Welcome to Bonus February – PCE Day

The market opened lower to start the day on Wednesday.  The SPY gapped down 0.31%, DIA gapped down 0.46%, and QQQ gapped down 0.49%.  After that open, both of the large-cap index ETFs spent the day meandering back and forth inside their opening gap.  Meanwhile, QQQ meandered around its opening level all day.  This action gave us gap-down candles across the board with SPY and DIA having white bodies while QQQ gave us a back body Doji.  In fact, both SPY and QQQ were indecisive candles while DIA was a larger white-body candle.  At the same time, DIA and QQQ retested and held above their T-line (8ema) while SPY did not quite get down to that level.  Once again, this came on well below-average volume across the board.

On the day, eight of the 10 sectors were in the red as Energy (-0.82%), and Healthcare (-0.76%) leading the way lower while Industrials (+0.13%) and Utilities (+0.09%) were the only sectors to get back into the green.  At the same time, the SPY lost 0.13%, the DIA lost 0.02%, and the tech-heavy QQQ lost 0.53%.  VXX gained 1.63% to close at 13.75 and T2122 dropped back further into its mid-range at 60.45.  10-year bond yields fell back to 4.266% and Oil (WTI) fell 0.74% to close at $78.29 per barrel.  So, we saw a gap down Wednesday (even before data was released in premarket).  However, after that, it was another blah day with some “fading the gap” leading to not much overall change for the session.

The major economic news released Wednesday included Q4 GDP, which came in slightly lower than expected at +3.2% (compared to a forecast of +3.3% and well down from the Q3 +4.9%).  At the same time, the Q4 GDP Price Index came in higher than anticipated at +1.7% (versus a +1.5% forecast and the Q3 value of +3.3%). Meanwhile, the January Goods Trade Balance was worse than expected at -$90.20 billion (versus the -$88.40 billion forecast and the December -$88.46 billion reading).  Later, January Retail Inventories grew less than predicted at +0.3% (compared to December’s +0.4% value).  Then at EIA Weekly Crude Oil Inventories grew much more than expected at +4.199 million barrels (versus a forecast of +3.100 million barrels and the prior week’s +3.514 million barrels). 

In Fed news, Boston Fed President Collins joined the “not so fast” chorus from the Fed as she indicated she is less confident in rate cuts…especially early ones.  Collins said, “I believe it will likely become appropriate to begin easing policy later this year.”  She continued, “When this happens, a methodical, forward-looking approach to reducing rates gradually should provide the necessary flexibility to manage risks, while promoting stable prices and maximum employment.”  She concluded, “It will be important to see sustained, broadening signs of progress toward the Fed’s dual mandate goals – while recognizing that progress may be uneven.”  Later, NY Fed President Williams sounded similarly, but maybe a bit closer to being ready for rate cuts.  He said, “While the economy has come a long way toward achieving better balance and reaching our 2% inflation goal, we are not there yet.”  However, Williams also said, “My view is that something like the three-rate-cuts-this-year projection from December is a reasonable kind of starting point.”  He added, “as we navigate the remainder of this journey, I will be focused on the data, the economic outlook, and the risks, in evaluating the appropriate path for monetary policy that best achieves our goals.”  Finally, Atlanta Fed President Bostic said he is “penciling in” a first cut this summer.

