Markets diverged at the open Friday. The SPY gapped down 0.17%, DIA opened dead flat, and gapped down 0.48%. However, the Bulls stepped in immediately for a strong rally until 10:20 a.m. in all three major index ETFs. The next two hours were spent in a volatile bearish move back down to the prior close at 12:20 p.m. The Bulls then stepped in to lead a long, steady rally that lasted until we saw profit-taking that lasted 15 minutes of the day (most heavily in the DIA). This action gave us white-bodied, larger candles in all three major index ETFs. The SPY broke out of its recent range to a new level that has not been seen since March of 2022. QQQ did not break its 11/29 highs but is right at those levels. For its part, DIA printed something that could be seen as a Morning Star if you squint, but remains in its Bull Flag pattern. However, it is worth noting that this again happened on less-than-average volumes in the SPY, DIA, and QQQ.
On the day, seven of the 10 sectors were in the green with Energy (+1.28%) out front leading the way higher while Consumer Defensive (-0.51%) lagged well behind the other sectors. At the same time, the SPY gained 0.43%, DIA gained 0.36%, and QQQ gained 0.45%. The VXX fell 2.90% to close at 16.75 and T2122 spiked back up into its overbought range at 93.95. 10-year bond yields spiked to 4.229% and Oil (WTI) burst up 2.77% to close at $71.26 per barrel. So, Friday saw morning volatility and then a sustained and steady rally that took us to the highs of the day late and was only broken by very late profit-taking. This also capped a sixth-straight week of gains in all three of the major index ETFs.
The major economic news reported Friday included November Nonfarm Payrolls, which came in better than expected at +199k (compared to a +180k forecast and the Oct. reading of +150k). At the same time, November Private Nonfarm Payrolls came in just shy of anticipated at +150k (versus the forecast of +153k and the +85k Oct. value). The Nov. Participation Rate rose slightly to 62.8% (compared to a 62.7% forecast and October value). Altogether, this gave us a significantly lower Nov. Unemployment Rate of 3.7% (versus a 3.9% forecast and 3.9% October reading). At the same time Nov. Avg. Hourly Earnings (month-on-month) rose slightly to +0.4% (compared to a forecast of +0.3% and the Oct. value of +0.2%). However, on a year-on-year basis November Avg. Hourly Earnings remained stable at +4.0% (versus both a forecast and Oct. reading of 4.0%). Later, Michigan Consumer Sentiment was reported far better than had been predicted at 69.4 (compared to a forecast of 62.0 and a November value of 61.3). At the same time, Michigan Consumer Expectations also far exceeded what was anticipated at 66.4 (versus a 57.0 forecast and a 56.8 November value). Meanwhile, the Michigan 1-year Inflation Expectations were DOWN SHARPLY to 3.1% (compared to a forecasted value of 4.3% and the prior reading of 4.5%). Likewise, the Michigan 5-year Inflation Expectations were also sharply lower at 2.8% (versus a forecast of 3.1% and a previous value of 3.2%).
In stock news, on Friday, HON announced it had reached a deal to buy the security unit of CARR for $4.95 billion in cash. Later, the Insurance Institute for Highway Safety expressed concerns over the design of the TSLA Cybertruck. The group said using a thick steel skin and sharp angles on the body to improve the frame rigidness poses a safety hazard during crashes. Later, Reuters reported that SBUX has reached out to unions to mend relations after more than a year of fighting unions and taking action against potentially organizing employees. The letter said SBUX is open to ideas from the union on how bargaining could resume as quickly as possible. Elsewhere, TSLA announced that its Model Y standard range vehicle is now sold out in China for the rest of 2023. Later, LUV flight attendants rejected a tentative agreement between their union and the airline. The deal had called for a 20% immediate raise and then 3% per year over a five-year contract. (AAL and UAL are still in negotiations with their flight attendants and DAL attendants are not unionized. In addition, LUV has not yet reached a deal with its pilots either.) Later, TTM announced it would raise the price of its commercial vehicles by 3% on January 1st. On Sunday, Reuters reported that CI has abandoned its attempt to acquire HUM after the two companies could not agree on a price. Instead of the acquisition, CI plans to announce a $10 billion share buyback plan. At the same time, a group of funds led by Arkhouse Management and Brigade Capital have made a $5.8 billion offer to buy M according to the Wall Street Journal. The offer includes $21/share that they did not own as of December 1st.
In stock government, legal, and regulatory news, on Friday the FTC requested more information about the CVX acquisition of HES. (This comes after 23 Democratic Senators had requested the agency look into the deal’s antitrust ramifications in November.) At the same time, Bloomberg reported that the FTC is also examining MSFT’s investment into ChatGPT, again in terms of whether it might violate antitrust laws. (Later, the UK announced it is also studying the MSFT-OpenAI collaboration.) Later, FDX was sued by a company formerly contracted by FDX to deliver packages in CA and OR. The suit alleges that FDX has engaged in systematic and illegal business practices that amount to racketeering. Elsewhere, GOOGL criticized a potential order from EU antitrust regulators that may require it to sell its profitable adtech business (the platform through which ads are sold). GOOGL claimed that such a divestment was not proportional to the circumstances and is not right for GOOGL’s advertising partners. (Essentially, claiming that they should be allowed to control the ad sales platform and that nobody else could run it as well as GOOGL.) Later, the FDA made a major announcement, approving two gene-editing treatments for sickle cell disease. The therapies were produced by VRTX and BLUE using the CRISPR gene editing technology. At the same time, AMZN asked a federal court to dismiss an FTC lawsuit, claiming that no consumer harm had been proven in the FTC’s allegations of antitrust violations by AMZN using algorithms to push up prices and feature the highest margins. AMZN claimed these are all common retail practices. Later, TSLA defended its “Autopilot” self-driving feature in court Friday, claiming that the state of CA implicitly approved its feature and branding when it had not taken action against the company in previous investigations. (This was part of the CA Dept. of Motor Vehicles lawsuit seeking to suspend TSLA’s license to sell vehicles with that feature in the state and requiring the company to make restitution to consumers who had bought TLSA cars believing they could safely drive autonomously.)
