Markets opened close to flat Monday (down 0.20% in the SPY, down 0.15% in the DIA, and up 0.04% in the QQQ). At that point, the SPY chopped sideways until 11:30 a.m. while the DIA chopped but slightly to the downside and QQQ chopped slightly to the upside during the same timeframe. Then all three sold off until 12:50 p.m. before closing out the day in a sideways chop channel that lasted until 3 p.m. Finally, all three rallied in the last hour of the day. This action gave us Doji candles in the SPY (white-bodied) and DIA (black-bodied) as well as a Bullish Harami, white-bodied, Spinning Top type candle in the QQQ. This all happened with above-average volume in the DIA, average volume in the SPY, and a bit below-average volume in the QQQ.
On the day, nine of the 10 sectors were in the red. However, Utilities (-4.25%) was a MASSIVE outlier, by 2%. Other than that, Energy (-2.35%) led the rest lower. Only Technology (+0.53%) held onto the green area. At the same time, the SPY lost 0.04%, DIA lost 0.26%, and the tech-heavy QQQ gained 0.83%. VXX gained slightly to close at 23.36 and T2122 dropped deep into the oversold territory at 6.21. 10-year bond yields spiked to 4.683% while Oil (WTI) plummeted 2.34% to end the day at $88.66 per barrel. So, we saw a flat open followed by chop, a selloff, more chop, and finally a rally. That all left us little changed overall with only NVDA, GOOGL, ADBE, META, MSFT, AMZN, PDD, and APPL dragging the QQQ back up above its T-line (8ema) to perform better than the large-cap index ETFs.
The major economic news reported Monday included September Global Mfg. PMI, which came in slightly above expectations at 49.8 (compared to a forecast of 48.9 and a previous reading of 47.9). A few minutes later, September ISM Mfg. Employment was reported above anticipated at 51.2 (versus a forecast of 48.3 and an August value of 48.5). At the same time, September ISM Mfg. PMI also came in above expectation at 49.0 (compared to a forecast of 47.7 and an August reading of 47.6). September ISM Mfg. Price Index came in well below predicted at 43.8 (versus a forecast of 48.6 and an August value of 48.4). So, according to S&P and ISM manufacturing is holding up. At the same time, the manufacturing price drivers (ISM PMI Price factors) are coming down compared to predicted levels.
In Fed speak news, Fed Governor Bowman told a banking conference that she thinks further rate hikes will be needed. She said, “…my own expectation that progress on inflation is likely to be slow given the current level of monetary policy restraint, suggests that further policy tightening will be needed to bring inflation down in a sustainable and timely manner.” Later, Fed Vice Chair for Bank Supervision Barr told a New York economic forecaster conference that he is much less concerned about how much more to raise rates than how long to keep them high. He said, “In my view, the most important question at this point is not whether an additional rate increase is needed this year or not, but rather how long we will need to hold rates at a sufficiently restrictive level to achieve our goals.” Barr went on to say “I expect it will take some time.” Finally, Fed Chair Powell spoke to a business group in PA. He did not address monetary policy, but said the economy was still dealing with the aftermath of the COVID-19 Pandemic. Finally, last night Cleveland Fed President Mester told a group that she still thinks the FOMC may need to raise rates one more time. She added the obvious and often repeated stated Fed position that inflation remains too high and the terminal Fed Funds rate, as well as how long it is held at that level, will depend on how the economy evolves.
In Autoworker contract talks and strike news, GM and F announced they will furlough another 500 workers across four plants because of the impact of the UAW strikes. At the same time, F announced it was laying off 330 workers due to the strike. Meanwhile, the UAW confirmed to Reuters that it had presented a new contract proposal to GM on Monday and also held another round of talks with STLA.
In stock news, TSLA reported disappointing Q3 delivery numbers, saying that it had delivered 435,059 vehicles in Q3 (short of the average analyst estimate of 456,722). At the same time, TSLA manufactured 430,488 cars in Q3 well below the average estimate of 461,992. (It should be noted that this failure brings China’s BYD within 3,456 cars of becoming the world’s largest EV maker.) Shortly after the TSLA report, RIVN reported higher-than-expected Q3 vehicle deliveries of 15,564 (compared to an analyst estimate of 14,470), which was a 23% increase from Q2. At the same time, KKR announced it has sold $560 million worth of industrial real estate (about 5 million square feet) across 50 buildings in Atlanta, Dallas, Chicago, and Central PA. (The buyer was not disclosed.) Elsewhere, the CEO of troubled BA supplier SPR resigned and was immediately replaced on an interim basis by a former BA executive. At the same time, NSC faced its second service outage in the last month (both caused by IT issues). NSC was downgraded by some analysts on this news. Later, MSFT CEO Nadella said Monday that major players were competing to lock up content creators for their data (needed to train AI models). He said the whole atmosphere reminded him of the early days of search engines where the big players started paying tens of billions to lock up publishers with exclusive deals. After the close on Monday, BF.A announced a $400 million share buyback program beginning immediately and lasting until Oct. 1, 2024. Also after the close, a coalition of hedge funds increased its offer for SCU to $13/share (up from $12.76/share). SCU closed at $11.38/share. Meanwhile, WE announced it was delaying a $95 million interest payment. This raised speculation of bankruptcy but was leaked to be a negotiation tactic with creditors and landlords.
