On Wednesday, markets gapped modestly higher at the open (up 0.26% in the SPY, up 0.23% in the DIA, and up 0.33% in the QQQ). However, then the Bears took over and slowly sold off in a wavy move that eventually took us to the lows of the day at 2:15 p.m. Then the Bulls stepped in to drive an hour-long rally that took the SPY and QQQ to the highs of the day (and the DIA back into the morning gap at 3:15 p.m.). At that point, we saw a modest selloff in the last 45 minutes of the day in all three major index ETFs. This action gave indecisive candles in all three. The SPY printed a black body Doji or small-body Spinning Top candle. The QQQ gave us a long-legged, black-bodied Doji. Finally, the DIA printed a black-body Hammer-type candle. This happened on above-average volume in the DIA and SPY, as well as slightly less-than-average volume in the QQQ.
On the day, the market was split with five of the sectors in the green and 5 in the red as Utilities (-1.83%) way out front leading the other sectors lower. Meanwhile, Energy (+2.26%) way, way out in front (by 1.5%) leading the rest higher. At the same time, the SPY gained 0.04%, DIA lost 0.18%, and the tech-heavy QQQ gained 0.23%. VXX fell hard to close at 23.97 and T2122 jumped back up but remained in the oversold territory at 12.24. 10-year bond yields spiked again to 4.607% while Oil (WTI) also spiked up to end the day at $93.68 per barrel. So, Wednesday was another whipsaw day that seems to have been largely influenced by the impending government shutdown (and its effect on markets). We saw a modest gap up, a long and slow selloff, a sharp rebound, and then one last modest leg down. After all of that, markets ended the day not very far from their Tuesday close.
The major economic news reported Wednesday was limited to August Durable Goods Orders which came in better than expected at +0.2% (compared to a forecast of -0.5% and far better than the July reading of -5.6%). At the same time, August Core Durable Goods Orders came in even better at +0.4% (versus a forecast and July reading of +0.1%). Later the EIA Weekly Crude Oil Inventory Report showed a greater-than-expected drawdown of stocks at -2.170-million-barrels (compared to a forecasted -1.320-million-barrels and the prior week’s -2.135-million-barrels).
In Autoworker contract talks and strike news, the UAW threatened to expand its strike against the Big 3 Automakers on Friday, if significant progress is not made in the meantime. The UAW President will announce the next steps in a streamed videocast at 10 a.m. Eastern Friday. (So far, only about 12% of UAW members have gone on strike.) Later, on Wednesday night, the ex-President talked at UAW members (not to them) when he counter-programmed the GOP Presidential debate by speaking at a non-union auto parts supplier in Detroit. The UAW was not involved in his visit and he was not scheduled to speak to UAW leaders.
In stock news, Reuters reported that the META executive leading the company’s AI Chip program is leaving the company at the end of the month. In related news, META unveiled a new AI assistant to help Facebook users create images, etc. At the same time, LCID opened its new plant in Saudi Arabia on Wednesday. (The Saudi government committed to buy 100,000 vehicles from LCID over the next decade.) The facility will serve the whole Middle East producing 155,000 cars per year. Later, in a twist, cryptocurrency exchange Kraken announced it is planning to offer trading of US-listed stocks and ETFs. Kraken has filed for FINRA licensing as a broker-dealer and is now targeting a launch date in 2024. At midday, VLKAF (Volkswagen) took a major hit with an IT outage in Germany that shut down production of cars across the whole group of brands including Porsche and Audi. Elsewhere, in one of the largest real estate deals so far this year, WFC announced it is investing $550 million in retail real estate in New York City’s 20 Hudson Yards building. (Half a billion doesn’t go as far as it used to as the investment only gets WFC the 5th-7th floors of the building.) At the same time, NYC shares surged in volatile trading after a tender offer from Bellevue Capital Partners. (NYC stock closed up 28.62% after trading in a 44% range on the day.) Later, NEE stock took an 8.23% loss on the day (massive for a utility) after the CEO attributed poor recent company performance to higher interest rates. PTON jumped 30% higher in after-hours trading following the company announcement that it had signed a 5-year partnership with LULU. (The companies agreed to become the exclusive partner of the other, with LULU being the exclusive apparel provider to PTON and PTON being the exclusive digital fitness content provider to LULU.)
In stock government, legal, and regulatory news, controversial hedge fund Citadel has decided to fight the SEC, refusing to turn over employee “off books” private messages in apps like WhatsApp and Signal. The fund (known as the biggest buyer of order flow from brokers) is threatening to sue the SEC to avoid disclosing the (probably damning) information. CG, APO, KKR, BX, and others were served notice to turn over employee “off books” communications at the same time. Several large banks paid significant fines for such collusion. Elsewhere, WASH agreed to pay a civil penalty of $9 million to the Dept. of Justice to settle charges of discriminatory lending. At the same time, the Dept. of Justice sued EBAY, claiming the company was violating the Clean Air Act by selling harmful products, including devices to defeat vehicle emissions controls. (The case could theoretically lead to billions in fines with a penalty of nearly $6,000 for each of 343,000 such devices the government claims were sold through EBAY.) Later, the US Senate advanced a bill aimed at allowing banks to finance legal marijuana ventures. The bill now moves to the Senate floor for debate. In auto news, HYMTF (Hyundai) and Kia are recalling 3.37 million vehicles over the risk of engine fires according to the NHTSA. Later, a CA federal court ruled in favor of QCOM dismissing a consumer suit alleging the chipmaker’s exclusive contracts with phone makers artificially inflate phone prices. By midday, Epic Games appealed to the US Supreme Court to review its AAPL antitrust case, in hopes of overturning lower-court rulings. In other AAPL news, after the close, AAPL was ordered to face a private antitrust lawsuit brought by payment card issuers accusing the company of stifling competition for its Apple Pay Mobile Wallet, enforcing a monopoly in the US over the iPad, iPhone, and Apple Watch tap-to-pay market. (The suit alleges that unlike the GOOGL Android platform, which lets users choose between the GOOGL Wallet, Samsung Wallet, and others, AAPL forces its users to use the AAPL wallet.) Also after the close, a CA federal judge refused to overrule the Santa Barbara County Supervisors who had denied XOM the permits needed to replace a pipeline that has been ruptured since 2015 with a fleet of 25,000 tanker trucks (which would have allowed XOM to reopen its closed offshore platform). Finally, the judge randomly assigned to hear the FTC antitrust case against AMZN has recused himself without citing a reason. The case was reassigned, based on rotation, to a judge nominated by President Biden. However, the FTC has asked the case to be assigned to yet another judge who is already hearing smaller private antitrust cases against AMZN.
