Virtual Friday With Payrolls Tomorrow

Markets diverged, and yet, acted strangely similar most of the day.  DIA opened dead flat, rallied the first 30 minutes, and then traded sideways in a tight range between the open and the 10 am highs the rest of the day.  SPY, gapped down 0.21%, traded sideways for 30 minutes, and then sold off for an hour.  However, from 11 am until the close it too traded sideways in a tight range.  For its part, QQQ gapped down 0.33%, sold off hard until 11 am, and then it too traded sideways in a tight range the rest of the day.  This action gave us a Bullish Harami candle in the DIA, an indecisive Doji in the SPY, and an indecisive (larger-bodied) Spinning Top in the QQQ.  All of the major indices remained above their T-line (8ema) with only the QQQ even testing that level.

On the day, five of the 10 sectors were in the green with Utilities (+2.22%) leading the way higher while Consumer Cyclicals (-1.62%) lagged the other sectors.  At the same time, the SPY lost 0.26%, DIA gained 0.26%, and QQQ lost 0.99%.  VXX lost 0.92% to 44.26 and T2122 fell but remains in the mid-range at 56.00.  10-year bond yields fell again to 3.309% while Oil (WTI) was flat at $80.61 per barrel.  So, on Wednesday we saw divergence as money sought safety.  The mega-cap DIA gained ground while the tech-heavy QQQ lost a percent. SPY fell somewhere in the middle, hurt by the big tech names and helped by the mega-caps.  All of this happened on less-than-average volume in the DIA and SPY but just above-average volume in the QQQ.  

In economic news Wednesday, the March ADP Nonfarm Employment Change came in far below expectations at +145k (compared to a forecast of +200k and a Feb. reading of +261k).  Later, the February Imports and Exports both came in above expectation but still below the January readings at $251.15 billion Exported and $321.70 billion Imported (versus forecasts of $250.40 billion for Exports and $319.40 billion for Imports but still down from the January Exports of $258.10 billion and Jan. Imports of $326.70 billion).  This left the February Trade Balance at -$70.50 billion compared to a forecast of $69.00 billion and a January deficit of $68.70 billion.  After the open, the March S&P Global Composite PMI came in one point below forecast at 52.3 but still better than the February reading at 50.1.  The March US Services PMI also came in light at 52.6 (versus a forecast of 53.8 and a February value of 50.1).  Meanwhile, the March ISM Non-Mfg. PMI reported below expectation at 51.2 (compared to a forecast of 54.5 and the Feb. reading of 55.1).  Finally, the Weekly EIA Crude Oil Inventories fell 3.739 million barrels, which was more than the expected 2.329-million-barrel drawdown but still far below the prior week’s 7.489-million-barrel drawdown.

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In stock news, WMT said Wednesday that it is seeing sustained pressure from inflation that is impacting its customers.  As a result, it plans to slow its pace of hiring.  (This is a day after WMT laid off 2,000 fulfillment center employees in an effort to reduce the cost of package processing by 20% via automation.)  At midday, data from an engineering consortium (MLCommons) showed that flagship artificial chips from QCOM beat the best chips from NVDA in two out of three measures of power efficiency.  (The cost of electricity is a major factor in AI technologies.)  However, NVDA chips took the top spot in terms of absolute performance.  Meanwhile, STLA joined the electric truck market by unveiling the Ram 1500 REV, which will debut in late 2024 as a 2025 model truck. This will be two years after the debut of F’s F-150 Lightning and a year after the GM electric Silverado (due out this fall).  Later in the day, Reuters reported FDX will consolidate its FedEx Ground, outsourced package delivery unit and overnight Express air delivery businesses to cut costs and better compete with UPS and AMZN.  After the close, COST reported that comparable store sales fell by 1.1% (led by a 1.5% decline in the US and a 2.4% decline in Canada) in March.  Elsewhere, ABBV lowered its Q1 and full-year guidance a few weeks before it reports (4/27).