In dividend and buyback news last week, MA hiked its dividend by 15.8% (to $0.66 per share) and approved a new $11 share buyback program. Later, XOM said it would raise the pace of its buybacks following the announcement of its purchase of PXD. The increased buyback program will not be $20 billion (up from $17.5 billion) through 2025. At the same time, AVGO hiked its quarterly dividend by 14.1% to $5.25/share. Meanwhile, MBI announced a special $8.00/share dividend for owners of record 12/18 with an ex-div date of 12/26/23. (That was 108% of the stock price at the time it was announced.) Later, DE announced an 8.9% dividend increase to $1.47/share. At the same time, OC raised its dividend by 15.4% to $0.60/share.
Overnight, Asian markets were mostly green. Japan (+1.50%), Shenzhen (+0.82%), and Shanghai (+0.74%) led the region higher with only two exchanges in the red. In Europe, things are much more bearish at midday with only seven of the 15 exchanges in the green. The CAC (+0.27%), DAX (+0.04%), and FTSE (-0.51%) lead the region on volume and Russia (-0.96%) is the biggest mover in early afternoon trade. In the US, as of 7:30 a.m., Futures are pointing toward a flat start to the morning. The DIA implies an unchanged open, the SPY implies a -0.03% open, and the QQQ implies a -0.08% open at this hour. At the same time, 10-year bond yields are up again to 4.272% and Oil (WTI) is off by two-thirds of a percent to $70.76/barrel in early trading.
There is no major economic news scheduled for Monday. There are no major earnings reports scheduled for before the open. However, after the close, CASY, and ORCL report.
In economic news later this week, on Tuesday we get November CPI, Nov. Core CPI, EIA Short-term Energy Outlook, Nov. Federal Budget Balance, and API Weekly Crude Oil Stocks. Then Wednesday, Nov. PPI, No.v Core PPI, EIA Crude Oil Inventories, Fed Rate Decision, Fed Statement, Current Q4 Interest Rate Projection, Q4 1st Year Projection, Q4 2nd Year Projection, Q4 3rd Year Projection, FOMC Economic Projections, and the Fed Chair Press Conference are reported. On Thursday, we get Weekly Initial Jobless Claims, Weekly Continuing Jobless Claims, Nov. Retail Sales, Oct. Business Inventories, Oct. Retail Inventories, and the Fed Balance Sheet. Finally, on Friday, NY Empire State Mfg. Index, Nov. Industrial Production, S&P Global Mfg. PMI, S&P Global Services PMI, and S&P Global Composite PMI are reported.
In terms of earnings reports later this week, on Tuesday, we hear from JCI. Then Wednesday, ABM, REVG, ADBE, and NDSN report. On Thursday, we hear from JBL, COST, LEN, and SCHL. Finally, on Friday, DRI reports.
In miscellaneous news, the SEC announced it will vote next Wednesday (and is now widely-expected to approve) a major rule change that would force more Treasuries trading to go through clearing houses. The clearing houses act as counter-parties to every trade in the event either the buyer or seller defaults, which ensures every trade is made. The rule is expected to reduce volatility in the $25 trillion US bond market. It will also have the effect of reducing hedge funds leveraged debt bets. Elsewhere, Freddie Mac reported Thursday that the average US 30-year fixed loan rate dropped to 7.03% this week. This was the lowest rate since early August. Meanwhile, one of the world’s largest coffee brokers, Mercon Coffee Group, filed for bankruptcy in the US. The company said its major lenders chose to not extend credit agreements, leaving the company with very tight working capital conditions. Finally, we have some economic news out of China. Chinese exports in November rose 0.5% from the same month in 2022. However, Chinese imports in November shrank 0.6% compared to the same month in 2022.
In Oil news, on Friday the US Dept. of Energy asked for bids to sell it 3 million barrels of crude oil (for delivery in March 2024) to refill the US Strategic Petroleum Reverse. Elsewhere, after announcements from XOM and CVX last week, the EIA said it is now clear that US oil production will reach new record amounts again in 2024. This comes after a recent all-time high of 13.2 million barrels per day was averaged for September. Meanwhile, early on Monday OXY agreed to buy CrownRock (a major private Permian Basin oil producer which produces roughly 140k barrels per day with 100k new acres under development) for $12 billion.
With that background, it looks like all three major index ETFs are again looking to give us indecisive inside-day candles in the premarket again. All three major index ETFs opened the premarket slightly lower and are putting in small and mostly indecisive (Doji-like) candles so far in the early session. All three remain above their T-line (8ema) this morning. The overall character of the early session suggests that either Traders are waiting for the Fed decision on Wednesday (which 98.4% believe will be no hike) or that it’s just early on a Monday. Overall, the Bulls are in control of both the longer-term trend and the short-term trend. However, the short-term trend is much more consolidating than a strong bullish trend in the large-cap indices with the QQQ trying to resume the rally. In terms of extension, none of the three major index ETFs is extended too far from its T-line. However, the T2122 indicator is again well into its overbought territory. So, both the Bulls have a little room to run and the Bears have plenty of slack to run…if either of them can find the momentum.
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
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🎯 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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