The large-cap indices opened flat on Tuesday and then meandered sideways in a fairly narrow range on either side of the breakeven point the rest of the day. However, QQQ opened down a quarter of a percent and preceded to sell off hard the first 30 minutes of the day. Then it followed the large-cap lead by trading sideways in a fairly narrow range near the lows of the day right into the close. DIA managed to hold above its 50sma after a retest as well as holding its T-line (8ema). Meanwhile, SPY managed to hang onto the support level it has been leaning on for a week. This action left us with an indecisive Doji in the DIA, an indecisive Spinning Top type candle in SPY, and a large, black-bodied candle with a small lower wick in the QQQ. This all happened on very low volumes.
On the day, six of the ten sectors were in the green with Communications Services (+0.54%) leading the way higher as the Technology sector (-1.09%) lagged behind. Meanwhile, the SPY was down 0.39%, the DIA gained 0.13%, and the QQQ was down 1.41%. At the same time, the VXX is flat at 14.34 and T2122 fell but also remains in the mid-range at 35.40. 10-year bond yields surged up to 3.847% and Oil (WTI) was up fractionally to $79.81 per barrel. So, overall, it was a dead day between the holidays with the exception of a morning selloff in the high-tech QQQ. Chief among the reasons for the QQQ selloff was another brutal -11% day for TSLA and 7% down day for NVDA.
In economic news, the November Goods Trade Balance came in better than expected at -$83.35 billion (compared to a forecast of -$96.90 billion and October’s reading of -$98.80 billion). Meanwhile, the November Retail Inventories fell by 0.3% (not as big of a drop as in October, when Retail Inventories dropped 0.7%). After the close, Reuters reported that the Case Shiller national home price index increased 9.2% in October, which was the first single-digit gain in more than two years (+10.7% in September). At the same time, Fannie Mae and Freddie Mac said the annual home price growth slowed to 9.8% for October (down from +11.1% in September). So, housing prices continued to outpace inflation in the fall, but the increases are slowing.
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In stock news, on Monday, NIO lowered its guidance for the number of vehicles it will deliver in Q4. They lowered the estimate from 43,000-48,000 down to 39,000, citing covid-related supply chain disruptions. Elsewhere, a portion of ATVI’s workforce (the group from the studio named Proletariat, who created the World of Warcraft game, that ATVI recently acquired) have voted to unionize. MSFT is still fighting to purchase ATVI, but the FTC is fighting that MSFT acquisition for antitrust reasons. Meanwhile, LUV remains under fire from the US DOT (and the public) after canceling another 2,589 flights Tuesday, which was 30 times more cancellations than the airline with the second-highest number of canceled flights.
In miscellaneous news, the Wall Street Journal reported Tuesday that the FDA is now planning to make recommendations on the regulation of products containing CBD (a non-psychoactive cannabis component). The decision will come in the next couple of months and depending on that decision new agency rules or Congressional actions may be required for the next step. Elsewhere, US refineries across the Southeast and Gulf Coast began after a pipeline outage over Christmas shutdown a 500k barrels per day supply from North Dakota and last week’s winter storm caused refinery shutdowns in Texas, Louisiana, and Mississippi. Finally, ECB Vice President de Guindos told Bloomberg that mild temperatures November-December, along with high winds (which aid European wind power generation), have eased the economic outlook across Europe. However, he went on to say 2023 will be difficult as the ECB forecasts inflation will fall to 3% by the end of next year while GDP is forecast to remain under 1%.
In China news, as has been reported for weeks now, the wave of covid cases across that country is building to epic levels since their dropping of restrictions. Hospitals in several regions (including the manufacturing and supply chain hub of Shanghai) are stretched to the limits. It has gotten to the point where the government has simply stopped providing numbers again and all anyone has to go from is images of stacks of corpses all over crematoria and hospitals, patients being treated sitting in hospital halls, and anecdotal reports from doctors who say they are overwhelmed and 35% of medical staff continue working even though they too are sick. With that backdrop, Taiwan, Japan, the US, and Europe are now considering new travel restrictions that will ban flights, require negative tests, and/or impose quarantines again on travelers coming from China.
Overnight, Asian markets were mostly in the red. Hong Kong (+1.56%) was an outlier with a three other small winning exchanges. At the same time, South Korea (-2.24%), Taiwan (-1.08%), and Shenzhen (-0.86%) led the rest of the region lower. However, in Europe, with the exceptions of Russia (-0.51%) and Greece (-0.19%), we see green across the board at midday. The FTSE (+0.94%), DAX (+0.10%), and CAC (+0.24%) are leading the region higher in early afternoon trade. As of 7:30 am, US Futures are pointing toward a modestly green start to the day. The DIA implies a +0.29% open, the SPY is implying a +0.26% open, and the QQQ implies a +0.20% open at this point. At the same time, 10-year bond yields have fallen to 3.82% and Oil (WTI) is off three-tenths of a percent to $79.30/barrel in early trading.
The major economic news events scheduled for Wednesday are limited to November Pending Home Sales (10 am) and the API Weekly Crude Oil Stocks Report (4:30 pm). The only major earnings report scheduled for the day is CALM before the open. There are no earnings reports scheduled for after the close.
In economic news on Thursday, the Weekly Initial Jobless Claims and EIA Weekly Crude Oil Inventories are reported. Finally, on Friday, we get the Chicago PMI.
This is an extremely light week for earnings with no reports scheduled for either Thursday or Friday.
With that background, it looks like, of the three major indices, only DIA is moving in premarket. (The other two are gapping slightly, but indecisive in their premarket action.) However, the DIA is now at a retest a resistance level, just above its upturning T-line (8ema). Meanwhile, is stuck in the body range of the prior three daily candles (below its T-line) and the QQQ is just trying to hold on after an awful day by TSLA and NVDA helped drag that index lower Tuesday. Over-extension is not a problem yet in any of the major indices. However, the very light volume of a holiday-sandwiched short week can exaggerate market moves. So, don’t go chasing too many new positions unless you can get in and out very quickly or you are willing to ride the trade through the new year.
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.
Swing Trade Ideas for your consideration and watchlist: PAGS, VTNR, and WTI. 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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