Strong Quarter Ends with Q4 GDP Report

Wednesday saw a significant pop higher to start the day all across the market.  SPY opened 0.58% higher, DIA gapped up 0.54%, and QQQ gapped up 0.71%.  At that point we did get some modest divergence with QQQ recrossing its gap by 10 a.m., SPY selling back half way back across its gap by 10:30 a.m., rallying and then reverting to the open level by 10:30 a.m.  From there, all three major index ETFs just traded sideways in a right range until 3:20 p.m.  All three closed out the day with a strong rally the last 40 minutes.  This action gave us a new all-time high close in the SPY on a white Hanging Man candle that retested and passed the test of its T-line (8ema).  Meanwhile, DIA came within 25 cents of its all-time high close on a large white-body candle with only a small lower wick (almost a Bull Kicker type candle), and QQQ printed a black-bodied Hammer candle that retested and passed the test of its T-line.  This happened on slightly above-average volume in DIA and modestly less-than-average volume in SPY and QQQ.

On the day, all 10 sectors were green as Utilities (+2.46%) of all things was way out in front leading the market higher.  Meanwhile, Technology (+0.37%) lagged far behind all the other sectors.  (This is extremely odd on a bullish day in the last few years and was likely due in part to NVDA, by far the biggest dollar-volume trading stock, begin down 2.50%.)  At the same time, SPY gained 0.84%, DIA gained 1.20%, and QQQ gained just 0.34%. VXX fell 1.77% to close at an extremely low 12.78 and T2122 spiked back up into the top end of its overbought territory at 95.02.  10-year bond yields plummeted to 4.188% and Oil (WTI) rose slightly to $81.70 per barrel.  So, Wednesday was a very odd rally day, with tach lagging and utilities leading (on the bond yield fall).  This leaves us at or very near the all-time highs across the major index ETFs and sets us up for a move the last day of March and the Quarter.

The only major economic news scheduled for Wednesday was limited to EIA Weekly Crude Oil Inventories, which came in with a much bigger inventory build than expected at +3.165 million barrels (compared to a forecast calling for a 0.700-million-barrel drawdown and the prior week’s 1.952-million-barrel drawdown). 

In FOMC-speak news, Fed Governor Waller said Wednesday said, “There is no rush to cut the policy rate” right now.” However, Waller also said rate cuts are still on the table, noting that, further progress expected on lowering inflation “will make it appropriate” for the Fed “to begin reducing the target range for the federal funds rate this year.”  He then continued, “We’re in a situation where if we ease too much or too soon, we could see inflation come back, and if we ease too late, we could do unnecessary harm to employment and people’s working lives,” … “We want to be careful.”  Responding to a question about possibly raising rates again, Waller said “Something would really have to dramatically change on the inflation front to think about pushing higher.”  Instead, he said “it’s just a question of when you start (cutting).”

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After the close, JEF reported beats on both the revenue and earnings lines.  At the same time, CC, FUL, and MLKN missed on revenue while beating on earnings. However, RH missed on both the top and bottom lines.  It is worth noting that CC and MLKN lowered their forward guidance.  Meanwhile, RH raised guidance despite its misses.

In stock news, on Wednesday, Bloomberg reported that FSR had cut the US prices of its Ocean electric SUV by as much as 39%.  (FSR was recently delisted by NYSE due to an “abnormally low” stock price after the company revealed a lack of cash.)  At the same time, DIS completed the addition of the Hulu service to its Disney+ streaming service Wednesday. Later, the CEO of NSANY (Nissan) told Reuters that his company will invest in Renault’s electric vehicle unit after that units’ public listing fell through.  He went on to say NSANY is also considering a partnership with HMC (Honda) to further build out its global EV offerings.  At the same time, USB announced it had sold $8 billion of former assets of CS to APO.  USB added that it expects to book $300 million from the deal in Q1.  Later, HYMTF (Hyundai) announced it will invest $51 billion over the next three years to increase electric vehicle production, expecting to hire 80,000 new employees.  (Back in November, HYMTF announced a new $12.6 billion EV and battery plant in the state of GA toward the same goal.)  Elsewhere, AMZN announced that its senior employees, who receive mostly stock-related compensation “may not” get a pay raise this year.  (AMZN stock rose 81% in 2023 and is up 18% in 2024.)  After the close, Bloomberg reported that a Yale University study has found that it costs NVO as little as $0.89 (and as much as $5.00) to make a single patient 1-month supply of its runaway hit weight loss drug Ozempic.  This is a public relations black eye for the company since the drug sells for over $1,000/month in the US.  (NVO sells exactly the same drug for $59/month in Germany and $155/month in Canada.)