In stock legal and regulatory news, F and STLA both said that new rules from the US Treasury Dept. will cut EV tax credits on most of their electric and hybrid models.  Later the US EEOC filed a “friend of the court” brief backing an appeal by a UBER driver that claims passenger ratings can be biased and were used by the company to kick out non-white drivers at a higher rate than whites.  On the day, JNJ stock soared on what is still just a company-proposed $8.9 billion settlement of 40,000 lawsuits.  (Approval of the JNJ proposal requires 75% of the 60,000 plaintiffs to accept.)  At the close, GS was fined $3 million by FINRA for “mismarking” short orders for 14 billion shares when it reported its trades.  This covered 12,335 trades.  Elsewhere, the FDIC announced it has retained BLK to sell securities it holds in receivership after the collapse of SBNY.  At the same time, CMG filed suit against SG for trademark infringement. 

In miscellaneous news, Speaker of the House McCarthy and a bipartisan group of US Congressmen met with Taiwanese President Tsai on Wednesday during her “transit of the US.” (Called such because China would not like her “visiting” the US.)  Regardless of the diplomatic labeling, China protested loudly and vowed a strong response.  In other China news, AAPL has been secretly (and not so secretly) working to move the bulk of their production out of China and into India in the last six months or so.  Even bringing their main manufacturer (Foxconn) with them.  This is not just AAPL, but a major trend where the Chinese economy has grown enough that its people are a bit less desperate and beginning to demand better conditions and most importantly to corporations, pay.  Vietnam and India seem to be “the winners” in that shift.  However, according to Bloomberg today, EADSY (Airbus) is bucking that trend by opening a new jet manufacturing factory in China.   Meanwhile, Mexico reported that its consumer inflation fell more than expected in March, reaching an 18-month low annual rate of 6.85%.  This was down from a 7.62% annual rate in February.  The question is whether this news bodes well for the US economy?

Overnight, Asian markets were mostly in the red.  South Korea (-1.44%), Thailand (-1.44%), and Japan (-1.22%) led the region lower while Hong Kong (+0.28%) was the “big winner” on the day.  However, in Europe, the bourses are leaning strongly to the green side at midday.  Only, Norway (-0.48%) and Denmark (-0.33%) are in the red as the CAC (+0.31%), DAX (+0.35%), and the FTSE (+0.76%) lead the region higher in early afternoon trade.  In the US, as of 7:30 am, Futures are pointing to another mixed and flat start to the day. The DIA implies a +0.04% open, the SPY is implying a +0.01% open, and the QQQ implies a -0.20% open at this hour.  At the same time, 10-year bond yields are down to 3.285% and Oil (WTI) is just on the red side of flat at $80.49/barrel in early trading.

The major economic news events scheduled for Thursday are limited to Weekly Initial Jobless Claims (8:30 am), Fed Balance Sheet and Bank Reserve Balances with Federal Reserve Bank (both at 4:30 pm).  The major earnings reports scheduled for the day include Wednesday, we hear from LW, STZ, RPM, and LEVI before the open.  There are no earnings reports scheduled after the close.

In economic news later this week, on Friday, US markets are closed but March Avg. Hourly Earnings, March Nonfarm Payrolls, March Participation Rate, March Private Nonfarm Payrolls, and the March Unemployment Rate are reported.

There are no earnings reports scheduled for Friday.

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So far this morning, RPM has reported beats on both the revenue and earnings lines., including a 23% upside surprise on the earnings line.  However, RPM also lowered its forward guidance.  Meanwhile, STZ reported 25 minutes late this morning for some reason, missing on revenue while beating on earnings.  STZ also raised its guidance. LEVI is just scheduled for “before the open” and LW reports at 8 am.

With that background, at least in the premarket, the consolidation is continuing. It appears the QQQ will retest its T-Line (8ema) this morning. However, the two large-cap indices just seem to be hanging out at the moment. As I suggested yesterday, it could be that with March Payrolls data coming out while the market is closed Friday, traders want to just wait and see what Monday brings. Overall, the price action still looks like nothing more than a modest pullback and consolidation in a bullish trend. The most concerning of the major indices is QQQ which has pulled back the most and is testing its strong bullish uptrend line. However, you’d be hard-pressed to look at the chart and say the bears are in control in anything but the very short term. Obviously, being this close to the T-line, overextension is not an issue now, either in terms of T-line (8ema) or the T2122 indicator. Again, keep in mind that markets will be closed and you will not be able to react to March Payrolls data until Monday. So, be prepared for the 3-day weekend.

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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