Markets gave us a major intraday reversal Thursday after gapping higher on the news that the US economy is strong (opening up 0.76% on the SPY, up 0.18% in the DIA, and up 1.44% in the QQQ). We even saw modest follow-through to the upside in all three major index ETFs for about 15 minutes. At that point, the Bears stepped in to drive the QQQ and SPY down (with a modest midday attempt to rally) followed by the DIA. All three kept selling the rest of the day with the exception of a modest bounce the last 10 minutes. This action gave us large, gap-up, Bearish Engulfing candles in the QQQ, SPY, and DIA. Both the QQQ and SPY also crossed back below their T-line (8ema), while the DIA tested and stayed above its own. This move came on heavy volume in the DIA, average volume in the QQQ, and slightly below-average volume in the SPY.
On the day, all 10 sectors were in the red with Utilities (-1.89%) way out front (by three-quarters of a percent) leading the way lower while Communications Services (-0.17%) held up better than the other sectors. At the same time, the SPY lost 0.66%, DIA lost 0.70%, and QQQ lost 0.24%. The VXX spiked up almost 5% for the day to 23.80 and T2122 dropped back to the center of the mid-range at 49.75. 10-year bond yields spiked higher to 4.004% while Oil (WTI) gained another 1.4% to close at $79.88 per barrel. So, Thursday saw the Bulls make a strong move higher only to be met with a wall of selling. This could be buyer exhaustion since the indices (especially the DIA) have been on a bullish tear lately. However, it is also possible we were just looking at the contrarian nature of the market. Great economic news is met by selling after scary data has been met with buying for some time. In either case, no real technical damage was done, but it did give us a Bearish signal to worry about.
The major economic news reported Thursday was something of a Fed dream. Signs of a strong economy, slowing inflation, and a healthy job market…all in the midst of pretty good earnings. Specifically, June Durable Goods Orders came in far higher than was expected at +4.7% (compared to a forecast of +1.0% and a May reading of +2.0%). At the same time, Preliminary Q2 GDP was also much stronger than predicted at +2.4% (versus a +1.8% forecast and a Q1 value of +2.0%). In addition, Preliminary Q2 Price Index came in significantly lower than anticipated at +2.2% (compared to a forecast of +3.0% and the Q1 reading of +4.1%). Elsewhere, the Preliminary Jun Goods Trade Balance saw a better-than-expected deficit of -$87.84 billion (versus the forecast of -$91.80 billion and the May value of -$91.13 billion). At the same time, Weekly Initial Jobless Claims were also better than expected at 221k (compared to a 235k forecast and last week’s reading of 228k). Later in the morning, June Pending Home Sales also came in above expectations at +0.3% (versus the forecast of -0.5% and the May value of -2.5%).
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In stock news, Reuters reported its investigation had found that TSLA has suppressed thousands of complaints about battery range by manipulating dashboard displays and canceling range-related service appointments. Apparently, call center managers told service reps that they saved the company $1,000 every time they canceled a range-related service call. They also found TSLA cars had an average range 26% lower than what was advertised. Elsewhere, the Wall Street Journal reported that NFLX reworked its partnership with MSFT related to the ad-supported tier of NFLX service. The new deal lowers the MSFT guarantee of sales revenue and, at the same time, NFLX cut the cost of ads on that ad-supported tier. (WSJ reported the ad price cuts went from $45-$55 per 1,000 viewers to $39-$45 per 1,000 viewers.) Meanwhile, FSLR announced plans to build a fifth US factory to meet booming demand. The plant is expected to cost $1.1 billion and with production at the factory beginning in 2026.
In stock legal and regulatory news, the EU announced that MSFT is the target of a new antitrust investigation. The new investigation is eerily similar to MSFT’s decades-old antitrust troubles over bundling Internet Explorer with Windows. The new investigation implies that MSFT is leveraging its near-monopoly position in with Office to capture the collaboration market by bundling MSFT Teams with Office. On this side of the pond, LHX announced Thursday that it received FTC approval for its $4.7 billion purchase of AJRD. (The deal was opposed by LHX competitors LMT, RTN, and BA.) Elsewhere, PPC, TSN, and JBSAY warned that a Chinese ban on the import of US poultry (over bird flu spread concerns) has cost them $900 million so far. The companies said it has been months since their last reported infections but the bans stay in place following the worst-ever outbreak of the avian flu virus. At the same time, the US EPA sent letters to T and VZ requiring both of the companies to provide information related to the ongoing risks of lead-clad buried telecom cables and those companies’ internal sampling data and results. The agency also said it will begin independent sampling in PA and NJ. Meanwhile, the Supreme Court lifted stays that had been imposed by lower courts, clearing the way for the Mountain Valley Natural Gas Pipeline to be completed (through the Jefferson National Forest). The pipeline is owned by ETRN, NEE, ED, and RGCO.
