Markets diverged a bit at the open following NVDA’s blowout results the night before. SPY gapped up 0.38%, DIA gapped down 0.11%, and QQQ gapped up 0.94%. DIA did its best to catch up by rallying sharply the first 30 minutes of the day. However, QQQ was already throwing the mega-caps a curve by reversing and selling off hard at that same time. Things got back in sync at 10 am as all three major index ETFs then went on to sell off the rest of the day, closing very near the low of the day. This action gave us large, black, Bearish Engulfing candles in the SPY and QQQ. Both of those index ETFs also crossed back below their T-line (8ema) in the process. For its part, DIA failed a retest of its own T-line on a large, black-bodied candle with a large upper wick. DIA also fell down out of its four-day consolidation. All three also retested and failed their 50sma, thus giving us a Blue Ice Failure pattern (with the exception that only QQQ has enough space left down to its 200sma to qualify as a Blue Ice Failure).
On the day, all 10 sectors were in the red with Technology (-2.17%) and Consumer Cyclical (-1.92%) way out front leading the way lower with Financial Services (-0.32%) and Communications Services (-0.35%) holding up better than the other sectors. At the same time, the SPY lost 1.39%, DIA lost 1.10%, and QQQ lost 2.14%. VXX popped up 4.12% to 25.30 and T2122 dropped back down into the oversold territory to 10.06. 10-year bond yields jumped back up to close at 4.241% while Oil (WTI) was flat to close at $78.88 per barrel. This happened on slightly above-average volume in the QQQ and average volume in the SPY and DIA. So, the profit-taking off the opening pop was dramatic and lasted all day Thursday. DIA has now taken out its uptrend (stretching back to October of 2022). QQQ is right at (and retesting) its uptrend line stretching back to January. And SPY remains the only one of the major index ETFs still above and not yet retesting its bullish trend stretching back to mid-October 2022.
The major economic news reported Thursday included July Durable Good Orders, which came in lower than expected at -5.2% (compared to a forecast of -4.0% and even worse than the June reading of -4.4%). This included July Core Durable Goods Orders that were reported better than expected at +0.5% (versus a forecast of +0.2% which was also the June value). At the same time, Weekly Initial Jobless Claims were reported at 230k (versus a forecast of 240k and the previous week’s 240k number). Later, after the close, the Fed Balance Sheet continued to show its slow reduction as it shrank from $8.146 trillion to $8.139 trillion. In related news, it is also worth noting that the St. Louis Fed said Thursday that the Fed may need to stop shrinking its balance sheet at least temporarily. Since the government has issued $1 trillion in bonds since June, money market funds have been holding back on their purchases of bonds. That leaves the Fed as the other major potential buyer.
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In Fed Speak news, Philly Fed President Harker told CNBC Thursday morning that he doubts the FOMC will need to raise rates again. Harker said, “Right now I think that we’ve probably done enough.” He went on to say, “I’m in the camp of let the restrictive stance work for a while, let’s just let this play out for a while, and that should bring inflation down.” However, Harker was not ready to predict when the Fed might start cutting rates. Just a bit later, Boston Fed President Collins said something very similar when she told Yahoo Finance, “We may be near, we could even be at a place where we would hold and not raise rates further … But certainly, additional increments are possible, and we need to look holistically and be really patient right now and not try to get ahead of what the data will tell us as it unfolds.” (Both did their interviews on the sidelines of the Jackson Hole Central Banker Conference.) Both of them also seemed to embrace the recent bond yield rate spikes as something that could help the Fed by increasing longer-term borrowing costs and therefore cooling the economy.
In stock news, TMUS said Thursday that it will be cutting 5,000 jobs (about 7% of its workforce). The company cited rising costs, cheaper phone plan offerings, and the competitive phone market. Elsewhere, MA will end its partnership with crypto exchange Binance (which had covered four countries). In other finance news, the Wall Street Journal reported that a group of funds (led by BLK) that have lent money to WE are exploring the possibility of a Chapter 11 bankruptcy filing. At the same time, RY announced it would be cutting 1,800 jobs as a cost-cutting measure. In auto industry news, STLA announced it is expanding its “manufacturer-approved pre-owned vehicle” sales program to the US. (The program started in Europe in 2019.) Meanwhile, GOOGL said Thursday that it will provide more information on targeted ads and give researchers more access to data in order to come into compliance with new EU online content rules. After the close, HE plummeted as much as 24% after announcing it was suspending its dividend after subsidiaries were forced to draw $370 million from their revolving credit lines in the wake of the massive Maui fires. Also after the close, LMT was awarded a $2.7 billion contract by the US Navy to build 35 additional CH-53K helicopters. At the same time, GM announced it has agreed to increase the pay of workers at its OH battery plant by an average of 25%. In addition, Reuters reports that AMZN is in talks with DIA over a potential streaming deal with DIS’s ESPN unit.
