Waiting On CPI and Earnings

Markets gapped lower Tuesday as the Bears tried hard to deny the Bulls any follow-through on the Monday candles.  SPY opened 0.56 lower, DIA opened 0.54% lower, and QQQ opened down 0.74%. However, the Bulls stepped in right at the open to lead a rally (at least in the QQQ and SPY) that lasted until shortly after 1 p.m.  QQQ had recrossed the opening gap by 11:55 a.m. and continued higher while SPY recrossed its by 1 p.m. After that, both traded sideways with a slight bearish trend. Meanwhile, DIA just treaded sideways after the open, with a very slight bullish trend.  The action gave us white-bodied candles in the QQQ and SPY (both retesting and staying above their T-line) as well as a white-bodied Spinning Top in the DIA (which gapped below and did not cross back above its T-line). 

On the day, eight of the 10 sectors were in the red again with Energy (-1.31%) out in front leading the way lower while Consumer Defensive was dead flat and Technology (+0.09%) was the lone green spot on the board.  At the same time, the SPY lost 0.17%, DIA lost 0.44%, and QQQ gained 0.20%.  Meanwhile, VXX fell 2.30% to close at 14.84 and T2122 dropped back into the center of its mid-range at 45.00.  10-year bond yields were basically flat at 4.021% and Oil (WTI) climbed 2.05% to close at $72.22 per barrel.  On the day, we saw the significant gap lower but from that point forward the Bulls were in control all day.  This all happened on below-average volume in the SPY, DIA, and QQQ.

The economic news on Tuesday included November Imports were down, at $316.90 billion (compared to the October value of $323.10 billion, meaning there was a $6.20 billion reduction).  At the same time, the Nov. Exports were down a bit less at $253.70 billion (versus the October $258.60 billion, a $4.90 billion reduction).  This resulted in a Nov. Trade Balance that was a bit better than anticipated at $63.20 billion (compared to a forecast $65.00 billion deficit and an October deficit of $64.50 billion).  Then, after the close, API Weekly Crude Oil Stocks showed a much larger drawdown than was expected at -5.215 million barrels (versus a forecasted 1.200-million-barrel draw but not as much as the prior week’s 7.418-million-barrel drawdown).   

In Fed news, Vice-Chair Barr announced the end of the bank’s Term Funding Program (emergency loans initiated during the regional bank crisis).  Barr said financial stress s has been successfully eased and there is no immediate crisis in the banks sector.  He acknowledged concerns about banks coming to rely on the program as rates are cut later this year.  The program ends on March 11, a year after it was launched.  In a related story, GS analysts said Tuesday that they expect major bank profits to decrease 10% for Q4 when they begin reporting Friday.  GS attributed the decline in the forecast to a 15% fall in trading profits, higher payouts to depositors, and an unspecified increase in reserves for loan defaults.

After the close, PSMT beat on both the revenue and earnings lines.   At the same time, WDFC reported a massive miss on revenue and, at the same time, a huge beat on earnings ($140 million revenue versus $576 million forecast and $1.28/share earnings versus $1.00/share consensus forecast).

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In stock news, SSREY (Swiss Re, a major insurer of insurers) announced Tuesday that US insurers accounted for the bulk of 2023’s $95 billion in insured losses.  (The 30-year average of insured losses is $57 billion while the 10-year average is up to $90 billion due to climate change impacts).  At the same time, GE announced they have signed a record-setting deal to supply 674 large wind turbines to Canadian wind project developer Pattern Energy.  (Financial details of the “record-setting” deal were not disclosed.)  Later, Reuters reported that HPE is near to a $13 billion deal to buy JNPR with the deal to be announced as early as the next few days.  (JNPR ended the day 21.81% higher.)  At the same time, amidst all its problems related to the 737 MAX 9, BA announced its 2023 deliveries reached 528 aircraft, the most since 2018 (before its 737-MAX debacle of multiple crashes).  Elsewhere, UNP said Tuesday it is expecting a 24–48-hour delay in shipments as blizzards in the Midwest impact railroad operations.  In a related story, TSN announced it had closed meat processing plants in KS due to the storm.  Later, STLA, BB, and AMZN unveiled a collaboration product that allows “infotainment” to be streamed to vehicles 100 times faster than current methods.  At the same time, BLK announced the cut of roughly 600 jobs (3% of its workforce) but said the company expects a higher headcount by the end of 2024.  After the close, BA CEO Calhoun acknowledged the company’s “mistake” when speaking about the explosive decompression of an ALK flight on Sunday and subsequent loose bolts found on multiple airlines’ 737 MAX 9 jets.

