In the pre-market Friday, May Payrolls came in significantly higher than expected (yet also significantly below the number in April) at +390k jobs. The unemployment rate remains at 3.6% and the participation rate increased very slightly to 62.3%. This all led to a 1%-2% gap down at the open. At that point, the high-tech QQQ continued to selloff until 11:30 am, when it joined the SPY and DIA in beginning a sideways roller-coaster ride along the lows. This left us with Bearish Harami Spinning Top and Bearish Harami Doji candles in all 3 major indices. Just like Wednesday (and completely the mirror of Thursday), 9 sectors were in the red with only Energy managing to stay green. Of the 9, Technology was by far the worst hit sector. However, it is worth noting that all of the day’s action happened on much lower-than-average volume. On the day, SPY lost 1.64%, DIA lost 1.03%, and QQQ lost 2.60%. The VXX gained nine-tenths of a percent to 21.89 and T2122 fell slightly to 89.47, but still remains overbought. 10-year bond yields rose to 2.941% and Oil (WTI) jumped almost 3% to $120.28/barrel.
Mid-afternoon Friday Fed voter Mester (Cleveland Fed President) told CNBC that “inflation has not peaked yet” and “we still need multiple half-point rate hikes this summer.” She also said she may back a September half-point hike as well if inflation does not cool. This came the same day as Elon Musk’s “I have a really bad feeling about the economy” and email to TSLA employees announcing a 10% workforce cut. Finally, the CEO of C said it will be hard for the US to avoid recession. However, he also said that Europe is more likely to head into recession than the US at this point.
Related to the Oil industry, after the close Friday, Bloomberg posted an article that shows all oil is not equal (and therefore not all oil stocks are equal). Although “light sweet oil” prices have skyrocketed to $120/barrel, the price differential between that and the heavy “Western Canadian Select” oil sands oil has risen from less than $2 to almost $21 per barrel. The proximate reason most cited for this is that US strategic petroleum reserves are nearly all made up of the “sour” (heavier) grade of oil. So, as the US releases oil to fight gas price inflation, the US demand for heavy oil is being supplied by the much closer (lower transport cost) source to the tune of 1 million barrels per day. Meanwhile, the other major heavy oil users (China and India) are buying Russian oil at a $40 discount to WTI ($20 cheaper than WCS). This makes the largest market for WCS oil Europe, which is now moving more and more to being supplied by US and Middle-Eastern light sweet grades, and the Canadian transport costs to Europe are very heavy in relative terms. Major companies suffering from this issue are ENB, SU, IMO, CNQ, CVE, TRP, and PBA. In a last-minute addition, Saudi Arabia raised the Asian and Northern European prices for oil more than expected, despite last week’s increase of production quotas.
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On the Covid story, Bloomberg reported this weekend that China is declaring the victory of their “Zero Covid” policy. This seems to jibe with AAPL saying that Chinese lockdowns at Apple’s major iPhone manufacturers and assemblers had not seriously impacted supply or sales. However, at the same time, parts of China remain in strict lockdowns and Hong Kong is reimposing centralized quarantines as of the weekend. This may inform the reason AAPL announced this week that its moving more of its iPhone production to Vietnam.
In stock news, AMZN CEO for Worldwide Consumer (the top retail exec, who led the company’s massive logistics and Prime expansion) resigned effective July 1. This comes as AMZN starts the day split 20-1 as of today. Meanwhile, the WSJ reported Saturday that REV is in talks with creditors in hope of avoiding bankruptcy on roughly $1.7 billion in debt that comes due by 2024. Finally, AAPL holds its largest press event (“World Wide Developer’s Conference”) Monday with expected updates to the software for Macs, iPhones, iPads, Apple Watch, and Apple Virtual Reality offerings. In the past, this conference has resulted in stock moves for AAPL.
