The Grind Higher Continues on Low Volume

Thursday was a sideways day from the start.  SPY opened “up” 0.01%, DIA gapped up 0.19%, and QQQ opened 0.05% higher.  From that point, SPY wandered back and forth across that “gap” for the rest of the day. At the same time, DIA sold off modestly back down across its gap by 10:15 a.m. and reached its lows at 11:30 a.m.  Then it started a modest rally crossing back up into the gap by 2 p.m. and slowly drifting back up toward its opening level.  Meanwhile, QQQ very slowly rallied after the open, reaching its highs at 11 a.m. and trading sideways in a tight range the rest of the day.  This gave us indecisive candles in all three major index ETFs.  Both SPY and QQQ printed white-bodied Spinning Top candles while DIA printed a long-legged Doji.  All three gave us yet another new all-time high close with QQQ and SPY also giving us new all-time highs.  This happened on a very low volume compared to the average.

On the day, six of the 10 sectors were in the green as Technology (+1.10%) again was well out in front leading the market higher. At the same time, Communications Services (-1.53%) was again by far the laggard sector.  Meanwhile, the SPY gained 0.04%, the DIA gained 0.18%, and QQQ gained 0.19%.  VXX fell by 0.57% to close at 13.92 and T2122 climbed but remained in the mid-range at 71.06.  10-year bond yields climbed to 4.156% and Oil (WTI) spiked 3.61% to close at $76.53 per barrel. So, again strong earnings led to optimism but there was no news to lead to a follow-through.  The bulls were not willing to put more money in at these high levels and the bears have gotten run over enough times that they aren’t going to be on reversal yet either.  (Hence, the very low volume.)  This led to a day of drift and micro moves that amounted to a nothing burger.

The major economic news released Thursday was limited to Weekly Initial Jobless Claims, which came in a bit below expectation at 218k (compared to a forecast of 221k and the prior week’s 227k).  At the same time, Weekly Continuing Jobless Claims also came in a bit below the anticipated level at 1,871k (versus a forecast of 1,878k and the prior week’s 1,894k).  Finally, after the close, the Fed Balance Sheet rose $1 billion on the week, coming in at $7.631 trillion (compared to $7.630 trillion last week).

In Fed news, Richmond Fed President Barkin said Thursday that he is skeptical of recent economic data, citing the difficulty of seasonal adjustments at the start of each year.  Barkin said, “The data has been remarkable across the board,” … “But I am always cautious about numbers around the turn of the year, there’s big seasonal adjustments…I am not sure I am going to take too much out of any one month.”  He went on to say the Fed should be patient in making rate changes.  Later, Boston Fed President Collins said she thinks the Fed will cut rates by three-quarters of a percent in 2024.  Collins told a radio interview Thursday, “I do expect that before the end of the year, it will be appropriate for us to carefully begin easing rates.”  She went on to echo other Fed members by saying she would need to see additional evidence before voting for rate cuts, but that inflation is clearly falling and the economy remains resilient.

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In stock news, UL announced a $1.6 billion share buyback program Thursday.  Later, ICE (parent company of NYSE) said it saw strong growth in trading volumes, especially in energy and commodity markets last quarter.  ICE attributed part of the increased volume to an increase in market volatility (which usually leads to more volume as traders adjust positions).  At the same time, GOOGL rebranded its AI chatbot from Bard to Gemini on Thursday and launched it as a $19.99/mo. subscription service that comes with two terabytes of cloud storage (normally a $9.99/mo. offering).  (Gemini is intended to compete with MSFT’s co-pilot subscription available in MS Word and MS Excel.)  Later, Reuters reported that APO is negotiating for a minority stake in 2,000 SBUX locations across 13 countries in the Middle East, North Africa, and Central Asia.  The 30% stake is said to be valued between $4 billion and $5 billion.  At the same time, Reuters reported that DVN is in talks to acquire ERF to strengthen its positions in the Bakken (ND) and Marcellus (PA) shale fields.  Later, HSBC announced it had partnered with GOOGL and will provide financing to GOOGL-chosen climate technology firms that join GOOGL’s “Cloud-Ready Sustainability” program.  Elsewhere, VLKAF (Volkswagen) told Reuters that despite competitors like GM pulling back on EV plans, it is sticking with its plan to launch 25 electric vehicle models in North America by 2030.  However, the company hedged its bets by saying it is ready to adjust as the market shifts.  At the same time, BA announced it had received an order for 45 of its 787 jets from Thai Airways.  (No delivery dates were announced, but typically the lead time is several years.)  Later, Reuters reported that part of the reason TSLA is now considering layoffs is that TSLA trails both GM and F in “revenue per employee.”  GM generates over $1 million per employee, F generates $937,000, and TSLA makes just under $690,000 per employee.

In stock legal, governmental, and regulatory news, the FAA announced it has begun an investigation into two JBLU planes that collided on the tarmac in Boston Thursday.  (No injuries were reported.)  Later, AMZN and BMWYY (BMW) won a lawsuit in Spain against four sellers of counterfeit BMW merchandise sold through AMZN.  Elsewhere, Reuters reported that the CFTC has opened an investigation into GS and has sent the company subpoenas for information about fees charged for certain block trades in the futures market.  (GS paid $50 million in 2023 to settle three other CFTC cases.)  Later, the FAA formally mandated inspections of all 737 MAX airplanes looking for loose bolts on rudder control systems.  (This was a follow-up to BA itself “recommending” that its customers inspect those bolts after identifying quality control issues in December.)  At the same time, a US Senate Committee voted to boost funding of the FAA (so that it can increase the number of on-the-ground inspectors at BA and its suppliers like SPR) and also rejected the proposal to increase the pilot retirement age from 65 to 67.  Both of these positions are in line with FAA requests but are in opposition to House as well as airlines (AAL, DAL, LUV, and UAL) positions on the matters.  Later, a group of religious investors (the group represents $4 trillion in assets) sent a letter urging XOM to drop its lawsuit against climate activists.  At the same time, EU antitrust regulators have now set a March 13 deadline for whether to approve the CSCO $28 billion acquisition of SPLK.  Later, Reuters reported that UBER, DROOF, and other similar companies that use online workers reached a deal with EU lawmakers over the rights of gig workers.  The deal removes the matter from the national government’s purview in favor of collective bargaining and case law.  However, it also puts the burden of proof on the company in any dispute over whether a person is an employee or contractor.

