Top candle.  All three retested their T-lines from below…and failed that test, with DIA closing right at its T-line (8ema) while the other two closed below theirs.  The SPY and QQQ also retested their 50smas from below, with QQQ managing to close about a dime above its 50sma while the SPY filed its test.

On the day, five of the 10 sectors were in the green with Energy (+0.91%) out in front leading the way higher and Industrials (-0.45%) by far the biggest loser among the sectors.  At the same time, the SPY gained 0.15%, DIA gained 0.24%, and QQQ gained 0.14%.  VXX fell a bit over two percent to close at 21.27 and T2122 climbed up out of the oversold territory to the lower end of the mid-range at 29.33.  10-year bond yields were up slightly to close at 4.258% while Oil (WTI) gained another half of a percent to close at $87.33 per barrel.   This all happened on far-below-average volume in all three of the major index ETFs.  So, on balance, the bulls won the day.  However, there was not a lot to feel good about for the Bulls with those upper wicks and failures to clearly break through moving averages.  

For the week, all three major index ETFs printed black, Bearish Harami candles.  The DIA also fell through its weekly T-line (8ema).  However, both the SPY and QQQ retested their own weekly T-lines and passed that test, remaining above.  All three major index ETFs remain well above their weekly 50sma, with the SPY and QQQ far above.  Those latter two remain in a weekly PBO (potential J-hook in formation) pattern of a strong bullish uptrend.  DIA is in the same weekly pattern, but is in a much weaker (and possibly breaking or being challenged uptrend…depending on how you draw it).

There was no major economic news reported Friday.  However, to summarize Fed speakers during the week, we repeatedly heard something like there is no hurry to move and it may well be worth not hiking in September…but we are not declaring victory over inflation and it is very possible we may need to hike or otherwise tighten later.  This included Dallas Fed President Logan (normally more hawkish) saying late Thursday “Another skip could be appropriate … this month but my base case, though, is that there is work left to do.”  Another usually hawkish member, Fed Governor Waller came right out and said it earlier, “We can just sit (to see if inflation keeps trending in a downward direction).”  Meanwhile, other Fed speakers tended to tow the “let’s wait to see what more data says” line in their comments during the week.  For example, NY Fed President Williams said “It’s still an open question as we go forward.  Have we got sufficiently restrictive to achieve that (a 2% Fed inflation goal)?”  While this went on, as of the Friday close, Fed futures indicated that the market has priced in a 93% chance of no rate hike at the September FOMC meeting.  (That probability is up 7% from one month prior.)

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The US dollar completed an eight-straight week of gains against its peers on Friday.  Elsewhere, a Fed report Friday showed that US household wealth jumped to a record in Q2, increasing 3.7% to $154.3 trillion.  This included a $2.6 trillion increase in US household equity holdings, while the value of their real estate rose just $2.5 billion in the quarter. Of course, the wealth gap continues to widen with most of than wealth concentrated in the top 10 percent of American households. (Which, in part, helps explain the “woe is us” reports of credit card debt climbing and people living paycheck-to-paycheck at the same time wealth is at record levels.)

In stock news, late Thursday night, an independent research group announced they had found a security flaw in AAPL iPhones that had allowed Israeli firm NSO to plant spyware on iPhones.  Then on Friday, ABG said it was buying private firm Jim Koons Automotive for $1.2 billion in order to expand its presence in the Mid-Atlantic region. Later, Bloomberg reported that BABA has decided to temporarily shelve its plans to IPO its Freshippo grocery chain due to poor performance in the consumer stock sector recently.  (BABA was hoping for a $6 billion – $10 billion valuation, but investment houses were advising roughly $4 billion would be achieved now.)  At the same time, Chinese auto market analyst CPCA announced that TSLA had more than doubled its Chinese market share in August thanks to significant discounts and tax breaks.  This allowed TSLA to return to unit sales growth for the month. Later, Reuters reported plastics and chemical maker COVTY has entered into discussions with suitor Abu Dhabi National Oil Company.  (In August, ADNOC had offered $12.4 billion for COVTY.)  Elsewhere, the Financial Times reported that the ARM IPO is already oversubscribed by five times (Reuters reported the number was more than six times oversubscribed) in the widely-watched tech IPO.  Later, SLTA announced it is expanding its battery production capacity by 60% globally.  No specific timetable was provided, but the company already has six battery plants under construction around the world and said there are more to come. At the same time, GNL shareholders approved a planned merger with RTL in an all-stock deal.  After the close, NKLA announced that one of its electric semi-trucks caught fire near company headquarters and that this was the second such incident in the last week.  Also after the close, GT announced they would cut 1,200 jobs in Europe, Africa, and the Middle East.