In stock government, legal, and regulatory news, CI announced it reached a settlement over the weekend to pay $172 million for overcharging the government for Medicare Advantage claims. (It was actually fraud because false claims were submitted to get tens of millions in unearned money.) Later, MCD and WEN defeated a lawsuit that had alleged the restaurants deceived consumers about the size of their burgers. At the same time, the NHTSA expanded its investigation into F sport utility and trucks over catastrophic engine failures due to faulty valves. The investigation now covers 708k 2021-2022 vehicles. Later, in the early afternoon, the FDIC issued a consent order without fines for DFS, who had been under investigation since an Oct. 2022 audit found incorrect credit card classifications. However, DFS responded quickly and strongly and was rewarded for its treatment by FDIC. Elsewhere, Reuters reported Monday that all 10 of the drugmakers subject to negotiations over Medicare drug pricing signed up for the negotiations with the US HHS Dept. prior to the October 1 deadline. Most of them are suing HHS, wanting to prevent negotiations, but a federal court ruled against a suit on behalf of the 10 from the US Chamber of Commerce on Friday. In the afternoon, AAPL announced it would appeal a Netherlands Consumer and Markets Authority ruling related to App Store policies. At the same time, a US District judge in CA ruled in TSLA’s favor by ruling that TSLA owners must pursue any fraud claims (that the company misled them about Autopilot features) in individual arbitration rather than in courts, throwing out a proposed class-action lawsuit in the process. Meanwhile, the FCC announced the first ever “space debris” fine of just $150k against DISH for waiting until there was not enough fuel left to send an end-of-life satellite into re-entry which would burn up the satellite. After the close, the US Patent Office tribunal rejected a request from VTRS for the agency to review two patents held by NVO related to two weight-loss drugs. VTRS claimed the two patents obviously were based on existing patents for the underlying diabetes drug and should be invalidated.
Overnight, Asian markets leaned heavily to the red side. Hong Kong (-2.69%), Thailand (-1.51%), and Australia (-1.28%) led the region lower. In Europe, we nearly see red across the board at midday. Only the FTSE (+0.19%) remains in the green while the CAC (-0.41%) and DAX (-.51%) lead the region lower 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 -0.07% open, the SPY is implying a -0.09% open, and the QQQ implies a -0.16% open at this time. Meanwhile, 10-year bond yields are spiking again to 4.727% and Oil (WTI) is down another two-thirds of a percent to $88.27 per barrel in early trading.
The major economic news scheduled for Tuesday is limited to JOLTs Job Openings (10 a.m.) and API Weekly Crude Oil Stocks (4:30 p.m.). The major earnings reports scheduled for before the open are limited to MKC. Then after the close, CLM, and NG report.
In economic news later this week, on Wednesday we get Sept. ADP Nonfarm Employment Change, Sept. S&P Global Services PMI, Sept. S&P Global Composite PMI, Aug. Factory Orders, Sept. ISM Non-Mfg. PMI, Sept. ISM Non-Mfg. Price Index, EIA Crude Oil Inventories, and Fed member Bowman speak. On Thursday, we get August Imports, August Exports, Weekly Initial Jobless Claims, the Fed Balance Sheet, and two Fed Speakers (Mester at 9 a.m. and Daly at noon). Finally, Friday, Sept. Avg. Hourly Earnings, Sept. Nonfarm Payrolls, Sept. Private Nonfarm Payrolls, Sept. Participation Rate, Sept. Unemployment Rate, and a Fed speaker (Waller at noon).
In terms of earnings reports later this week, on Wednesday, we hear from AYI, HELE, and RPM. On Thursday, CAG, STZ, LW, and LEVI report. Finally, on Friday, there are no major earnings reports scheduled.
So far this morning, MKC missed on revenue while reporting in-line on earnings. Even so, this was a 5.6% quarter-on-quarter increase for MKC.
In late-breaking news, late last night Florida Rep. Gaetz followed through on his threats by filing a “motion to vacate the chair” in hopes of removing House Speaker McCarthy. Gaetz has vowed that even if he loses this time, he will refile the motion every time Speaker McCarthy reaches across the aisle to court Democratic votes on any legislation. On that note, it will very likely be Democrats who decide whether McCarthy keeps his post. So, the matter will come down to whether McCarthy and the less-fringe Republicans can reach a compromise (actual governing solution) or whether the parties are too far into the “us good vs. them evil” mindset to govern. Oddly, Gaetz has at least said he backs House Majority Leader (#2 House Republican) as McCarthy’s replacement. The issue is that that person, Steve Scalise, is currently incapacitated while being treated for a rare blood cancer and in the past has been a staunch supporter of McCarthy. The point of the whole story is that Congress now has yet another hurdle to get past before it can accomplish anything. Remember the 15 rounds of votes over a number of days it took the GOP to elect McCarthy? Here’s to hoping that doesn’t become “the good old days of a semi-functional Congress.”
With that background, it looks like the Bears are in control this morning in the premarket. All three major index ETFs are printing black-bodied candles with upper wicks and sitting at their early session lows. The QQQ has (as of now) given up its T-line again and it appears we are headed for a modest gap lower at the open. So, for now, the short-term trend clearly remains headed lower. In terms of extension, none of the three major index ETFs are far below their T-line (8ema) but the T2122 indicator is now well into the lower half of its oversold range. So, over-extension is an open question. This tells us either side has at least some slack if they can find the momentum to run.
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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