Markets opened modestly higher on Tuesday (up 0.19% in the SPY, up 0.36% in the DIA, and up 0.13% in the QQQ). At that point, both the SPY and QQQ recrossed that opening gap, reaching the lows of the day not long after 10 am. DIA faded too, but only down into the middle of its opening gap again by shortly after 10 am. Then Bulls stepped in to lead a rally that took all three major index ETFs to the highs of the day at about noon. From there DIA ground sideways in a tight range, SPY meandered back and forth between the open and the highs, and QQQ meandered sideways mostly between the prior close and the highs until 3:45 pm. However, a rally the last minutes of the day took us out very near the highs in all three of those major index ETFs. This action gave us white-bodied candles with small upper wicks and slightly larger lower wicks. All three also crossed back up above their T-line (8ema).
On the day, all 10 sectors were in the green with Energy (+1.87%) way out front leading and Healthcare (+0.02%) lagging behind the other sectors. At the same time, SPY gained 0.64%, DIA gained 0.89%, and QQQ gained 0.49%. The VXX fell three-quarters of a percent to 25.47 and T2122 climbed into the high end of the overbought territory at 96.78. 10-year bond yields fell to 3.976% while Oil (WTI) popped up 2.48% to close at $74.80 per barrel. So, Tuesday was a Bullish day within a Bullish Pennant formation in the SPY and QQQ as well as within more of a Wedge pattern in the DIA. This all took place on less-than-average volume in all three major index ETFs.
The major economic news on Tuesday was limited to the energy sector. The EIA Short-term Energy Outlook now calls for US electric consumption to ease from the 2022 record based on forecasts of slower economic growth and milder weather. The same report projects the oil market will remain tight, citing the recently announced Saudi and Russian production cuts as well as expected increasing demand in China as well as developing countries. The EIA also cut its forecast for US oil production by 50,000 barrels per day while still rising to 12.56 million barrels per day. Elsewhere, after the close, the API Weekly Crude Oil Stocks report showed an unexpected increase of 3.026-million-barrels (compared to a forecasted increase of 0.200-million-barrels and the 4.382-million-barrel inventory drawdown one week prior). In Fed speak news, oddly enough, I was unable to find a report of St. Louis Fed President Bullard’s remarks. However, New York Fed President Williams told the Financial Times Tuesday exactly what most of the other Fed members have been saying…that rate hikes are likely not done. Williams also said, “It’s still clearly a very strong labor market with very good jobs growth,” … “I don’t have a recession in my forecast. (However,) I have pretty slow growth (in my projections).” Finally, Williams said, “We are not getting the full effects of the restrictive policy that we put in place yet … those are still ahead of us, although we have gotten some of the effects already in certain interest-rate-sensitive sectors.”
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In stock news, CRM announced it will be raising the price of some of its cloud-based products by an average of 9% in August. (This was the company’s first price increase in seven years and comes even after its recent report showed blowout revenue growth from the cloud-based business.) Later, BA announced it delivered 60 passenger jets in June, raising the first-half total to 266, up 23% over the first half of 2022. Elsewhere, the Financial Times reported sourced tell it that the EU is poised to approve the AVGO purchase of VMW as soon as Wednesday. (VMW was up over 5% on the news.) At midday, Reuters reported AXAHY (French insurance giant AXA) is actively discussing strategic options for its $2 billion reinsurance business, in what was termed “a bid to cut exposure to natural disasters in light of global warming effects.” (In May, AIG made the same move, agreeing to sell its reinsurance arm for $3 billion for just 1.4 times book value.) Meanwhile, Reuters also reported that AMZN is offering deeper discounts than in past years as part of its “Prime Day” 2-day sale. This included 60% discounts on GPS clothing, 50% off some SONY products, and 40% off PTON bikes. After the close, Axios reported that META is planning to bring “branded content” to its new Instagram Threads service. This is a bid to make the platform easier for influencer and advertiser-paid partnerships. Also after the close, Reuters reported that COTY is in talks with Kim Kardashian to sell back a minority stake in her fragrance and cosmetics brand. At the same time, the Wall Street Journal reported that DIS is exploring options to sell its Indian joint venture “Star India.”
