The Wait on CPI and Earnings Begins

Markets opened higher on Friday after strong but unsurprising March Jobs data.  SPY gapped up 0.28%, DIA opened 0.10% higher, and QQQ gapped up 0.37%.  After that open, all three major index ETFs rallied steadily until 1 p.m.  Then we saw a modest selloff for 60 minutes.  Finally, we got a two-hour sideways grind into the close in all three.  This action gave us Bullish Harami signals in the SPY, DIA, and QQQ. SPY and QQQ both retested their T-lines (8ema) from below and failed to close above, but did close very near that level.  DIA was clearly the weakest again.  This all came in with just below-average volume in the SPY and slightly above-average volume in the QQQ and DIA.  This gave us a bearish week with SPY down 0.89%, QQQ down 0.80%, and DIA again the weakest, down 2.24%.

On the day, all 10 sectors were red as Technology (-1.57%) was out in front leading the market lower. Meanwhile, Utilities (-029%) and Energy (-0.29%) held up better than the other sectors.  At the same time, SPY lost 1.21%, DIA lost 1.32%, and QQQ lost 1.53%.  VXX spiked up 4.79% to close at a still low 14.00 and T2122 dropped but remains in its mid-range at 30.67.  10-year bond yields fell a bit to 4.311% and Oil (WTI) rose another 1.40% to $86.64 per barrel (as Ukrainian attacks take more and more Russia oil infrastructure under drone attack).  So, Thursday saw a major reversal and the first big down day since the end of January.  This move was clearly brought on by nothing more than Fed talk.  This all happened on slightly above-average volume in the SPY and QQQ with DIA having the largest volume (relative to average) but still only the highest volume in a week. 

The major economic news scheduled for Friday included March Avg. Hourly Earnings (year-on-year), which came in as expected at +4.1% (compared to a +4.1% forecast but down from February’s +4.3% value).  Interestingly, on a month-on-month basis March Avg. Hourly Earnings also came in as expected at +0.3% (versus the +0.3% forecast but up a tick from February’s +0.2% reading).  At the same time, the March Nonfarm Payrolls were very strong at +303k (compared to the +212k forecast and even more than February’s +270k).  The same was true of March Private Nonfarm Payrolls, which were +232k (versus the +160k forecast and even the February +207k value).  The March Participation Rate ticked up to 62.7% (compared to the 62.6% forecast and up two ticks from the February 62.5%).  Altogether, this meant the March Unemployment Rate dropped to 3.8% (versus the 3.9% forecast and February value).  Later, February Outstanding Consumer Credit also came in better than expected at $14.12 billion (compared to a forecast of $16.20 billion and the well down from the January $17.68 billion reading).  So, jobs creation remains very strong and well above the 12-month average.  However, it is also important to know that the numbers above (+303k) are full-time equivalents that are made up in very large portion by part-time jobs as businesses continue to work hard to avoid needing to pay benefits to reduce costs.  In fact, 691k part-time jobs were created in March, with 5.2% of the total workforce holding multiple jobs.

In FOMC speak, Richmond Fed President Barkin said, “Unemployment is at 3.8%. It’s been 26 months in a row with unemployment below 4% … That’s the first time that’s happened since the late ’60s. So, the job market is very strong.”  Shortly afterward, Dallas Fed President Logan followed the recent theme, saying “I believe it’s much too soon to think about cutting interest rates” … “I’m increasingly concerned about upside risk to the inflation outlook.”  Meanwhile, Fed Governor Bowman said, “While it is not my baseline outlook, I continue to see the risk that at a future meeting, we may need to increase the policy rate further should progress on inflation stall or even reverse.”  She then went on to tempered the remark by saying, “We are still not yet at the point where it is appropriate to lower the policy rate, and I continue to see a number of upside risks to inflation.”  (However), “it will eventually become appropriate to gradually lower the federal funds rate to prevent monetary policy from becoming overly restrictive.  (For now,) our monetary policy stance is restrictive and appears to be appropriately calibrated to reduce inflationary pressures.”

