Waiting on NVDA

On Tuesday, markets started off flat and mixed. SPY opened down 0.13%, DIA started up 0.03%, while QQQ gapped down 0.44%.  At that point, all three major index ETFs drifted higher, slowly until 11:25 a.m.  From there, all three meandered sideways in a tight range until 1:25 p.m. when all three started a very slight uptrend that lasted the rest of the day.  This gave us white body candles in all three major index ETFs.  The QQQ was a Marubozu (Shaved Head) while SPY nearly did the same but ended up wit small wicks at both ends.  However, DIA ended up a white-bodied Spinning Top Bull Harami candle.  Both SPY and QQQ gave us new all-time high closes, but only QQQ printed an actual new all-time high.  Of course, that means all three major index ETFs also remain well above their T-line (8ema).

On the day, seven of the 10 sectors were in the red with Communications Services (-0.52%) leading the majority lower.  At the same time, Utilities (+0.75%) was out in front leading the green sectors higher.  Meanwhile, SPY gained 0.25%, DIA gained 0.17%, and QQQ gained 0.20%.  VXX fell 1.67% to close at very low 11.19 and T2122 fell back further into its mid-range at 68.42.  In other markets, 10-year bond yields fell to 4.414% and Oil (WTI) fell 0.93% to close at $79.06 per barrel.  So, overall, Tuesday was another day of consolidation.  While SPY and QQQ did print new all-time high closes, most of the day was spent inside the prior candle body.  All of the gains were also a quarter percent or less.  This consolidation can also be seen in the pullback of T2122.  The bottom line is that despite the green on the board, markets were basically resting.  Once again, this all happened on well below-average volume across all three major index ETFs.

The major economic news scheduled for Tuesday was limited to API Weekly Crude Oil Stocks, which showed an unexpected increase of 2.480 million barrels.  This should be compared to a forecast calling for a 3.100-million-barrel drawdown, which was also the prior week’s reading.)

In Fed news, on Fed Governor Waller indicated he didn’t see a rate hike in the cards and believes inflation has begun slowing again.  However, he also said the economy is far from ready to support a rate cut.  Waller said, “Central bankers should never say never, but the data suggests that inflation isn’t accelerating, and I believe that further increases in the policy rate are probably unnecessary.”  He continued, “The economy now seems to be evolving closer to what the Committee expected. Nevertheless, in the absence of a significant weakening in the labor market, I need to see several more months of good inflation data before I would be comfortable supporting an easing.” At the same time, Atlanta Fed President Bostic made a similar point, saying it’s better to wait than bounce around with rate hikes and cuts.  Bostic said, “It is in our interest to not start bouncing around … For me, I’d rather wait longer to make sure that doesn’t happen.”  He continued, “We need to make sure that when we start on that path (rate cuts), it’s unambiguous that inflation is going to get to 2% … and it may mean that it has to happen later.”  Later, Fed Vice Chair Barr reiterated Bostic’s point, saying “For me at least, that means we need to sit tight where we are for longer than we had previously thought … we need to see more evidence of continued progress on inflation for us to be in a position where we could think about adjusting the policy rate.”   After the close, Cleveland Fed President Mester said she is expecting to see “above trend” economic growth in 2024.  That being the case, she said, “Keeping rates restrictive is not a big risk, especially given the strength of the jobs market.”  She also said that the current Fed rate “policy is well positioned, we’ll need to monitor data.”

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After the close, URBN reported a beat on both revenue and earnings.  Meanwhile, MOD, TOL, VSAT, and XP all beat on revenue while missing on earnings.  However, SKY missed on both the top and bottom lines.

