Trend Still Bullish As We Wait on CPI

Markets gapped lower on Monday, in a divergent manner.  The SPY opened down 0.62%, DIA gapped down 0.29%, and QQQ gapped down 0.90%.  However, after that open, the bulls stepped in to lead a long, slow, rally that steadily took us higher until 3 pm.  At that point, we saw a sideways grind in a very tight range for the last hour in all three major indices.  This action gave us a white-bodied candle that bounced up off the T-line (8ema) in the SPY.  DIA also printed a white-bodied candle with tiny wicks on each end.  Meanwhile, the QQQ printed a white-bodied candle that started below the T-line, had a larger lower wick, and closed back above the 8ema on an overall inside day candle.  With that said, you can definitely see that the DIA (and perhaps the other major indices) are in a Bull Flag pattern.

On the day, eight of the 10 sectors were in the green with the Industrials (+01.13%) leading the way higher while Healthcare (-0.07%) lagged and was the only sector more than a few ticks into the red.  At the same time, the SPY gained 0.10%, DIA gained 0.32%, and QQQ lost 0.06%.  VXX fell almost 1% to 43.06 and T2122 climbed back into the overbought territory at 87.79.  10-year bond yields climbed strongly all day to close at 3.421% while Oil (WTI) was down more than a percent to $79.80 per barrel.  So, on Monday we saw a significant gap lower, met by all-day buying in what turned out to be a bear trap.  All of this happened on well less-than-average volume in all three major indices.   

In stock news, AMC reported all-time high US Easter weekend revenue, saying that 3.6 million people bought movie tickets over the three days.  Meanwhile, Chinese (and Warren Buffett-backed) electric car maker BYD launched a new suspension system in an effort to take the brand upscale.  The system will be similar to the Porsche and Mercedes Benz luxury ride control features.  In M&A news, TECK again rejected the unsolicited $22.5 billion bid from GLNCY, telling its shareholders the offer was an illusion and management’s restructuring plan is the only viable option.  However, PXD shares rose on reports that XOM has held preliminary talks about buying the company.  (PXD is the third-largest Permian Basin oil producer after CVX and COP).  Elsewhere, workers at a TSN poultry plant went on strike demanding better working conditions.  (Since TSN announced it will close that plant in May, many employees have left, which leaves the remaining employees in tougher conditions and long hours.)   Finally, it was reported Monday that global personal computer sales plunged in Q1. AAPL took the biggest hit with the sale of Macs dropping more than 40% during the quarter. This was far worse than the next-worst-hit Dell whose sales fell 31% in the first three months of 2023.

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In stock legal and regulatory news, it didn’t take long for TSLA to be hit with a class-action lawsuit after reports surfaced at the end of last week that TSLA employees were sharing images and video recorded by TSLA cars from 2019 to 2022.  No dollar amount has yet been assigned to the case.  Elsewhere, BIDU sued AAPL (as well as relevant app developers) over fake copies of BIDU’s AI “Ernie bot” being sold through the AAPL App Store.  Meanwhile, the US CFTC announced GS has agreed to pay $15 million to the US Commodity Futures Trading Commission over charges GS had failed to make proper disclosures and communicate fairly with swap customers.  At the same time, the FTC opened a new front in its fight to stop ICE from buying BKI.  This time the FTC has asked a federal court for a preliminary injunction to halt the deal while its internal administrative process moves forward.  (ICE and BKI had planned to proceed with the deal after an April 28 vote, despite the FTC opposing it.)

In miscellaneous news, Reuters reports that solar panel installers like SPWR and RUN are bracing for an expected steep drop-off in demand in CA.  The state has new solar reimbursement rules taking effect this week (April 15) which will reduce the electric reimbursement rates significantly.  Meanwhile, in banking news, Bloomberg reported Monday that there are signs that the banking system issue is easing.  Specifically, in the last week of March, the Federal Home Loan Bank system (known as the “lender of next-to-last resort”) had a sharp decline in home loans it issued.  For that week, FHLB loaned $37 billion, a sharp decline from the record $304 billion it had loaned just two weeks earlier. This signals that the member banks had less of a need for liquidity.  The report also noted that FHLBs had issued far fewer bonds that week, just $19.8 billion, well down from the $151 billion issued the week SIVB was put into receivership.  Both of these are signs that loan-originating banks are not as strapped for cash and fell they have the liquidity to underwrite loans on their own.