In stock legal and regulatory news, the NHTSA announced Tuesday it is investigating F related to 346,000 Ford Escape SUVs built in 2020-2021 due to doors opening while the cars are driving. Later, BAC agreed to pay a $250 million settlement (in fines and compensation) related to the same systematic practice WFC faced a year or two back. BAC had been opening consumer accounts without authorization, systematically did not pay account-opening bonuses promised, and double-charged fees for insufficient funds. Elsewhere, AMZN launched the first challenge to the EU Digital Services Act, disputing whether it should be included in the group of companies subjected to online content rules. At the same time, a US federal judge threw out the FTC’s request for an injunction, telling MSFT it can proceed with the acquisition of ATVI. (The FTC has until Friday to appeal before MSFT is free to continue.) In addition, the UK Competition and Markets Authority (which previously blocked the deal) announced it was ready to consider MSFT proposals to resolve antitrust concerns. (ATVI stock shot up 10% on the good news.) Meanwhile, Canada’s corporate ethics watchdog announced Tuesday that it has launched an investigation into NKE related to using Uyghur labor in China as part of its operations and supply chain. At the same time, a US federal appeals court has revived a lawsuit against RCL related to the death of a toddler after a grandfather dropped the child who then fell through an open cruise ship window in the children’s play area of a cruise ship.
In market-related news, NASDAQ announced that a “special rebalance” of the QQQ (NASDAQ 100) will take place later this month. The idea behind the rebalance is to reduce the concentration of weighting in the top names. This comes after a blistering rally this year has resulted in AAPL, NVDA, MSFT, AMZN, and TSLA alone accounting for 43.8% of the index weight. Following the rebalance, those five will “only” account for 38.5% of the QQQ. The exact changes will be announced Friday and will take effect on Monday, July 24. Analysts expect SBUX, MDLZ, BKNG, GILD, ISRG, ADI, and ADP to see their index weights increase.
Overnight, Asian markets were mixed with Shenzhen (-0.99%) and Japan (-0.81%) leading the losses while Hong Kong (+1.08%) and South Korea (+0.48%) paced the gains. However, in Europe, we see green across the board at midday. The CAC (+0.66%), DAX (+0.81%), and FTSE (+1.14%) lead broad gains across the region in early afternoon trade. In the US, as of 7:30 am, Futures are pointing toward a modest green start to the day (albeit before the CPI report). The DIA implies a +0.14% open, the SPY is implying a +0.21% open, and the QQQ implies a +0.23% open at this hour. At the same time, 10-year bond yields are falling again to 3.956%, and Oil (WTI) is just on the green side of flat at $74.90/barrel in early trading.
The major economic news events scheduled for Wednesday include the June CPI (8:30 am), EIA Crude Oil Inventories (10:30 am), WASDE Ag report (noon), and Fed Beige Book (2 pm). There are also two more Fed Speakers scheduled (Kashkari at 9:45 am and Mester at 4 pm). The major earnings reports scheduled for Wednesday are limited to MLKN after the close. (There are no reports scheduled before the opening bell.)
In economic news later this week, on Thursday, we get June PPI, Weekly Initial Jobless Claims, June Federal Budget Balance, and Fed Balance Sheet. Finally, Friday June Import Price Index, June Export Price Index, Preliminary July Michigan Consumer Sentiment, and Preliminary July Michigan Consumer Expectations.
In terms of earnings reports, on Thursday, CTAS, CAG, DAL, FAST, PEP, PGR, and WIT report. Finally, on Friday, we hear from BLK, C, ERIC, JPM, STT, UNH, and WFC.
In miscellaneous news, the founder of the “meme stock” sensation lost his lawsuit against Reddit for allegedly wrongly banning him from moderating the community (subReddit) he created and usurping his “WallStreetBets” trademark. In her decision, the US District Judge ruled that federal law (section 230) gives websites broad immunity for publishing the outside content of others and therefore he lacked standing to sue. Elsewhere, Canadian regulators followed the Fed’s lead, proposing that lenders and mortgage insurance providers be required to hold more capital in order to better deal with home loan risks as rates increase. (The rules are open to public comment until September 1.) At the same time, CNBC reported that (according to TransUnion) the US average credit card balance is $5,733 per person with 35% of people saying their balance is near its highest level ever, while 43% say their balance is actually at the lowest level ever. At the same time, Bankrate reports that the average US credit card interest rate is now 20.55%.”
With that background, it looks like the Bulls are trying to follow through on their Tuesday gains. All three major index ETFs are near their premarket highs again today and in positive territory relative to the close yesterday. All three remain above their T-line (8ema) with the June CPI data still an hour from being published. So, the bias is still bullish across the market. It looks like the Bulls are trying to add to the week’s gains. However, we should see some premarket volatility (and likely volatility near the open) on that CPI data. After that settles out, do not be surprised if we drift toward the first earnings reports, which start Thursday with the big banks starting again on Friday. Overall, the SPY is near a retest of a double-top with DIA not too far below a retest of a high as well. Meanwhile, QQQ has a little more ground to cover before it reaches its next test. As far as extension goes, none of the three major index ETFs is stretched from its T-line…but…the T2122 indicator is deep into the overbought territory. Of course, the old saying stands: “The market can remain overbought longer than we can stay solvent being right too early.” So, once again, if either the bulls or the bears did find the energy to run today, there is a slack available, just more of it available to the Bears.
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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