After the close, AFRM, BYD, DXCM, EXPE, G, PEAK, ILMN, LEG, MHK, MSI, TEX, and TFII all reported beats on both the revenue and earnings lines.  Meanwhile, ATR, FE, FLO, NGL, and PINS missed on revenue while beating on earnings.  On the other side, TTWO beat on revenue while missing on earnings.  Unfortunately, CPRI and MTD missed on both the top and bottom lines.  It is worth noting that AFRM and MTD raised forward guidance.  However, G, LEG, MHK, and TTWO lowered guidance.

Note that Asian markets were closed for Lunar New Year and will stay closed all of next week as well.  In Europe, markets lean the green side at midday with 10 of the 15 bourses modestly in positive territory.  The CAC 9-0.15%), DAX (+0.05%), and FTSE (+0.02%) lead the region slightly higher in early afternoon trade.  In the US, as of 7:15 a.m., Futures are pointing toward a slightly green start to the day.  The DIA implies a +0.05% open, the SPY is implying a +0.13% open, and the QQQ implies a +0.31% open at this hour.  At the same time, 10-year bond yields have climbed to 4.172% and Oil (WTI) is down slightly to $76.23 per barrel in early trading.

There is no major economic news scheduled for Friday.  The major earnings reports scheduled for before the open include AMCX, CTLT, ENB, FTS, MGA, NWL, PEP, PAA, PAGP, and TIXT.  There are no earnings reports scheduled for after the close.  

So far this morning, AMCX and NWL reported beats on both the revenue and earnings lines.  Meanwhile, FTS, PEP, and TIXT missed on revenue while beating on earnings.  On the other side, MGA beat on revenue while missing on earnings.  Unfortunately, ENB and UI missed on both the top and bottom lines.  It is worth noting that NWL and TIXT lowered forward guidance.  However, also note that PEP raised its guidance.  

In miscellaneous news, Maersk said Thursday that there is too much container chipping capacity and this would impact their profits for 2024.  The shipping giant downplayed the impact of Red Sea disruptions (which cause longer shipping routes meaning more container ships are needed to maintain the same flow of trade).  The signal that this was a real warning was that the company also suspended its share buyback program.  Maersk is often seen as a barometer of global trade and therefore global GDP.  Elsewhere, the US Dept. of Transportation reported that driving in the US set a new yearly record in 2023 of 3.263 TRILLION miles driven.  (This was the first time a new record has been set since prior to COVID-19.)  Meanwhile, US trade data released earlier this week shows that Mexico exceeded China to become the largest trading partner of the US.  Mexican trade included $476 billion in imports and $323 billion in exports from the US for a total of $799 billion in 2023.  (US-China trade for 2023 was just $575 billion.)  Finally, Treasury Sec. Yellen told the Senate Banking Committee that she expects more commercial real estate stress, but that the problem is not a systemic banking risk.  Yellen said, “Valuations are falling. And so it’s obvious that there’s going to be stress and losses that are associated with this, … exposure of the largest banks is quite low, but there may be smaller banks that are stressed by these developments … I hope and believe that this will not end up being a systemic risk to the banking system.”

In global-related news, Israel rejected the Hamas proposal (itself a response to earlier negotiations) for a “cease-fire and humanitarian aid in exchange for hostages” deal.  (This was the primary cause of the spike in oil prices Thursday as Israel, Hamas, and the Houthi rattled sabers after Israel’s announcement.) Later, Ukrainian President Zelenskyy replaced their Armed Forces chief in favor of the head of their ground forces.  In related news, after the GOP killed the combined Border-Ukraine-Israel-Taiwan package they had demanded, the US Senate pushed forward a smaller $95 billion aid bill just covering Ukraine and Israel aid. This came after the GOP caucus split and 17 of them voted with the Democratic majority to get past the high hurdle by a 67-32 vote. House action on this bill is completely uncertain since the House Speaker is one of the MAGA types (but also backed away on Thursday from his demand to split this into separate Israel and Ukraine aid bills so that they could vote down Ukraine aid to appease their party’s Russian-supporting candidate and wing) and MAGA lobbying and threats is what killed the broader Senate bill in the first place.

With that background, it looks like all three major index ETFs are looking to open a bit higher but in a pretty undecided manner. All three are giving us small, white-body candles in the premarket. All three also remain above their T-line (8ema). So, the Bulls remain in control of the trend in both the long and short term. In terms of extension, none of the three is too far from their 8ema yet and the T2122 indicator remains in its midrange. This means the market still has plenty of slack to work with if either side of the market gains traction. As I have been saying for months, keep an eye on those 10 huge tech stocks. If they walk in lock-step, whatever direction they decide to go is very likely to call the tune for the rest of the market. Finally, remember that it’s Friday. So, pay yourself and prepare your account for the weekend by lightening up, moving stops, and/or hedging.

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 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 gains are 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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