Despite the improved bank liquidity situation reported above, the NY Fed came out with a lagging report from March on Monday. The survey found that more than 58% of those responding reported that it is harder to get credit than it was in March 2022. That level was the highest on record but it is critical to remember this survey has only existed since mid-2013. (So, less than 10 years.) The less useful part of the survey found that 53% of those responding expect credit to be even harder to get a year from now and expressed a possibility that they may miss a debt payment within the next three months.

Overnight, Asian markets were nearly green across the board. Only Shanghai (-0.05%) was in the red while South Korea (+1.42%), Australia (+1.26%), and Japan (+1.05%) led the rest of the region higher.  In Europe, we see the same picture taking place at midday with no red on the board at all.  The CAC (+0.86%), DAX (+0.49%), and FTSE (+0.26%) are typical and leading the region higher in early afternoon trade.  In the US, as of 7:30 am, Futures are pointing toward another mixed and nearly flat start to the day.  The DIA implies a +0.12% open, the SPY is implying a +0.09% open, and the QQQ implies a -0.10% open at this hour.  Meanwhile, 10-year bond yields a down a bit to 3.402% and Oil (WTI) is just on the red side of flat at $79.67/barrel in early trading.

The major economic news events scheduled for Tuesday are limited to the WASDE Ag Report (noon) and API Crude Oil Stocks Report (4:30 pm).  However, we do hear from two Fed more members (Harker at 4 pm and Kashkari at 7:30 pm).  Major earnings reports scheduled for the day are limited to ACI and KMX before the open. Again, there are no earnings reports scheduled after the close.

In economic news later this week, on Wednesday, March CPI, EIA Crude Oil Inventories, March Federal Budget Balance, and the FOMC Meeting Minutes are released.  On Thursday, March PPI and Weekly Initial Jobless Claims are reported.  Finally, on Friday, March Retail Sales, March Import/Export Price Indexes, March Industrial Production, Feb. Business Inventories, Michigan Consumer Sentiment. Feb, and Retail Inventories are reported.

In terms of earnings reports later this week, on Wednesday, there are no major reports.   Thursday, we hear from, DAL, FAST, INFY, and PGR.  Finally, on Friday, BLK, C, JPM, PNC, UNH, and WFC report.

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In mixed-bag news, Warren Buffett told Nikkei that he has raised his holdings of Japanese company stocks by almost 50% since 2020 (up 2.4% from 5% of his overall portfolio). Buffett also said he is looking to increase his exposure to Japan, although no specific target companies were named. Meanwhile, Bloomberg reports that in Switzerland, lawmakers are beginning to scrutinize the government’s move that agreed to provide up to $120 billion in taxpayer money to support the UBS takeover of CS. (Swiss lawmakers really can’t do anything to stop the deal at this point. However, they expect to make political hay and apparently hope to revamp the country’s “too big to fail” rules.)

So far this morning, KMX missed on revenue while absolutely blowing away the earnings line (a 100% upside surprise on earnings).  ACI (KR acquisition target pending regulatory approval) reports at 8:30 am.

With that background, at least in the premarket, it looks like the consolidation continues in the major indices. Perhaps traders are waiting on CPI data or need to hear from the big banks as earnings season starts again on Friday. The SPY, DIA, and QQQ all sit just below their rising 3ema and just above their rising T-line (8ema), thus indicating that the short-term bullish trend remains in play. In turn, those 8emas are all sitting above a rising 17ema, which indicates a longer-term bullish trend. Longer-term, all three of the 34emas are rising and the 50sma of the SPY and QQQ are sloping upward as well. Only the DIA has a falling 50sma. So, putting fear and prediction aside, the chart is telling us it is bullish. It is also not over-extended in terms of the T-line. However, the T2122 indicator is back in the overbought territory. Make of that what you will. Personally, I’ve never been good enough to pick a top or bottom. So, all I can do is trade with the trend and cautiously watch for breaks of the trendline. That’s what I’ll do here too.

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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