In stock government, legal, and regulatory news, Reuters reported Tuesday that TSLA has lowered its guidance range, citing new tighter US vehicle-testing regulations.  As a result, TSLA cut the range estimates on all of its models.  (In the past, TSLA rigged the in-car algorithm to misreport miles left on a battery charge to assume absolute optimal conditions.  This stood in stark contrast to the stricter mileage standards traditional internal combustion vehicles have to follow.  In addition, in 2023 it was discovered that TSLA had created an internal team to suppress thousands and thousands of customer driving-range complaints.)  At the same time, 12 members of the UK parliament sent a public letter to the Chairman of the SEC, arguing that the US market regulator should block to listing of JBSAY (now pink sheet) on the NYSE.  Their reason is that the company is allegedly slowing efforts to curb global warming via deforestation.  Later, GOOGL presented its case in a Boston federal court to argue against computer scientists’ claims that the company should be forced to pay $1.67 billion for infringing patents related to the processors GOOGL uses to power AI applications.  At the same time, META announced it will hide more content from teens as regulators in the EU and US have pressed the company to protect children from harmful content.  (META says teens will, now, by default be placed under the most restrictive of their content-control settings.)  Elsewhere, Reuters reported that EU antitrust regulators are examining MSFT’s investment into OpenAI related to the EU merger rules.  (Interested parties have until March 11 to provide input and feedback related to the matter and its impact on competition before the investigation starts in earnest.)   Interestingly, China announced late Tuesday that one of its state-backed institutions has devised a way to identify users who send messages via AAPL’s AirDrop Bluetooth feature.  (It was not known what benefits China would get by announcing this crack, but the release could hurt AAPL since this feature is used globally by protesters, activists, and general iPhone users.)

Overnight, Asian markets were mostly red with only two of 12 exchanges in the green.  However, by far the biggest mover in the region was Japan (+2.01%).  Malaysia (-0.80%), South Korea (-0.75%), and Australia (-0.69%) paced the losses in the region.  Meanwhile, in Europe, a similar picture is taking shape at midday with only two of 15 bourses in the green.  However, again, by far the biggest mover is Portugal (+1.80%).  The CAC (-0.15%), DAX (-0.09%), and FTSE (-0.31%) lead the region lower in early afternoon trade.  In the US, as of 7:30 a.m., Futures are pointing toward a mixed, flat start to the day.  The DIA implies a -0.13% open, the SPY is implying a -0.04% open, and the QQQ implies a +0.07% open at this hour.  At the same time, 10-year bond yields are back down a bit to 3.998% and Oil (WTI) is up one-third of a percent to $72.45 per barrel in early trading.

The major economic news scheduled for Wednesday is limited to EIA Weekly Crude Oil Inventories (10:30 a.m.) and Fed member Williams speaks at 3:15 p.m.  There are no major earnings reports scheduled for before the open.  However, after the close, KBH reports.

In economic news later this week, on Thursday, we get Weekly Initial Jobless Claims, Weekly Continuing Jobless Claims, Dec. Core CPI, Dec. CPI, Dec. Federal Budget Balance, and the Fed’s Balance Sheet.  On Friday, Dec. Core PPI, Dec. PPI, and the WASDE Ag report are delivered.