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In stock news, on Friday, META announced major changes to its content labelling rules which will start applying “Made with AI” labels on videos, images, and audio posted on any of its platforms.  In addition, META said it will apply “digitally altered” labels to deceiving content.  At the same time, Reuters reported SHEL is in the final stages of negotiations to purchase of LNG trading firm Pavilion Energy.  (Saudi Aramco is also competing to buy Pavilion.)  Later, VLKAF (Volkswagen) CEO Blume told a German newspaper Friday that he wants to avoid “utopian goals” for the Chinese market, saying his company “cannot keep up” with other EV makers in that country and that anything more than 10% market share would be “very respectable.”  At the same time, Reuters reported three sources confirm that TSLA has canceled its long-promised inexpensive car after strong Chinese EV competition.  (Later, CEO Musk tweeted that “Reuters was lying.”  In other TSLA news, the company announced it will cut prices on its best-selling Model Y (long-range models) by at least $5,000 as it struggles with the largest car inventory it has ever had.

Elsewhere, JNJ agreed to buy SWAV in a $13.1 billion deal.  JNJ offered $335 per share (a 17% premium on the March-end price) as well as debt assumption.  At the same time, there was another twist in the PARA acquisition story.  CNBC reported the Skydance deal is more of a merger (as opposed to the rejected $26 billion APO offer to buy PARA).  In addition, Skydance would either become a majority shareholder or just a significant minority shareholder.  In either case, the deal would require PARA to raise $3 billion in new equity.  (Skydance already has a tentative deal in place to buy 77% of the voting shares of PARA from their current owner.)  After the close, CEO Musk said TSLA will unveil a “robotaxi” on August 8.  On Saturday, Reuters reported that AAPL laid off 600 workers (not at their Cupertino HQ), rumored to have been part of the company’s now canceled car project.

In stock legal and governmental news, on Friday, a new class-action lawsuit was filed against TSLA, alleging the carmaker of many wage law violations against both factory and warehouse workers.  The suit claims TSLA failed to pay overtime, provide breaks, or reimburse employees for work-related expenses.  Later, a US federal appeals court ruled 3-0 to revive a lawsuit against COIN by its customers who allege the exchange illegally sold them unregistered securities and failed to register as a broker-dealer.  At the same time, the FDA gave accelerated approval to an AZN drug to treat a type of solid tumor.  After the close, PG announced it is recalling 8.2 million defective bags of laundry detergent pods (Tide, Gain, Ace, and Ariel brands) due to a packaging defect that may pose a risk to children.  Also after the close, AAPL filed a motion urging a US appeals court to overturn a US trade tribunal’s decision to ban imports of some Apple Watches due to its infringement of a MASI patent.  Elsewhere, AAPL announced they will allow (were beaten by EU law) app store music streaming apps to link to those service’s own websites and inform users of ways other than the Apple App Store to buy digital services.  Later, a MO judge reduced a $1.56 billion verdict against BAYRY (Bayer = Monsanto) to $611 million after the trial that found the chemicals in their weed killer caused cancer in three people.  BAYRY said they would appeal this appeal.

Overnight, Asian markets were mixed but leaned to the green side with the notable exception of China.  Japan (+0.91%), India (+0.68%), and Taiwan (+0.39%) led the eight gaining exchanges higher.  Meanwhile, Shenzhen (-1.57%) and Shanghai (-0.72%) paced the four losing exchanges.  In Europe, the bourses are almost green across the board at midday with only one of 15 exchanges showing red…and barely red at that.  The CAC (+0.60%), DAX (+0.59%), and FTSE (+0.13%) lead the region higher in early afternoon trade.  In the US, as of 7:30 a.m., Futures are pointing to a flat start to the day.  The DIA implies a +0.02% open, the SPY is implying a dead flat open, and the QQQ implies a +0.06% open at this hour.  At the same time, 10-year bond yields have spiked to 4.446% and Oil (WTI) is off 0.79% to $86.20 per barrel in early trading.

The major economic news scheduled for Monday is limited to the NY Fed 1-Year Consumer Inflation Expectations survey (11 a.m.) and Fed member Kashkari speaks at 7 p.m.  There are no major earnings reports scheduled for before the open Monday and there are none at all scheduled for after the close.