In stock government, legal, and regulatory news, KR announced it will sell 400 stores to private firm C&S Wholesale Grocers for $1.9 billion in an effort to gain approval for its $25 billion acquisition of ACI.  Elsewhere, in Congress, the House announced it will be holding more AI hearings this week including testimony from the President of MSFT and the Chief Scientist of NVDA.  On the Senate side, on Tuesday they will also hold an AI hearing.  Separately, on Wednesday, Senate Majority Leader Schumer is hosting a forum (non-hearing) intended to allow Senators and Congressmen to become more informed on AI matters.  These will consist of various industry presentations and Q&A sessions including one by META CEO Zuckerberg and TSLA CEO Musk.  At the same time, an FTC Administrative Judge ruled against INTU on Friday.  The ruling found that INTU engaged in deceptive advertising and deceived at least 4.4 million customers with ads claiming they were offering “free” tax products and services.  The ruling issued a “cease and desist” order, but no financial penalty.  Later KR announced they had agreed to a $1.4 billion settlement (paid over 11 years) to resolve thousands (most) of outstanding lawsuits by US states and local governments over opioid distribution.  This included $1.2 billion going to states, $177 million in attorney fees, and $36 million to Native American tribes.  In the afternoon, a US federal judge ruled META must face a lawsuit claiming it violated the medical privacy of patients who used medical facility websites that included a META Pixel tracking tool.  The judge ruled against META’s motions to dismiss the case.  In the afternoon, the FDIC released a report saying the agency should have been more aggressive in its policing of the risk management of FRCB prior to its failure in May.  (It said it was unclear if this could have saved the bank given the speed at which depositors pulled their money out of the bank.  However, it should have done more and sooner.)  After the close, the NHTSA cited inadequate inspections as the cause of a UAL 2021 jet engine failure.  Soon after the failure, the FAA ordered immediate inspections of all BA jets with RTX-made Pratt & Whitney 4000 engines.

In Autoworker contract talks or strike news, on Friday, STLA offered the UAW a 14.5% wage increase over four years.  This is far short of the UAW’s desired 46% increase and a reduction to a 32-hour work week.  Previously, GM offered a 10% immediate raise, followed by two other 3% increases over the four years.  The week before, F had offered 9% increase over four years along with a 6% lump-sum one-time payment.  The UAW contract with all of the “Big 3” automakers ends Thursday night at midnight.

Overnight, Asian markets were mixed but leaned toward the green side.  Shenzhen (+0.98%), India (+0.89%), and Shanghai (+0.84%) paced the gains.  Meanwhile, Taiwan (-0.86%), Hong Kong (-0.58%), and Japan (-0.43%) paced the 5 (or 12) down exchanges.  However, in Europe, we see nearly green across the board at midday.  Only Russia (-0.82%) is in the red while the CAC (+0.42%), DAX (+0.34%), and FTSE (+0.06%) lead the 15 green exchanges higher in early afternoon trade.  In the US, as of 7:30 am, Futures are pointing toward a green start to the day.  The DIA implies a +0.19% open, the SPY is implying a +0.41% open, and the QQQ implies a +0.61% open at this hour.  At the same time, 10-year bond yields are up a bit to 4.294% and Oil (WTI) is off by three-quarters of a percent to $86.89 per barrel in early trading.

There is no major economic news scheduled for Monday.  There are also no major earnings reports scheduled for before the opening bell.  However, after the close, CASY and ORCL report.