After the close, ACHC, ALSN, AJG, TBBK, BZH, SAM, BYD, CINF, DECK, DXCM, DLR, ENSG, EQR, ERIE, FSLR, F, FBIN, INTC, JNPR, KLAC, LYV, LPLA, MATW, MTH, MHK, MDLZ, OVV, ROKU, SKX, SKYW, and TXRH all reported beats on both the revenue and earnings lines. Meanwhile, ATR, EMN, EIX, ENPH, HIG, HUBG, MTD, MTX, OLN, TMUS, X, VALE, and WY missed on revenue while beating on earnings. On the other side, AB, PFG, and SSNC beat on revenue while missing on earnings. Unfortunately, CP missed on both the top and bottom lines.
Overnight, Asian markets were mixed but leaned toward the green side. Shanghai (+1.84%), Shenzhen (+1.62%), Hong Kong (+1.41%), Thailand (+1.23%), and Singapore (+1.01%) led the strong gainers. Meanwhile, Australia (-0.70%) and Japan (-0.40%) were the only appreciable losers on the session. In Europe, the bourses are mostly modestly in the red at midday. The CAC (-0.24%), DAX (-0.05%), and FTSE (+0.05%) lead the way in early afternoon trading. In the US, as of 7:30 am, Futures are pointing toward a green start to the morning. The DIA implies a +0.21% open, the SPY is implying a +0.43% open, and the QQQ implies a +0.84% open at this hour. At the same time, 10-year bond yields have backed down to 3.963%, and Oil (WTI) is off three-tenths of a percent to $79.85 per barrel in early trading.
There major economics news scheduled for Friday includes June PCE Price Index, Q2 Employment Cost Index, and June Personal Spending (all at 8:30 am), as well as Michigan Consumer Sentiment, Michigan Consumer Expectations, and Michigan 5-Year Inflation Expectations (all at 10 am). The major earnings reports scheduled for before the opening bell include AON, ARCB, AZN, AVTR, ITCL, BAH, CNC, GTLS, CHTR, CVX, CHD, CNHI, CL, DAN, XOM, BEN, GNTX, IMO, NWL, NMRK, NVT, POR, PG, SAIA, SNY, TROW, TRP, and HE. There are no major reports scheduled for after the close.
So far this morning, PG, AZN, CL, CNC, NWG, KMTUY, TROW, CHD, BAH, NWL, DAN, CVZ, and TYIDY all reported beats on both the revenue and earnings line. Meanwhile, SNY, NVT, ARKAY, SEKEY, CRI, GTLS, and CC missed on revenue while beating on earnings. On the other side, XOM, AON, HTHIY, SCBFF, POR, VRTS, DNZOY, and SHG all beat on revenue while missing on earnings. Unfortunately, CHTR, KDDIY, BASFY, FANUY, AVTR, and ARCB missed on bot the top and bottom lines. It is worth noting that CNC raised its forward guidance.
In miscellaneous news, the Fed, FDIC, and Office of the Comptroller announced a wave of new bank regulations Thursday (although previously teased). The changes call for banks with over $100 billion in assets to set aside 16% more capital aside in reserves to offset risk. Pretty much all banks oppose this (or any) regulation, saying the moves would cost so much it would force them to cut services, raise banking fees, or both. Fed Chair Powell gave tepid support, saying he supported putting the new regulations out for public comment before implementation. The new regulations would bring the US finally into regulatory compliance with the 2017 Basel Regulatory Deal. If implemented, the worst hit would be taken by “smaller big banks” like CFG, HBAN, RF, and FITB. Elsewhere, Thursday’s market reversal seemed to step from a report out of Japan. The Nikkei newspaper reported that the Bank of Japan would maintain its cap for interest on a 10-year Japanese Government Bond at 0.5% today, but would also discuss allowing long-term interest rates to rise. The US Dollar immediately fell against the Yen and US stock markets responded with the sharpest decline of the day starting a few minutes later, just after 1 pm. However, in what was a seismic shift, the BOJ loosened its grip on what has been decades of monetary stimulus by being willing to let the 10-yr. Japanese Bond rate rise “up to” 1.0% (up from 0.5%). However, they did leave the cap “around 0.50%” and the “target” at 0%. (Don’t ask me how you can have a 0% target, 0.5% cap, but also be willing to let rates go up to 1.0%. I must have missed that day in Japanese logic class.) The overall point is that these language changes indicate the BOJ is gearing up for tweaking targets in the not-too-distant future to become more hawkish (again, for the first time in years).
With that background, it looks like the Bulls are looking to make another run, at least in the premarket. All three of the major index ETFs are trading back about their T-line (8ema) this morning with all three also giving us small white-bodied candles so far in the pre-session. As far as extension goes, none of the major index ETFs are far away from their T-line and the T2122 indicator is in the dead-center of its mid-range. So, there is plenty of room to run in either direction…if either side can muster the momentum. With all that said, keep in mind that despite yesterday’s candle, the trend is bullish. Finally, remember that it’s Friday…Pay Day. So, take some profits where you can, lighten up, move stops, and/or hedge your account for the weekend news cycles.
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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