In business news, RBC reported that US Auto Sales in May were down, coming in at 12.8 million vehicles versus 13.4 million forecast and well down from April’s 14.6 million vehicles sold. They classified this as “recessionary levels” (which are typically in the 12-13 million range). The company is forecasting 14.7 million vehicles sell in June, which is still 2% below the 15.1 million sold in June 2021. Elsewhere, ABT restarted their Sturgis Michigan infant formula plant over the weekend. This increases ABT production capacity by at least 25% and will go a long way toward addressing the political/news story of infant formula shortages soon. Finally, Barron’s reports that WMT is adding new e-commerce fulfillment centers that will add 4,000 jobs and allow Walmart to reach 95% of the US population with either next day or two-day shipping as it continues to make moves to compete with AMZN.
Overnight, Asian markets were mixed but leaned to the upside. Hong Kong (+2.71%), Shenzhen (+2.66%), and Shanghai (+1.28%) led the way higher. Meanwhile, in Europe, stocks lean heavily to the green side at mid-day. The FTSE (+1.09%), SAX (+1.00%), and CAC (+1.08%) are leading the region higher in early afternoon trading. As of 7:30 am, US Futures are pointing toward a gap higher at the start of the day. The DIA implies a +0.78% open, the SPY is implying a +1.02% open, and the QQQ implies a +1.36% open to start the week. 10-year bond yields are up to 2.957% and Oil (WTI) is down to $119.44/barrel in early trading.
There are no major economic news events scheduled for release Monday. The major earnings reports scheduled for release are limited to SAIC before the open. Then after the close, NGL reports. So far this morning, SAIC reported beats on both lines.
In economic news later this week, on Tuesday we get April Imports, April Exports, and April Trade Balance. Then on Wednesday, we see Crude Oil Inventories and the 10-year bond auction. Thursday brings Weekly Initial Jobless Claims. Finally, on Friday we get May CPI, Univ. of Michigan Consumer Sentiment, the WASDE Report, and the May Federal Budget Balance.
On the earnings front for later this week, on Tuesday we hear from ASO, CHS, CBRL, GIII, MOMO, HOLX, SJM, REVG, UNFI, CASY, and PLAY. On Wednesday we get reports from CPB, OLLI, ABM, FIVE, and GEF. Thursday brings reports from BILI, SIG, DOCU, SFIX, and MTN. Finally, on Friday there are no major reports scheduled.
The nice gap higher is still looking like it will leave us in the recent chop or consolidation range. So, while we are starting the week off on positive trading, we are by no means out of the back-and-forth zone that we’ve been fighting for a week. If the bulls want to take us to new heights, there remains a lot of work to do to break through the resistance levels above. The good news is that we don’t have to worry about new data refocusing Mr. Market on inflation until Friday. So, perhaps we can have a few days to focus on the charts.
Technically speaking, we should also bear in mind that even if this consolidation did print a higher-low, we have not yet printed that higher-high. So, none of the major indices are in an uptrend yet (at least on a daily chart). And we also remain overbought at this point, above 88 in the T2122. So, we remain in the no-mans-land where the mid-term downtrend has been broken, but a new uptrend has not been confirmed. This is a dangerous area for Swing Traders…be careful, nimble, and/or hedged.
Remember to be very careful chasing gaps/moves early. The whipsaw is very real during times when we are thinking about changing trends and as we’ve seen lately, gap-chasers can get hurt. Trading is our job. So, do the work and work the process. Stick with your trading rules, trade with the trend, and consistently take profits when you have them. Always move your stops in your favor. Remember that the first rule of making big money in the market is to not lose big money in the market. So, don’t be stubborn. If you have a loss, just admit you were wrong and take it before it grows. As they say, the best time to have taken a $500 loss is when you are now staring at a $1,500 loss. Finally, remember that you get rich steadily over the long run in Trading…not by striking it rich on one or two trades. So, give up that lottery ticket mentality.
Swing Trade Ideas for your consideration and watchlist: NVDA, EXPE, AMD, XBI, NFLX, CHWY, CVX, TAN, EQT. You can find Rick’s review of tickers on his YouTube Channel here. Trade your plan, take profits along the way, and smart. Also, remember to check for impending earnings reports. Finally, remember that any tickers we mention and talk about in the trading room are not recommendations to buy or sell.
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🎯 Friday 6/21/19 (10:09 am) Aaron B: Today, my account is at +190% since January. Thanks, RWO HRC Flash Malcolm Thomas Steve Ed Bob S Bob C Mike P and everyone that contributes every day. I love our job.
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