Ukraine Air Defense and TGT Q4 Warning

Markets gapped strongly higher at the open Tuesday (+1.50% in the SPY, +0.82% in the DIA, and a whopping +2.48% in the QQQ) after PPI and the NY Fed Mfg. Index both came in much better than expected (from a market perspective). From there, all 3 major indices waffled sideways in a fairly tight range until just before noon.  At that point, a slow selloff took us slowly to the lows of the day (as of then) at about 1 pm.  Then at 1:10 pm, 2 missiles (presumed Russian and likely intended for Ukraine) struck a Polish village a few kilometers inside Poland, killing 2 Polish civilians.  Poland called an emergency National Security Council meeting to talk about their response. This caused a strong and immediate selloff across all 3 major indices as traders feared escalation of the war to involve NATO.  This hard selloff recrossed the morning gap and reached the lows of the day by 2 pm when a bounce kicked in that regained about two-thirds of the losses seen in the afternoon by 3:30 pm and then ground sideways into the close. 

On the day, this action is giving us gap-up, black-bodied Spinning Top type candles across all 3 major indices.  (With a little larger body in the QQQ.)  Nine of ten sectors were in the green, led by the Technology sector (+2.57%) while Communications Services (-0.73%) lagged.  At the same time, the SPY gained 0.85%, the DIA gained 0.13%, and the QQQ gained 1.38%.  The VXX rallied 1.3% to 17.20 and T2122 spiked back up into the overbought territory at 91.70.  10-year bond yields fell down to 3.777% and Oil (WTI) spiked 1.21% to $86.91 per barrel.  So, overall Tuesday was a volatile day punctuated by premarket economic news (which is taken as good by the market under the assumption it will cause the Fed to ease up) and bad afternoon geopolitical news (which the market briefly took as bad under fear of war expanding in Europe).

In economic news, the NY Empire State Manufacturing Index came in at +4.50, which was significantly higher than the forecasted value of -5.00 and very much improved from the October reading of -9.10.  This positive value indicates improving business conditions.  At the same time, October PPI came in at +8.0% (year-on-year) which, like CPI last week, was well below the forecasted value of +8.3% and much better than the September reading of +8.4%.  More importantly, the Core PPI (stripping out energy and food) was up just +6.7%, a full half percent below the forecast of +7.2% and much lower than the September value of +7.1%.  Again, this indicates the growth of inflation is easing by a considerable amount, which led traders to believe the Fed may reduce the size of the rate hike it does in December.  In the afternoon, the Fed reported that US Household Debt rose at the fastest pace in 15 years during Q3 (+$351 billion). This increase was mostly due to credit card usage and mortgage balances.

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In energy news, TRP announced after the close that it has declared Force Majeure and will be required to reduce the volume of oil shipped through the Keystone pipeline (that ships oil to the Midwestern US) due to recent severe weather events.  No details were given on the amount of the reduction or the duration of the slowdown.  However, industry analysts said the reduction was about 7% of the normal 622,000 barrels per day volume.  The API reported after the close that US oil inventories dropped much more than expected last week (a 5.8 million barrel drawdown, compared to a forecast 400k barrel drawdown).  However, gasoline inventories rose by 1.7 million barrels and distillate stocks increased 850k barrels.

In stock news, activist investors TCI Fund publicly urged GOOGL to cut headcount to lower losses at the company’s Waymo self-driving unit after noting that this unit had increased headcount 20% per year since 2017.   Elsewhere, AN announced Tuesday that it has acquired a 6.1% stake in automotive digital marketplace TRUE.  Meanwhile, Jim Farley, CEO of F, said the company will need to bring much more work in-house (eliminating the need for many suppliers) in order to preserve jobs.  The underlying problem for the F workforce is that it takes 40% less labor to build an electric vehicle and the underlying problem for F is that paying profit to suppliers reduces margins in comparison to TSLA (which makes most of its own parts).  In regulatory news, the SEC has delayed its decision on whether to approve an Ark21 (spot Bitcoin) ETF until Jan. 27.  In the late afternoon, Reuters reported that CG is in talks trying to form a partnership to acquire HPN for between $8-$10 billion.  Finally, in legal news, INTC was hit with a $949 million judgment by a Texas court Tuesday for infringing the patents of Softbank subsidiary VLSI.  Earlier in the day, it was reported that GS paid $12 million to a former partner over the charge of creating a “toxic workplace for women” including vulgar remarks by the CEO.  The settlement took place two years ago but was hidden by a nondisclosure agreement.

In miscellaneous news, the New York Fed announced it is starting a 12-week pilot project for the “digital dollar.”  The pilot will include participation by C, MA, and WFC among other financial institutions.  Elsewhere, Consumer Reports ranked TSLA worst out of 24 brands of electric vehicles in terms of reliability in the US.  In currency news, the missile strikes in Poland caused very volatile Forex trading Tuesday.  The Euro was down dramatically against all pair partners and the USD swung wildly against the Yen and British Pound.  Finally, in Supply Chain news, the Port of Los Angeles reports that October volumes at the busiest US seaport fell to the lowest level since 2009.  The imports were down 28% from a year earlier and empty container handling fell more than 25% during the month.