After the close, MU reported beats on both the revenue and earnings lines. Meanwhile, WOR missed on revenue while beating on earnings. However, CNXC, FUL, and JEF all missed on both the top and bottom lines. It is worth noting that FUL also lowered its forward guidance.
Overnight, Asian markets were mixed but leaned toward the red side. Taiwan (+0.27%) was the biggest mover among the five green exchanges while Japan (-1.54%), Hong Kong (-1.36%), and New Zealand (-1.23%) were by far the biggest losers among the seven exchanges in the red. In Europe, we see a similar story taking shape at midday with just five of 15 bourses in the green (led by Russia +1.16%). The CAC (+0.24%), DAX (+0.01%), and FTSE (-0.39%) lead the region on volume in early afternoon trade. Meanwhile, in the US, Futures are pointing to a mixed and mostly flat start to the day as of 7:30 a.m. The DIA implies a +0.08% open, the SPY is implying a +0.01% open, and the QQQ implies a -0.16% open at this hour. At the same time, 10-year bond yields have spiked again to 4.641% and Oil (WTI) is off a quarter of a percent to $93.45 per barrel in early trading.
The major economic news scheduled for Thursday includes Q2 GDP, Q2 GDP Price Index, and Weekly Initial Jobless Claims (all at 8:30 a.m.), August Pending Home Sales (10 a.m.), and Fed Balance Sheet (4:30 p.m.). Fed Chair Powell speaks at 4 p.m. The major earnings reports scheduled before the opening bell is limited to ACN, KMX, and JBL. Then after the close, NKE reports.
In economic news later this week, on Friday, August PCE Price Index, August Goods Trade Balance, August Personal Spending, August Retail Inventories, Chicago PMI, Michigan Consumer Sentiment, Michigan Consumer Expectations, Michigan 1-year Inflations Expectations, Michigan 5-year Inflation Expectations are reported and Fed member Williams speaks.
In terms of earnings reports later this week, on Friday, CCL reports.
In miscellaneous news, an interesting event took place in China on Wednesday. Regional lender Shengjing Bank agreed to sell $24 billion worth of assets (including mostly non-performing loans and corporate bonds) to a government entity. Given the state of China’s real estate market, the move raised eyebrows. Elsewhere, a US Senate staffer leaked to Reuters that the MSFT email server security flaw (made public in July) allowed Chinese hackers to steal 60,000 emails from the State Department. Meanwhile, data shows us that US oil prices continue to rise in large part due to oil producers continuing to ship more oil abroad and draw down US stocks despite lower US demand. (It is more profitable to ship and sell oil abroad than it is to sell in the US.) In spite of that dynamic, US gasoline inventories rose over a million barrels last week, as refineries have plenty of oil supply. This took place in the face of what was expected to be a gasoline drawdown of half a million barrels, based on falling retail sales. So, we have plenty of oil and gasoline. It is just cheaper to ship the oil abroad and the market allows the industry to keep raising fuel prices (consumers reduce the demand but only do so slowly). In other words, prices are stickier than demand. Finally, the House GOP remains at square one, working through 700 proposed amendments and four ridiculous partial funding bills that are dead on arrival anyway. This is due to Speaker McCarthy remaining subservient to a radical minority of his party refusing to do anything bipartisan. McCarthy and his handful of MAGA Congressmen have told sources that they think a shutdown will gain them more concessions. He has even decided to change the subject, talking about non-issues by saying he wants to “sit down with the President to secure the border.” In the meantime, both sides of the aisle acted as grownups in the Senate and have advanced a compromise 45-day CR to fund the government.
With that background, it looks like traders are undecided but leaning bearish in the premarket. All three major index ETFs are printing small, indecisive, but definitely black-bodied candles in the early session. Perhaps we are waiting on the GDP or Jobless Claims for a clue. All three remain well below their T-line (8ema) and 50sma. So, for now, the short-term trend clearly remains headed lower with retests of the August and June lows either accomplished or being the apparent next target for the Bears. In terms of extension, as I said, all three major index ETFs are far below their T-line (8ema), with QQQ obviously stretched furthest, and the T2122 indicator is still in its oversold range. This tells us we are in need of a bounce or at least a pause to relieve the pressure. However, we must remember the market can remain oversold (or overbought) longer than we can stay solvent while betting against it.
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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