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In stock news, META announced it will release the newest version of its AI model (Llama 3) in July.  Later, CTNG announced it is considering “strategic alternatives” to enhance shareholder value.  At the same time, BXRX filed for Chapter 11 bankruptcy.  Later, EXLS announced it had launched an AI solution based on AMZN cloud services for data analytics.  Separately, EXLS announced it had partnered with MSFT to offer industry-specific AI solutions.  At the same time, BRKR announced it had reached a definitive agreement to buy private ELITechGroup for more than $943 million.  The deal is set to be completed in Q2.  Later, QUIK announced it had been awarded a contract to provide low-power chip solutions to a primary defense contractor.  (No details were released.)  At the same time, after being crushed in the media following comments by the CEO that it will implement “surge pricing” WEN issued multiple statements on Wednesday afternoon that it has no plans to implement dynamic or surge pricing.  (So, the statements are saying the CEO lied on an investor call.)  Later, Reuters reported (exclusively) that FI and AMADF are both bidding to buy FOUR for around $6.5 billion.  At the same time, PWFL and MIXT announced their boards have approved a merger set for the first week of April.  Elsewhere, it was announced that SCTL will be acquired by a private firm for $1.10 per share.  The deal is set to close in Q2.  At the same time, EA announced a restructuring that will reduce its workforce by 5%.  Later, FBMS said it had approved a $50 million buyback program.  At the same time, PTLO announced a secondary offering of 8 million shares (with underwriters having options to buy another 1.2 million shares).  Later, the hacking group that penetrated UNH, causing the slow prescription deliveries last week, posted a note Wednesday saying they had stolen millions of medical insurance and health data records.  However, the group deleted the post later.  After the close, AAPL CEO Cook said the company will announce its AI plans later this year.  Also after the close, SHEL’s solar subsidiary Savion has put 25% of its assets up for sale with the help of JEF.  Finally, BUD and the Teamster union have reached an agreement that will avert a strike that was planned for midnight Thursday.  (The deal increases pay by $4/hour immediately and $8/hour over the contract.  In addition, workers will get a $2,500 signing bonus and increased vacation.)

In stock legal, governmental, and regulatory news, on Wednesday, the FAA gave BA 90 days to come up with a new comprehensive quality control plan after inspections found profound shortcomings in the company’s safety and quality programs.  At the same time, GOOGL was hit with a $2.3 billion lawsuit by 32 European media groups who allege they suffered losses due to GOOGL’s digital advertising practices.  Later, AMAT received more subpoenas from the SEC related to shipments to China.  At the same time, the FDA cleared SPRO to begin phase 2 trials for an intravenous antibiotic treatment.  Later, the state of NY filed suit against JBSAY (the world’s largest beef producer) alleging the company has misled the public about its claimed plan to reach zero greenhouse emissions by 2040.  (The ridiculous suit seeks a $5k fine.  JBSAY generated $53.5 billion in revenue in just the first 9 months of 2023.)  At the same time, the FDA gave NVRO clearance for its SI-joint fusion device.  Elsewhere, Bloomberg reported the US dept. of Justice has opened an investigation into BA’s door plug blowout incident about whether or not the company has upheld its obligations under a Deferred Prosecution Agreement from previous wrongdoing.  After the close, FCC Chair Rosenworcel proposed a rule that would require automakers that sell internet-connected cars to comply with a telecommunication law intended to protect domestic violence survivors (from stalking and remote access to vehicles).  Finally, the NHTSA announced that STLA is recalling 338k SUV vehicles over front-end suspension parts that could become loose.

After the close, AMC, GEF, MYRG, NTNX, OKTA, PSTG, CRM, and SNOW reported beats on both the revenue and earnings lines.  Meanwhile, BBSI, HPQ, PARA, and SBGI missed on revenue while beating on earnings.  On the other side, JAZZ, STN, and TPC beat on revenue while missing on earnings.  Unfortunately, CODI, EFXT, MNST, and PARAA missed on both the top and bottom lines.  It is worth noting that NTNX and OKTA raised forward guidance.  However, PSTG, SBGI, SNOW, and TPC lowered their guidance.

Overnight, Asian markets were mixed with five exchanges in the red and seven in the green.  Shenzhen (+3.13%) and Shanghai (+1.94%) far outpaced the rest of the region while Thailand (-0.82%) was by far the biggest loser on the day.  In Europe, we see a greener picture taking shape at midday with 10 of the 15 exchanges in the green.  The CAC (-0.04%), DAX (+0.47%), and FTSE (+0.31%) lead the region higher in early afternoon trade.  In the US, as of 7:30 a.m., Futures are pointing toward a gap down to start the day.  The DIA implies a -0.31% open, the SPY is implying a -0.27% open, and the QQQ implies a -0.24% open at this hour.  At the same time, 10-year bond yields are back up to 4.307% and Oil (WTI) is just ion the green side of flat at $78.64 per barrel in early trading.

