Markets gapped down on Friday (SPY gapped 1.24%, DIA gapped down 0.51%, and QQQ gapped down 2.29%) after January Payrolls crushed expectations.  However, the bulls stepped in immediately to rally back to the Thursday close level in the first 60-75 minutes.  All three major indices reached the highs of the day at 11:40 am.  Then the bears over again to start a selloff that lasted into the close.  This action gave us gap-down, Inverted-Hammer-type candles in the three major indices.  The DIA also fell back below its T-line (8ema).

On the day, all 10 sectors are red as Utilities (-1.99%) lead the way lower and Energy (-0.27%) held up better than the other sectors.  At the same time, the SPY is down 1.06%, the DIA is down 0.41%, and QQQ is down 1.78%.  Meanwhile, the VXX is up 0.98% to 11.32 and T2122 is dropping but remains just inside the overbought territory at 82.24.  10-year bond yields have spiked higher to 3.526% and Oil (WTI) is down 3.56% to $73.19 per barrel.  So, on the day, we saw a significant gap lower that the bulls tried to fade, only to be pushed back down by the bears.  This all happened on heavier-than-average volume.

In economic news, the January Jobs Reports were the headline makers.  January Nonfarm Payrolls increased a whopping +517k (compared to an estimate of +185k and the December value of +260k).  January Private Nonfarm Payrolls also far exceeded the estimates at +443k (versus the forecast of +190k and a December reading of +269k).  Both numbers crushed estimates as the leisure and hospitality sector showed a huge gain, followed by professional/business services, government, and healthcare.  The increases happened despite the Jan. Participation Rate also increasing to 62.4% (from the December value of 62.3%).  This surge in employment drove the January Unemployment Rate to a 53-year low (since 1969) of 3.4% (versus a forecast of 3.6% and a Dec. reading of 3.5%).  So, despite over 100,000 job cuts announced in January by various firms, the economy is still producing jobs at a massive rate, far faster than expected.  Markets were skeptical, but this could be a sign of the Fed threading the needle as inflation is falling while huge numbers of jobs are being created.  In other economic news, the Jan. Services PMI beat expectations at 46.8 (versus the forecast of 46.6 and the Dec. value of 44.7).  Finally, ISM Non-Mfg. PMI came in much hotter than expected at 55.2 (compared to the forecast of 50.4 and the Dec. value of 49.2).  So, judging by payrolls and purchasing managers’ outlooks, the economy is much stronger than the news headlines had led us to believe.

In energy news, the front-month March contract for Natural Gas fell another 21% last week, closing at $2.41/mmBtu. This is the lowest wholesale natural gas price in the US for over two years.  As a result, energy firms cut the number of active natural gas rigs to the lowest level since June 2020.  Meanwhile, Oil (WTI) closed down 3.56% on the day, resulting in an 8% drop for the week.  This may or may not be related to another cut in the number of oil rigs producing in the US.  Regardless, the number of oil rigs fell by almost 2% over the week.

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In stock news, the US Treasury Dept expanded eligibility for up to $7,500 tax credit to cover more expensive (SUVs).  This includes newly eligible models from F, GM, TSLA, and VLKAF.  In response to this news, TSLA raised the price of its Model Y by $1,000.  Elsewhere, late Friday Bloomberg reported that DIS is in talks to sell more of its movies and TV series to rival networks. (No specific rivals were mentioned.)  Meanwhile, HMC issued a “Do Not Drive” warning covering 8,200 of its vehicles over defective and unrepaired airbags.  After the close, LUV confirmed that its CEO will be testifying in front of a US Senate hearing on Thursday related to the company’s holiday travel mess.  Late Friday night, a train from NSC derailed near the border of Ohio and Pennsylvania.  On Saturday, 32,000 DIS theme park workers voted to reject a DIS contract proposal by a margin of 96% rejecting to 4% in favor.  The negotiations have been ongoing since August, but no date for the resumption of talks has been set yet.

In stock legal and regulatory news, on Friday, current and former US military members asked a federal judge to throw out the Chapter 11 bankruptcy filed by MMM subsidiary Aearo Technologies (as a means of protecting MMM against 230k lawsuits claiming the company’s defective earplugs had caused hearing loss for US military members).  At the same time, FDX lost its bid to have a judge throw out a $366 million jury award over a racial discrimination lawsuit that FDX lost.  Later, the Wall Street Journal reports that the US FTC is preparing to file an antitrust lawsuit against AMZN.  Also after the close, a jury found that TSLA and its CEO Elon Musk were not liable in a securities fraud case stemming from Musk’s tweets saying he had secured financing and was going to take TSLA private at a price 23% above the then-current market price.  In other court action, a US district judge denied the FTC request to stop META from buying virtual reality content maker Within Unlimited.

In miscellaneous news, the UN Food and Agriculture Organization (FAO) announced after the close Friday that world food prices fell again in January.  This was the 10^th consecutive drop in that food price index, with global food prices reaching the lowest level since September 2021.  They specifically cited drops in vegetable oils, dairy, and sugar prices while noting that cereals and meat prices remained stable for the month.  As an example, FAO said vegetable oil prices fell 2.9% in January while dairy prices fell 1.4%, and sugar declined 1.1%.