In stock news, on Tuesday, Bloomberg reported that both TSM and ASML have tools built into the chip-making technology they have sold China over the years that would allow the companies to remotely disable that equipment if China ever invaded Taiwan.  At the same time, despite Reuters reports, SPT announced it has no plans to sell or take the company private.  (SPT was down almost 9% on the news, but rebounded to close the day down 2.39%.)  Later, HOOD announced it is lowering the interest rate it charges on margin loans.  The new rates will be from 5.70% to 6.75% (depending on the amount borrowed) which is down sharply from the previous 8% (for its premium subscribers) to 12% HOOD had been charging.  At the same time, AMZN announced it had NOT halted any orders of NVDA’s AI chips.  However, it has decided to convert some of the unfilled orders to NVDA’s newer units announced in March. This statement was released in response to a Financial Times report claiming that AMZN had halted orders for NVDA gpus.  Later, NSANY announced that is has paused development of two EV sedans, while expanding its EV lineup to five vehicles by adding a crossover SUV.  At the same time, DIS announced it will lay off 175 people from its Pixar Studios subsidiary (14% of that unit’s workforce) as it scales back development of original streaming series.

Elsewhere, PEP announced it will expand its CA fleet of electric vehicles by deploying 50 new with TSLA semi-trucks.  In addition, PEP will also deploy 75 F E-Transit electric vans at its CA plants over the next few months.  At the same time, CMCSA announced it will price a bundle including its Peacock service, NFLX, and AAPL’s TV+ services for $15 per month.  Later, GE announced it will hire 900 new engineers for its Aerospace unit to support current and new aircraft engine programs.  At the same time, GOOGL announced it will start testing the addition of ads to its AI answers.  This comes just days after GOOGL announced the AI Overview service.  Later, MSFT touted new tools aimed at helping programmers build AI-focused systems at its developer conference.  At the same time, SNY announced it has partnered with OpenAI to boost development of drugs using AI technologies.

In stock legal and governmental news, Tuesday the SEC began an “informal inquiry” into GL after recent allegations by short sellers.  (GL fell 3.12% on the day on that news.)  Later, TM asked TX for tax relief prior to deciding whether to invest $531.7 million in expansion of its San Antonio plant.  At the same time, CA’s top state court announced Tuesday that it will hear a case brought by a labor union challenging a CA ballot measure allowing all “App-based services” to treat their drivers as contractors.  Later, HES said on Tuesday that it is facing three shareholder lawsuits alleging it made inadequate disclosures related to its proposed sale to CVX. At the same time, a federal appeals court unanimously ruled AAL must face a lawsuit brought by its pilots over the airline’s failure to pay them for short-term military leave.  Later, AAPL filed a motion asking a US judge to dismiss the antitrust lawsuit filed by the US Dept. of Justice and 15 states. 

Elsewhere, the US Labor Dept. announced that CAT agreed to pay $800k to resolve allegations of hiring discrimination against black applicants at an IL plant.  In addition, CAT will offer jobs to 34 applicants previously not hired due to the discriminatory system the company had in place.  At the same time, a whistleblower (former Vice President) has sued BLK over his firing after he objected to a colleagues self-dealing.  The suit also alleges the whistleblower was forced to shut down a system he had developed for monitoring discussions with clients about illegal investments in China.  At the same time, BASFY (BASF Chemicals) announced it has agreed to pay $316.5 million in a settlement with some US public water systems over PFAS (forever chemicals) contained in the company’s firefighting foam that polluted water supplies.

Overnight, Asian markets were mixed but leaned toward the red side.  Japan (-0.85%) was by far the biggest loser (of the seven red exchanges) while Taiwan (+1.48%) was by far the biggest gainer of the five green exchanges.  In Europe, the picture is even more red at midday with only two green bourses (out of 15).  The CAC (-0.62%), DAX (-0.29%), and FTSE (-0.38%) lead the region lower in early afternoon trade.  In the US, as of 7:30 a.m., Futures are pointing toward a mixed and modest start to the day.  The DIA implies a -0.17% open, the SPY is implying a -0.11% open, but the QQQ implies a +0.05% open at this hour.  At the same time, 10-year bond yields are up to 4.457% and Oil (WTI) is off three-fourths of a percent to $78.06 per barrel in early trading.