In economic news later this week, on Tuesday we get API Weekly Crude Oil Stocks.  Then Wednesday, March Core CPI, March CPI, EIA Weekly Crude Oil Inventories, March Federal Budget Balance, and FOMC Meeting Minutes are reported.  Thursday we get Weekly Initial Jobless Claims, Weekly Continuing Jobless Claims, March Core PPI, March PPI, Fed Balance Sheet as well as Fed members Williams and Bostic speaking.  Finally, on Friday March Import Price Index, March Export Price Index, Michigan Consumer Sentiment, Michigan Consumer Expectations, Michigan 1-Year Inflation Expectations, and Michigan 5-Year Inflation Expectations are reported.  Fed member Bostic also speaks.

In terms of earnings reports later this week, on Tuesday, PSMT and WDFC report.  Then on Wednesday, we hear from DAL.  On Thursday, KMX, STZ, and FAST report.  Finally, on Friday, we hear from BLK, C, JPM, PGR, STT, and WFC.

In miscellaneous news, on Saturday, Treasury Sec. Yellen scolded China, saying they are treating America and other foreign countries “unfairly” in terms of trade.  In addition to complaining about Chinese protectionism, Sec. Yellen said that China is producing more of some products than the world economy can absorb (cheap exports).  Yellen also said that the US reserves the right to protect additional sectors (read additional tariffs, import bans, and potentially trade bans).  Yellen went on to recommend that China focus more on stimulating Chinese consumer spending than on subsidizing export product manufacture.  (I’m sure this as constructive criticism and sincere advice with no ulterior motives.)  Brazil, the UK, and Japan concurred with Yellen’s general drift accusing China of dumping exports on the world market at a loss to drive global competitors out of business.

In market expectations news, the Fedwatch tool shows us that as of this morning. 99.0% of Fed Fund Futures bets are on no change in rates at the next (May 1) FOMC meeting.  (The other percent are betting on a quarter-point rate cut at that time.)  The June meeting probabilities are showing 48.2% of contracts expecting no change by Mid-June.  However, 51.2% predict a quarter point cut on June 12 and 0.5% expect a half-point cut by then.  Even the July 31 meeting shows 30.3% of traders anticipate no change in rates by then, while 50.1% expect a quarter-point cut before August and 19.6% expect a half percent or more of cuts by that date.

In late-breaking news, early Monday it was announced that TSM will receive up to $6.6 billion in US grants as well as a potential loan of up to $5 billion as part of the CHIPS act.  The exact amounts are subject to what TSM actually invests in its new AZ chip fab plants.  (TSM has previously announced it would invest $65 billion in the project.  The company also already has contracts in place to supply AAPL and AMD from the facility once the new fabs come on line.)  Elsewhere, sticking to the theme of her trip, Treasury Sec. Yellen met again with Chinese officials Monday.  Yellen continued to push on the “over-capacity” in China’s industrial sector that is flooding global markets with under-priced (subsidized) Chinese exports.  Therefore, Yellen is pushing China to change its policy focus toward stimulating Chinese consumer demand rather than on full employment via infrastructure and industrial investment.  For their part, Chinese officials seem to be continuing to push back saying that deflation and banking system stability are what they see as their top risks.  Finally, SAVE announced Monday it will push off its planned 2025 and 2026 plane deliveries from EADSY (Airbus) and is laying off 260 pilots in an effort to shore up company liquidity.

With that background, it looks as if the market is undecided early Monday. All three major index ETFs are just on the green side of flat, but are near highs of the premarket. The SPY and QQQ are both retesting their T-line (8ema) in the early session, while DIA is not quite to the retest level. Still, all three remain below their T-line (8ema) at this point. So the short-term trend is bearish. Meanwhile, the mid-term remains sideways in a choppy consolidating range. Long-term, it has been and remains all Bulls all the time. In terms of extension, none of the major index ETFs are too far away from their T-line and the T2122 indicator remains in its mid-range. So, both sides still have plenty of room to run if they can find momentum. In terms of those 10 big dog tickers, six of the 10 are modestly in the red this morning. However, the two biggest big dogs are green with TSLA (+1.75% in the premarket) pushing. Finally, remember that earnings season starts again later this week and we have CPI on Wednesday. So, the early part of the week may be an indecisive waiting game.

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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