The major economic news scheduled for Thursday includes Weekly Initial Jobless Claims, Weekly Continuing Jobless Claims, Jan. PCE Price Index, Jan. Core PCE Price Index, and Jan. Personal Spending (all at 8:30 a.m.), Feb. Chicago PMI (9:45 a.m.), Jan. Pending Home Sales (10 a.m.), Fed Balance Sheet (4:30 p.m.), and three Fed speakers (Bostic at 10:50 a.m., Mester at 1:15 p.m., and Williams (8:10 p.m.). The major earnings reports scheduled for before the open include BUD, BBWI, BBY, BCO, CNQ, COMM, CPG, CRH, XRAY, DDL, DOLE, NVRI, ESAB, EVRG, GMS, HGV, HRL, IHRT, MLCO, NTES, NFE, NOMD, PZZA, PSNY, TD, and TGNA.  Then, after the close, ADSK, COO, DELL, EC, GRBK, MTZ, NTAP, PTVE, TTEC, VEEV, and ZS report. 

In economic news later this week, on Friday, S&P Global Mfg. PMI, Jan. Construction Spending, Feb. ISM Mfg. Employment, Feb. ISM Mfg. PMI, Feb. ISM Mfg. PMI Price Index, Michigan Consumer Sentiment, Michigan Consumer Expectations, Michigan 1-year Inflation Expectations, Michigan 5-year Inflation Expectations, and two Fed speakers (Bostic at 10 a.m. and Daly at 1:30 p.m.) are reported.

In terms of earnings reports later this week, on Friday, AMRX reports.

In miscellaneous news, in a surprise move, Democratic and Republican leaders from both sides of the aisle in both chambers of Congress announced they have reached a deal on the 12 different annual spending bills.  These measures cover the previous five months and the next seven months. (Better late than never, I guess.) However, to avert a partial government shutdown on Saturday, and even though they say they have agreed, both the House and Senate will need to pass another temporary stop-gap spending bill to keep the lights on until the entire House (which is where the problem is) and Senate can vote on the 12 bills.  This gives the GOP obstructionists (MAGA) in the House time to trash the deal (whose details are not known) and attempt to kill the deal.  At the moment, the agreement calls for six of the funding bills to be passed by March 8 and the other six to be passed on March 22.  However, this is one of those, “I’ll believe it when I see it…and the ink is dry” deals.

In late-breaking news, the main fire in the Texas panhandle (Smokehouse Creek fire) has now consumed 900,000 acres.  Separately, the Windy Deuce fire has burned 142,000 acres and the Vine Creek fire has charred 30,000 acres.  The toll is not yet known, but at least thousands of cattle and 100 or more homes have been destroyed.  Meanwhile, in Europe, consumer rights groups have accused META of massive and illegal (per EU law) collection and processing of user data on Thursday.  The group of 45 consumer organizations filed complaints with both national and EU-wide regulatory bodies.  The data in question can be used to infer sexual orientation, emotional state, and even the person’s susceptibility to addiction.

So far this morning, ITCL, BBWI, BBY, CM, CNQ, XRAY, DDL, NVRI, ESAB, HRL, NFE, and TD all reported beats on both the revenue and earnings lines.  At the same time, ACIW, ABEV, BUD, BCO, CRH, DOLE, NOMD, and PZZA missed on revenue while beating on earnings.  On the other side, ADV and BTSG beat on revenue while missing on earnings.  Unfortunately, CPG, EVRG, GMS, and NTES missed on both the top and bottom lines.  It is worth noting that BBWI, BBY, and NVRI lowered forward guidance. 

With that background, all three major index ETFs are retesting their T-lines (8ema) from above in the premarket. However, all are printing small, indecisive candles ahead of the PCE data. Even the direction of those T-lines is undecided this morning with SPY’s 8ema rising, QQQ’s flat, and DIA’s just rolling over. So, based on the recent data, the short-term trend remains bullish, but precariously so. Meanwhile, the longer-term strong bullish trend continues to hang on (despite being tested). In terms of extension, none of the three major index ETFs is too far from its T-line and the T2122 indicator is in its mid-range. So, both the Bulls and Bears have room to run if they can gather the momentum. However, based on the 10 Big Dog tech names, the Bears have the edge so far this morning. Nine of the 10 are red and NVDA (+0.01%) is only barely green. As mentioned above, they represent a huge portion of the market and if they move together in one direction, it’s hard for indexes to go the other way. So, unless we get surprisingly good data at 8:30 a.m., it looks like a down start to the day.

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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