In stock legal and governmental news, on Wednesday, the Biden Administration began pressuring allies to stop their domestic companies from servicing pre-existing tools and machines used for chipmaking in China.  This is seen as the next step to current bans on selling new semiconductor manufacturing technologies to Beijing.  ASML is the main target of this new push.  Later, AMZN lost its court fight to suspend EU rules on online advertising in that region.  Europe’s top court said the EU interests outweigh the interests of AMZN.  This is in line with the September lower court ruling against AMZN.  (AMZN had sought to have the EU Digital Services Act suspended for years while it prepares and files legal suits and appeals against the legislation.)  At the same time, a US federal judge ruled that WBD did not steal (plagiarize) 2022 “The Batman” movie from a writer who created the original story about the superhero three decades prior to the movie.  Later, another US federal judge ruled that JNJ will get a chance to contest the scientific evidence linking talc to ovarian cancer.  This may further delay the more than 53,000 lawsuits against JNJ over its talc products.

Elsewhere, FL Governor DeSantis and his appointed special district development board settled a state lawsuit with DIS.  The settlement calls for the board and DIS (one of the state’s largest employers and the largest tourist attraction) to work together to reach a consensus on new development plans.  As part of the agreement, DIS agreed to pause filing more briefings in its related federal case against the state while the parties seek to reach that consensus development plan.  (Analysts say this was the likely outcome ever since DeSantis dropped his Presidential candidacy and his backers no longer needed the “woke” concept as a stalking horse.)  Later, ALK and HA entered into an agreement with the US Dept. of Justice that they will not consummate their merge until at least 90 days after the two companies comply with a second round of antitrust document requests.  At the same time, WMT notified the FTC and DOJ that it is withdrawing its antitrust review application and expects to refile an amended version Mach 29 for its planned acquisition of VZIO.  Meanwhile, the NHTSA announced that FUJHY (Subaru) is recalling 118k 2020-2020 cars related to a faulty airbag sensor that can prevent deployment.

Overnight, Asian markets were mixed with six of the region’s exchanges in the green and six in the red.  Shenzhen (+1.31%), Australia (+0.99%), and India (+0.92%) led the gainers.  Meanwhile Japan (-1.46%), Singapore (-0.85%), and Thailand (-0.76%) paced the losses.  In Europe, markets are mostly green at midday with only three of 15 bourses in the red.  The CAC (+0.315), DAX (+0.07%), and FTSE (+0.26%) are leading the region higher in early afternoon trade.  In the US, as of 7:30 a.m., Futures are pointing toward a start to the day just on the red side of flat.  The DIA implies a -0.01% open, the SPY is implying a -0.04% open, and the QQQ implies a -0.06% open at this hour.  At the same time, 10-year bond yields are back up to 4.224% and oil (WTI) is up 1.41% to $82.50 per barrel in early trading.