The major economic news scheduled for Wednesday includes April Existing Home Sales (10 a.m.), EIA Weekly Crude Oil Inventories (10:30 a.m.), and FOMC Meeting Minutes (2 p.m.).  The major earnings reports scheduled for before the open is limited to ADI, DY, GOGL, HOV, WOOF, PDD, TGT, VIPS, and WSM.  Then, after the close, BBAR, SQM, ENS, PLUS, SUPV, NVDA, SNOW, SNPS, TBBB, and VFC report. 

In economic news later this week, on Thursday, we get Building Permits, Weekly Initial Jobless Claims, Weekly Continuing Jobless Claims, S&P Global Mfg. PMI, S&P Global Services PMI, S&P Global Composite PMI, April New Home Sales, Fed Balance Sheet.  Fed member Bostic also speaks again.  Finally, on Friday, April Core Durable Goods, April Durable Goods, Michigan Consumer Sentiment, Michigan Consumer Expectations, Michigan 1-Year Inflation Expectations, Michigan 5-Year Inflation Expectations are reported and Fed member Waller speaks.

In terms of earnings reports later this week, on Thursday, we hear from ATAT, BILI, BJ, BEKE, MDT, NTES, PSNY, RL, TD, TITN, CVCO, DECK, INTU, ROST, and WDAY.  Finally, on Friday, BAH reports.

So far this morning, ADI, DY, WOOF, PDD, and TJX reported beats on both revenue and earnings.  Meanwhile, GOGL and VIPS missed on revenue while beating on earnings.  On the other side, TGT beat on revenue while missing on earnings.  It is worth noting that ADI, DY, and WOOF raised forward guidance.  However, VIPS cut its guidance.

In miscellaneous news, the Dept. of Energy announced it will sell 1 million barrels of gasoline (not oil) from strategic reserves in the Northeast.  The sale will happen between Memorial Day and July 4.  Energy Sec. Granholm said the move was times to maximize the impact on gasoline prices.  However, the underlying reason or excuse is the closing of a Portland ME storage facility.  Elsewhere, the Fed released a report Tuesday summarizing its October 2023 annual survey results.  The survey found that inflation was pinching Americans in 2023.  72% of respondents said they were doing “okay or good” financially in October 2023.  This was down from 78% in October 2021.  Meanwhile, Germany reversed course and said that it now agrees with the US plan to use frozen Russian assets to fund an additional $50 billion aid package for Ukraine.  (A considerable chunk of that money will likely go to US defense manufacturers such as LMT, RTX, LHX, GD, NOC, and HII.

As a reminder, remember that Monday is a holiday and markets will be closed.  Finally, also make note the US securities market will begin its 1-day trade settlement (called “T+1”) down from the current 3-day settlement next week.  This change begins Tuesday, May 28.  (Also note that some analysts are nervous over the stress on the system of clearinghouses and brokerages.)

With that background, it looks as if markets are giving us a mixed but mostly indecisive start to the day. The DIA is the most decisive (and most bearish) of the three major index ETFs in premarket. However, it remains above its T-line (8ema). Meanwhile, QQQ is giving us a Harami Doji candle at the top of yesterday’s candle body while SPY prints a small bearish Harami in the early session. Again, both of the latter two are also well above their T-line. All three also remain at new or very near the all-time highs. So, the short-term trend remains very bullish. Meanwhile, the mid-term is also bullish and the longer-term market remains very Bullish as all three major index ETFs have returned to “fresh air” with no overhead resistance. In terms of extension, only QQQ is clos eto what can be called over-extended above the T-line. However, more rest is probably needed in all three. The T2122 indicator pulled further into its mid-range. So, both sides have at least a little room to run if they can find the momentum. With that said, very low volumes recently tend to indicate that traders are waiting on the NVDA report before pressing any bets. With regard to those 10 big dog tickers, six of the 10 are in the red at this point this morning with that biggest dog NVDA (-0.04%) just on the red side of flat and not really giving a clue. TSLA (-1.98%), the second biggest dog, is leading the losses this morning.

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 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 gains are 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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