So far this morning, CAN, TKR, and IDXX reported beats on both the revenue and earnings lines.  Meanwhile, AMG and IX missed on revenue while beating on earnings.  On the other side, TSN beat on revenue while missing on earnings. Unfortunately, ENR missed on both the top and bottom lines.  (CMI and ON report closer to the open.)

Overnight, Asian markets were mixed but mostly red.  Hong Kong (-2.02%), Taiwan (-1.34%), and Shenzhen (-1.18%) led the region lower.  Japan (+0.67%) was an outlier to the upside.  In Europe, with the sold exception of Russia (+0.85%), bourses are red across the board at midday.  The FTSE (-0.77%), DAX (-1.03%), and CAC (-1.40%) are leading the region lower in early afternoon trade.  As of 7:30 am, US Futures are pointing toward a gap down to start the day.  The DIA implies a -0.54% open, the SPY is implying a -0.71% open, and the QQQ implies a -0.91% open at this hour.  At the same time, 10-year bond yields are spiking again to 3.604% and Oil (WTI) is up a quarter of a percent to $73.56/barrel in early trading.

There are no major economic news events scheduled for Monday.  The major earnings reports scheduled for the day include AMG, CNA, CMI, ENR, IDXX, ON, IX, TKR, and TSN before the opening bell.  Then, after the close, AMKR, ATVI, ACM, CINF, DIOD, FN, KMT, LEG, NOV, PINS, SPG, SSD, SKY, SWKS, SAVE, TTWO, and TFII, report.  

In economic news later in the week, on Tuesday, December Imports/Exports, Dec. Trade Balance, and API Crude Oil Stocks are reported and Fed Chair Powell speaks.  Then Wednesday EIA Crude Oil Inventories are reported and Fed member Williams speaks.  On Thursday we get Weekly Jobless Claims.  Finally, on Friday, Michigan Consumer Sentiment and Jan. Federal Budget Balance are reported and we hear from Fed members Waller and Harker.

In terms of earnings later this week, on Tuesday, we hear from ADNT, AGCO, ARMK, ARCC, BP, BV, CG, CARR, CTLT, CNC, CEIX, DD, FSV, IT, GPK, HAIN, HTZ, INCY, J, KKR, LIN, NTDOY, NVT, OMF, RCL, SCSC, SPR, TDG, XYL, AMCR, AIZ, ATO, CSL, CMG, CNO, CCK, EHC, ENPH, PLUS, FMC, FTNT, PEAK, ILMN, ITUB, JKHY, KD, NBR, NCR, OMC, PRU, RXO, SSNC, SNEX, VRTX, VFC, VSAT, WERN, WU, and YUMC.  On Wednesday, FOX, BDC, BAM, BG, CPRI, CDW, CME, COTY, CVS, D, ETN, EMR, EEFT, FOXA, GPRE, INGR, NYT, PAG, PFGC, REYN, RITM, TEVA, TRMB, UBER, UA, UAA, VSH, WFRD, WEN, YUM, AB, UHAL, NLY, APP, ASGN, AVB, EQH, ENS, NVST, EFX, RE, FLT, FWRD, ULCC, GT, HI, IFF, LNC, MAT, MMS, MGM, MOH, ORLY, PPC, PAA, SON, SONO, STE, STC, SLF, TSE, TTMI, DIS, and XPO report.  On Thursday, we hear from ABBV, APO, MT, ARES, AZN, BN, BAX, BWA, BRKR, CIGI, DBD, DUK, FAF, GTES, HLT, HII, NSIT, NSP, IPG, ITT, K, LITE, MSGE, MAS, MDU, PATK, PTEN, PEP, PM, RL, SPGI, SEE, TPR, TU, TIXT, TPX, THC, TRI, TM, WMG, WEX, WTW, BHF, CBT, CC, BAP, DXCM, EQR, EXPE, FLO, G, LYFT, MTD, MHK, MSI, NGL, OSCR, PYPL. CNXN, TEX, MODG, USX, VTR, and YELL.  Finally, on Friday, ENB, FTS, GPN, HMC, IQV, MGA, NWL, SPB, and SLVM report.

Other late-breaking (and less market-related) news includes the “over-hyped” story of the Chinese spy balloon that the US shot down this weekend. Navy divers continue their work to recover the wreckage from the 7-mile-wide debris field. This story was over-hyped because it is the fourth recent such Chinese balloon overflight of the US (dating back to three during the Trump Administration) and is certainly not the only Chinese surveillance of the US that goes on constantly (satellites, perimeter flights, hacking, human assets, etc.). Nonetheless, the news cycle and political opportunity conspired to make this one a story. The only thing that matters here is if and how a US response might impact US-Chinese trade relations. The other story was a pair (7.7 and a 7.5 on the Rictor scale) of earthquakes in Southern Turkey. These should have minimal international market and business impacts but do have the potential to roil oil markets because they technically were located in the Middle-East and not extremely far from Syrian oil fields.

With that background, it looks like the SPY is going down to retest its T-line as support during pre-market trade. At the same time, DIA is failing its T-line as support and retesting its 50sma as support, all while QQQ pulls back but has not reached its T-line yet. DIA remains in its wedge, while the trend remains strongly bullish in the SPY and QQQ (trends have not even been retested by the pullback this morning). So, be careful and nimble on any short positions you might take and remember the bias is still bullish.

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.

Ed

🎯 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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