After the close, AAP reported a beat on revenue while missing on earnings.  The company also lowered its forward guidance.  Meanwhile, GSM reported misses on both the top and bottom lines.  So far this morning, LOW, ARCO, and ZIM have reported beats on both the revenue and earnings lines.  Meanwhile, TGT beat on the revenue line while missing on earnings.  On the other side, TJX missed on revenue while beating on earnings.  It is worth noting that LOW raised its forward guidance and ZIM lowered its own forward guidance.

Overnight, Asian markets were mostly in the red on mostly modest moves while the second day of the G-20 summit continued in that region.  Shenzhen (-1.02%), Thailand (-0.58%), and Hong Kong (-0.47%) led the way lower. Meanwhile, only Japan (+0.14%) and India (+0.03%) managed to hang on to green territory.  In Europe, we see a very similar picture taking shape at midday.  After it was decided the missiles in Poland were likely caused by Ukrainian Air Defense misses (trying to shoot down Russian missile attacks), things have settled a bit.  The FTSE (-0.03%), DAX (-0.95%), and CAC (-0.48%) are typical of the region.  However, a couple of the smaller exchanges are down more than 1% in early afternoon trade.  As of 7:30 am, US Futures are now pointing toward an open just on the red side of flat.  The DIA implies a -0.08% open, the SPY is implying a -0.11% open, and the QQQ implies a -0.19% open at this hour.  At the same time, 10-year bond yields are down to 3.768% and Oil (WTI) is off just a fraction at $86.77/barrel in early trading.

The major economic news events scheduled for Wednesday include October Retail Sales and October Import/Export Price Indexes (both at 8:30 am), October Industrial Production (9:15 am), September Business Inventories and Sept. Retail Inventories (both at 10 am), and EIA Weekly Crude Oil Inventories (10:30 am).  We also have a Fed speaker (Williams at 9:50 am).  The major earnings reports scheduled for the day are ARCO, LOW, TGT, TCEHY, TJX, and ZIM before the open. Then, after the close, BBWI, CSCO, CPA, HP, HI, NVDA, and SONO report.

In economic news later this week, on Thursday, we get October Building Permits, October Housing Starts, Weekly Initial Jobless Claims, and Philly Fed Mfg. Index.  Finally, on Friday, October Existing Home Sales are reported.

In earnings reports later this week, on Thursday, we hear from BABA, BJ, BV, DOLE, KSS, M, NTES, WB, AMAT, FTCH, GPS, KEYS, PANW, POST, ROST, WSM, and WWD report.  Finally, Friday, we hear from FL, JD, and SPB.

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With yesterday afternoon’s immediate threat (expanding war in Europe) mostly lessened, US markets turn back toward earnings and the economy. This morning, TGT warned it sees a weak holiday coming this year, but this is likely due to it having large inventories that will need to be discounted heavily in order to be sold. On the other hand, just like competitor HD, LOW raised its Q4 guidance saying that it expects a strong Q4. (Maybe more of Santa’s gifts are coming from the hardware store this year.) Also, yesterday we saw more evidence that inflation may be slowing (which could mean the pace of hikes by the Fed also eases up…and the market would love that). At any rate, tensions have eased a bit and retail earnings up to this moment are mixed at worst.

With this background, what we know for sure is that the trend is bullish and yesterday’s pullback did not break the recent range, let alone the trend. However, it did lessen extension from the T-line (8ema) just a bit. We also know that price moves in a lightning bolt, zig-zag pattern. And, once again, our zig is still in need of a zag if we are going to sustain a bullish move higher. Can Mr. Market overcome that need, sure…but only in the short-term. So, even if the bulls rule the day, don’t expect this to be a vertical rally. Normal rallies need pullbacks and there are also a lot of bears out there that still believe Q1 and Q2 will be terrible and the market should fall more to account for this fact. In addition, we still have more retail name (lesser ones) reports coming later this week. So, caution is still warranted, but so far it is looking like the consumer may still hold up (at least through year-end).

So, continue to be deliberate and disciplined…but don’t be stubborn. Remember it’s 100 times more important to avoid big mistakes than it is to pick big winners. If you have a loss, admit you were wrong and take that loss before it gets out of hand. And when price does move in your direction, always move your stops in your favor and take a little profit off the table. You have to remember the “Legend of the man in the green bathrobe“…in that situation, it is NOT HOUSE MONEY you’re betting, it’s YOUR MONEY! And there is absolutely no reason to keep raising your bet (risk) just because you’ve had a win. Finally, keep in mind that trading is not a hobby. It’s a job. The money is real. So, you have to 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: PLUG, EL, GOLD, META, SBLK, VALE, and GFI. 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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