The major economic news scheduled for Thursday includes Weekly Initial Jobless Claims, Weekly Continuing Jobless Claims, Q4 Core PCE, Q4 PCE, Q4 GDP, and Q4 GDP Price Index (all at 8:30 a.m.), Chicago PMI (9:45 a.m.), Michigan Consumer Sentiment, Michigan Consumer Expectations, Michigan 1-Year Inflation Expectations, Michigan 5-Year Inflation Expectations, and Feb. Pending Home Sales (all at 10 a.m.), and the Fed Balance Sheet (4:30 p.m.).  The major earnings reports scheduled for before the open include Thursday, we hear from AZUL, DOOO, MSM, and WBA.  There are no major reports scheduled after the close.

In economic news later this week, on Friday, despite being a market holiday, Feb. Core PCE Price Index, Feb. PCE Price Index, Feb. Personal Spending, Feb. Goods Trade Balance, Feb. Retail Inventories are reported and Fed Chair Powell speaks.

In terms of earnings reports later this week, on Friday, there are no major earnings reports scheduled since it is a market holiday.

In miscellaneous global news, on Wednesday, Russia increased its gasoline imports from Belarus.  The imports are up to 3,000 metric tons in the first half of March.  (Compare this to 590 tons total imported during all of February.)   This move comes after Ukrainian strikes have hit numerous Russian refineries taking 15%-20% of Russia’s refining capacity offline.  In other global news, the US announced new sanctions on six people and two companies in Russia and the UAE, accusing them of funneling funds to North Korea’s weapons programs.  South Korea followed suit, sanctioning four of the people.  Elsewhere, Chinese President Xi met with US executives including the CEO of BX, QCOM, and FDX among the 20 companies that were represented.  Xi argued against the “China collapse theory” and “China peak theory” in a 90-minute attempt to gain more investment in China.  This meeting came after foreign investment in China fell 8% in 2023. (The meeting was also a follow-up on the November meeting Xi had with US executives in San Francisco.)

In late-breaking news, AMZN announced Thursday morning that it is investing $2.75 billion into OpenAI competitor Anthropic in a bid to keep pace with MSFT, which has already embedded OpenAI’s ChatGPT in its Azure cloud services.  This is the second tranche of AMZN’s $4 billion investment into Anthropic. (OpenAI’s ChatGPT, GOOGL’s Gemini, and Anthropic are the three main competitors in the AI space.  All other firms in the AI space are far behind and mostly use one of those three tools via partnership.)  Elsewhere, a federal court ruled that the SEC can move forward with its lawsuit against COIN.  The SEC alleges that COIN engaged in the unregistered sale of securities in its sale of cryptocurrencies.  Finally, HD announced this morning it is acquiring private firm SRS Distribution (supplier to landscaping, pool, and roofing contractors) for $18.25 billion.

So far this morning, WBA beat on both the revenue and earnings lines.  This included significant beats on both.  On the other side, DOOO missed on both the top and bottom lines.  Meanwhile, MSM missed on revenue while beating on earnings.  It is worth noting that DOOO lowered its forward guidance.

With that background, it looks like markets are undecided ahead on news on virtual Friday. All three major index ETFs are printing small, and small-body candles that are little changed from Wednesday’s close. It is worth keeping in mind that this “virtual Friday” is also the end of a strongly bullish quarter where the SPY is up more than 10%. So, there could be a lot of window dressing finishing up today. However, the morning news dump (and to some extent the Friday news which can’t be reacted to until next week) have traders nervous. All three index ETFs remain above their T-line (8ema) and all three T-lines are rising. So, the short-term trend is still bullish, but is under a little pressure at least in the DIA. Meanwhile, the longer-term trend in the three major index ETFs remain strongly bullish with all three at or very near all-time highs. In terms of extension, none of the SPY, DIA, or QQQ are extended too above their T-line. However, the T2122 indicator is back in the top of its overbought territory. So, while both sides still have room to run if they can gather the momentum, the Bears have much more slack to work with. Looking at those 10 Big Dog tech names, they are split evenly with 5 green and 5 red. However, the biggest movers are all on the red side (and that includes 3 of the top 4 dollar-volume leaders in the market). So, be careful here at quarter end.

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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