In stock legal and regulatory news, late Wednesday night, the SEC made a court filing saying that investors who lost money (victims) when Elon Musk tweeted about taking TSLA private will soon begin receiving payouts, recouping 51.7% of their losses. At the same time, the TX Public Utilities Commission announced that TSLA will provide the state with two “virtual power plants” (drawing power from people who have TSLA Powerwall batteries and compensating them for the electricity). Elsewhere, Reuters reported that SAVE has agreed to pay up to $8.25 million to settle a class action suit over hidden carry-on baggage fees. At the same time, WHR agreed to pay $11.5 million to the US Consumer Protection Product Safety Commission over failure to report glass cooktops that could turn themselves on posing burn and fire hazards. Later, the NHTSA told Reuters that it would resolve its two-year investigation into TSLA Autopilot in a public announcement soon. The spokesman declined to describe what that resolution will be or exactly when “soon” will come. Meanwhile, starting today, the big tech names will be forced to comply with the new EU Digital Service Act which imposes stricter rules on content moderation, user privacy, and transparency. These include META, AAPL, and GOOGL. (AMZN is fighting its inclusion on the list of companies covered in court.) Failure to comply could result in fines of up to 10% of total global sales per infraction. After the close, a US District Court judge dismissed a lawsuit against GOOGL that had been brought by the Republican National Committee which had claimed the tech giant had maliciously marked RNC mass emails as spam. Also after the close, TD said it expects to be fined and other non-monetary penalties from US authorities over a money laundering investigation.
After the close, AFRM, INTU, MRVL, JWN, ULTA, and WDAY all reported beats on both the revenue and earnings lines. Meanwhile, GPS missed on revenue while beating on earnings. It is worth noting that AFRM, INTU, and WDAY raised their forward guidance.
Overnight, Asian markets were mostly red. Japan (-2.06%) and Taiwan (-1.72%) were way out front leading 10 of the region’s 12 exchanges lower. In Europe, the opposite picture is taking shape at midday. 14 of the 15 bourses in the region are squarely in the green while the CAC (+0.74%), DAX (+0.56%), and FTSE (+0.49%) lead the region higher in early afternoon trade. In the US, as of 7:30 am, Futures are pointing to a green start to the day here as well. The DIA implies a +0.34% open, the SPY is implying a +0.26% open, and the QQQ implies a +0.10% open at this hour. At the same time, 10-year bond yields are up slightly to 4.249% and Oil (WTI) is up just over one percent to $79.86 per barrel in early trading.
The major economic news scheduled for Friday includes Michigan Consumer Sentiment, Michigan Consumer Expectations, Michigan Inflation Expectation, and Michigan Consumer 5-year Inflation Expectations all at 10 am. Fed Chair Powell also speaks at 10:05 am as the Jackson Hole Conference continues. There are no major earnings reports scheduled for the day (either before the open or after the close).
In miscellaneous news, both the TX and Central State electric grids warned customers of potential power outages as the brutal heatwave continues to pound much of the US. Both grid operators urged voluntary power conservation to avoid rolling outages. In other news, the BRICS group invited some more oil to the party as they formally asked Saudi Arabia, Iran, and UAE to join. Rounding out the new countries invited were Argentina, Egypt, and Ethiopia.
As mentioned above, Fed Chair Powell speaks just after 10 am Eastern this morning. Markets are very likely to parse through every word and facial gesture he delivers looking for a clue to the path for interest rates. (This is especially true after two dovish statements from Fed members delivered in interviews on the sideline of the conference Thursday.) If you want to get a little wonky, see if Powell addresses an abstract metric known as “R*” (R-star). This is not the target interest rate, but instead, it is the rate at which Fed policy is theoretically neutral (neither restricts or stimulates the economy). Since 2019 that rate has been 2.5% and prior to that the R* was 3.5% going back until 2015. While Powell will be the main show on Friday, EC President Lagarde also speaks at 3 pm Eastern. (This will be her first public remarks since the EC’s July rate hike.)
With that background, it looks like the premarket is modestly bullish after Thursday’s big bearish candles. None of the major index ETFs have done enough premarket work to be retesting their T-lines (8ema) or 50sma. So we are still looking at a Blue Ice Failure pattern in all three with huge Bearish Engulfing candles in the SPY and QQQ (which could both also be working on Dreaded-h patterns (the opposite of a J-hook). In other words, the Bears have all the chart patterns in their favor this morning. So, the short-term downtrend break is back in question for the SPY and QQQ, while DIA has resumed its own move lower. As far as extension goes, none of the major index ETFs are too far extended from their T-line but the T2122 indicator is back down well into the oversold territory. So, both sides have some room to run but the Bulls obviously have more slack if they could manage a rally. Finally, don’t forget it is Friday with the Jackson Hole Conference continuing Saturday (although we do not EXPECT much news then). We also have the long weekend news cycle. So, prepare your account for the weekend by taking some money off the table (it is Payday after all) and moving stops, hedging, or lightening up your positions.
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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