In economic news later this week, on Tuesday we get the EIA Short-Term Energy Outlook, WASDE Ag Report, August Federal Budget Balance, and API Weekly Crude Oil Stock report.  Then Wednesday, August Year-on-Year CPI, August Month-on-Month CPI, and EIA Weekly Crude Oil Inventories are reported.  On Thursday, we get August Month-on-Month PPI, Weekly Initial Jobless Claims, August Retail Sales, July Business Inventories, July Retail Inventories, and the Fed Balance Sheet. Then Friday, August Export Price Index, August Import Price Index, NY Empire State Mfg. Index, August Year-on-Year Industrial Production, August Month-on-Month Industrial Production, Michigan Consumer Sentiment, Michigan Consumer Expectations, Michigan Consumer 12-month Inflation Expectation, and Michigan Consumer 5-Year Inflation Expectations are reported.

In terms of earnings reports later this week, on Tuesday there are no major reported scheduled.  Then Wednesday, CBRL reports.  On Thursday, we hear from ADBE, CPRT, and LEN.  Finally, on Friday, there are no major earnings reports scheduled again.

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In miscellaneous news, on Friday, the SEC approved a NASDAQ request to allow a new AI-driven order type.  The new M-ELO order type would use AI to speed up the matching of orders at the midpoint of the bid-ask spread.  The new order type, first proposed in 2018, would allow investors to trade with 10-millisecond waiting periods.  (This means these orders would fill about 20% faster, greatly reduce non-fills, and reduce required holding times by more than 11%.)  It was not mentioned, but this certainly seems aimed at high-frequency traders and the benefit of brokers. Elsewhere, the state of AK filed suit against the US Dept. of Agriculture, seeking to block the decision announced Wednesday that President Biden was reversing a Trump-era ruling allowing large swaths (9.37 million acres) of the Tongass National Forest to be opened for logging, mining, and oil exploration and production.  Biden’s order canceled dozens of oil and gas leases issued in the last days of the Trump administration. Finally, on Sunday, the now-former CEO of BABA resigned. (It was not long ago that he was “relieved” of CEO and Chairman duties to focus on the new BABA Cloud business.) The unexpected move riles BABA shares in China.

In late-breaking geopolitical news, over the weekend, President Biden and Indian PM Modi announced a new international transportation network project meant to rival China’s “Belt and Road” initiative at the G20 Summit.  The idea is to invest in infrastructure connecting Asia, the Middle East, and Europe.  Not only will US-based multinationals benefit, but it will make the US and India an alternative funding source (competitor) to help limit the increase in Chinese influence in the world (achieved through financing and then takeover).  In a separate initiative, on Sunday it was announced the Biden Administration and Saudi Arabia have jointly entered into talks with multiple African nations to secure ownership of various mining operations (mostly rare earth mines).  Under the joint deals being offered, the Saudis would buy the mines and the US would be guaranteed the right to buy percentages of those mine’s production.  (Implied, but unstated, is that US force would be there to ensure the security of the mines should anything of an Islamic or Wagnerian nature threaten them.)  Finally, there was a major 6.8 earthquake in Morocco Friday.  (This was made “more major” because the region was not built or prepared for such a disaster.)  So far, 2,400 are known dead and 300k are homeless.

With that background, it looks like the Bulls are trying to make another move this morning. All three major index ETFs are back above their T-line (8ema) in the early session. The SPY and QQQ are also back above their 50sma. However, with its black premarket candle, the DIA has, so far, failed a retest of its 50sma. This leaves the SPY, QQQ, and DIA all on the green side of flat at least at this point. The very short-term and mid-term trends are now bullish, but only just so in the short-term. (The previous short-term downtrend has been broken, but we have not yet proven we can hold. So, it is really a presumed resumption of the mid-term uptrend.) As far as extension goes, none of the major index ETFs are far from their T-line and the T2122 indicator is sitting in the lower-end of its mid-range. So, there is plenty of slack for either the bulls or the bears to make a move…again, if they can find the buyers or sellers.

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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