In terms of earnings reports, the main thrust does not start again until the end of the week.  On Thursday, INFY reports.  Finally, on Friday, we hear from BAC, BK, BLK, C, DAL, JPM, UNH, WFC, and WIT.

In miscellaneous news, on Tuesday the CME announced it is rolling out new longer-horizon e-mini futures for both the S&P-500 and Nasdaq-100.  The new products will begin trading on January 29 and are intended to allow traders to trade around longer-term economic cycles.  They will feature quarter-end and year-end expirations.  Elsewhere, Moody’s reported that US office space vacancies rose to a record level in Q4 as 25 million square feet of new space came online, more people continue to work from home since the pandemic, and companies downsize operations to reduce costs.  The survey found that 19.6% of office space was empty in Q4.  (The prior record was 19.3% set twice in the past.)  Meanwhile, the SEC confirmed that its official X (formerly Twitter) account had been “compromised” (not due to a hack of X systems) and then a bogus tweet announcing the approval of Bitcoin ETFs had been sent.  While the real approval is widely expected sometime this week, the news caused a brief spike and the rebuttal caused a brief plunge in Bitcoin prices.  (The SEC specifically saying it was not due to a hack, tends to imply that this was just an early release of news that will come very soon.) Finally, in societal news, the UK publication The Guardian reported that newly released data shows that US police agencies killed a record 1,232 people in 2023.  (It is worth noting the statistics have only been gathered since 2013.)  Oddly, the increase in police violence comes even as US violent crime and especially murder rates declined a whopping 13% in 2023.  The increase in police killings was driven by disproportionate increases in rural geographic areas.

In government shutdown news, Republican Senators told reporters Tuesday that a “short-term continuing resolution” will be needed to avoid a government shutdown on January 19.  Senator Thune had told reporters that a CR through sometime in March would be needed for negotiators to finish and the Senate to act on the results.  House Speaker Johnson said he (and his House GOP caucus) would have a hard time swallowing that.  However, later, Senate Majority Leader McConnell told reporters “It was obvious.”  He went on to say, “The simplest things take a week in the Senate. So, I think the House doesn’t understand how long it takes to get something through the Senate.”  McConnell continued, “We’re going to have to pass a CR,” McConnell said. “We need to prevent a government shutdown.” 

In mortgage news, loan demand spiked 10% last week as rates for 30-year, fixed-rate, conforming loans (20% down) dropped from 6.81% to 6.76%.  (Closing points remained unchanged at 0.61%.)  Applications for new home purchase loans rose 6% but were still 16% lower than a year prior. At the same time, applications for refinance loans jumped 19% from the prior week and were 30% higher than a year prior. 

With that background, it looks like markets are indecisive this morning with all three major index ETFs printing candles in the premarket that are mostly wick. With that said, the QQQ did gap a bit higher and the body of those indecisive candles are white. DIA is also retestings its T-line (8ema) from below in the early session. So, the Bulls still have control of the short-term trend (again, mostly on the back of Monday’s strong white candles). However, it is not a done deal with the move not decidedly bullish yet. The longer-term bullish daily trend lines remain broken but there is no Bearish trend established yet. So, technically we are not yet in a downtrend. In terms of extension, none of the three major index ETFs are far from their T-line (8ema). At the same time, the T2122 indicator is now sitting in the middle of its mid-range. So, both the Bulls and Bears do have room to run if they can gather the momentum to do it. Continue to keep an eye on the Tech Big Dogs. After a week of seeming rotation out of those names, we saw money flood back into them Monday as a slew of new product announcements came out of the CES trade show in Las Vegas. For that matter, watch CES as Tuesday saw a slew of non-Big Dog product announcements such as a new EV line of cars from HMC. Either way those seven Big Dog to ten stocks decided to go, it will be hard for the market to do anything but follow.

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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