Welcome to Spring – UBS Buys CS

On Friday, markets gapped lower in the large-cap indices (down 0.74% in the SPY and down 0.82% in the DIA) while the QQQ opened flat.  This came after markets had rethought the Thursday lifelines that had been thrown the CS ($50 billion loan) and FRC ($30 billion in deposits from the US mega banks).  After a half hour of waffling to the side, all three major indices sold off sharply until 11:45 am.  From there, the rest of the day saw a sideways grind inside of a tight range.  This action gave us Bearish Harami candles in the two large-cap indices and a black Spinning Top in the QQQ.  It is worth noting that the SPY crossed back down through its T-line (8ema) and 200sma after having crossed above Thursday.

On the day, all 10 sectors were in the red with Financial Services (-3.09%) leading the way lower while Communications Services (-0.64%) held up better than other sectors.  At the same time, the SPY lost 1.55%, the DIA lost 1.47%, and the QQQ lost 0.47%.  VXX spiked by 10.90% to 55.96 and T2122 dropped back inside of the oversold area at 8.54.  10-year bond yields plunged to 3.429% on a risk-off day while Oil (WTI) fell another 2.96% to $66.34 per barrel.  So, Friday saw a gap lower on more fear of bank collapses.  However, the QQQ bulls did not really give much back and remained the strongest of the major indices.  Once again, this happened on heavier-than-average volume across the board, particularly in the QQQ.  This pattern of increasing volumes has been noticeable the entire last week.

In economic news, February Industrial Production came in far below expectation on a year-on-year basis at -0.25% (compared to a forecast of +3.00% and the January reading of +0.49%).  On a month-on-month basis, Feb. Industrial Production was flat but still below the expectation of +0.2% and far below the January monthly +0.3% value.  So, bottom line, for the third day in a row we had data suggesting industrial manufacturing is not in great shape.  Then, later in the day, Michigan Consumer Sentiment also came in below expectation at 63.4 (versus a forecast of 66.9 and well below the February reading of 67.0).  With all of that said, fear of spreading liquidity problems for regional banks (which have plowed massive amounts of money in long-dated bonds for years and now would lose their shirts if forced to sell in order to fulfill deposit redemption requests) and the entire CS solvency problem, made the health of the US and Global banking system the primary economic topic Friday.

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In stock news, META launched a verification subscription service like the one Elon Musk did at Twitter and later SNAP launched.  The META service is available on both Facebook and Instagram.  Elsewhere, Bill Ackman tweeted Friday that BAC is buying recently closed SBNY as of today (Monday).  He didn’t cite a source of his information.  However, Reuters then reported that sources tell it that Ackman’s rumor is false.  In unrelated news, the Financial Times reported Friday that the GS trading desk has lost around $200 million in the market turmoil following the collapse of SIVB.  Meanwhile, after the close Friday, BRKB urged its shareholders to reject proposals that company management avoids discussing hot-button social and political issues.  They also asked shareholders to reject a proposal that the company discloses more about its climate change and diversity efforts.  At the same time, but unrelated, BBBY announced it will do a reverse stock split and a special meeting on March 27 to determine the ratio (between 1-for-5 and 1-for-10). The BBBY stock was down 23% in after-hours trading on the news.  Finally, the Wall Street Journal reported that DIS kept 94% of its subscribers despite raising prices 38% on its Disney+ streaming service.

In stock legal and regulatory news, the SEC will vote Wednesday on new regulations first proposed in January 2022 that would require funds to report within one business day any events indicating “significant stress.”  (The idea, introduced after the Archegos Capital Management collapse, is that even the collapse of private funds could pose a systemic threat to other financial institutions.)  Elsewhere, ASTR has asked Nasdaq for more time to get its stock price back above $1 to avoid being delisted.  The company has not been in compliance since October.  ASTR said it expects to hear back from the exchanges by April 5, which follows its March 30 earnings report.  If an extension is not granted, ASTR will face being dropped by the exchange.  After the close Friday, a US Appeals Court revived a lawsuit by UBER challenging the CA law that would require them to provide proof that workers are independent contractors in order to avoid having to treat them as employees.  Meanwhile, days after being sued by the state of Ohio, NSC shareholders sued the railroad for defrauding them by prioritizing profit over safety.  (Being too risk-seeking instead of capital preservationist.) Finally, on Sunday, the FDIC said that a subsidiary of NYCB will take over the vast majority of SBNY (including the branches and $60 billion in outstanding loans), leaving about $4 billion in receivership.

Regarding the CS saga, Friday afternoon, Reuters reported that CS would be holding internal talks over the weekend on “the scenarios facing the bank.” That came as other major European banks had already “curbed dealing with CS” until after events play out.  Those banks included DB and SCGLY, and HSBC according to Reuters.  Friday night, the Financial Times reported that UBS was in talks to buy CS or at least some of the assets of CS.  By Sunday, Bloomberg reported that UBS had offered to buy CS for (a paltry) $1 billion and that CS was pushing back against that offer.  Meanwhile, the Financial Times said multiple sources told it that the Swiss government was seriously considering either a partial or full nationalization of the troubled bank.  Finally, on Sunday evening, CS agreed to terms with UBS acquiring them for $3.2 billion (CS shareholders get 1 UBS share for every 22.48 CS shares they hold).  The Swiss National Bank also pledged a $108 billion loan to support the takeover project.

Overnight, Asian markets were red across the board.  Hong Kong (-2.65%) was by far the biggest loser with Japan (-1.42%). Australia (-1.38%), Singapore (-1.37%) and New Zealand (-1.37%) leading the region lower.  Meanwhile, in Europe, the bourses lean heavily toward the green side at midday.  The FTSE (+0.22%), DAX (+0.65%), and CAC (+0.73%) are leading the region higher in early afternoon trade.  As of 7:30 am, US Futures are Pointing toward a start to the day just on the green side of flat.  The DIA implies a dead flat open, the SPY is implying a +0.02% open, and the QQQ implies a +0.03% open at this hour.  At the same time, 10-year bond yields continue to fall, now at 3.376% and Oil (WTI) is off 1.5% to $65.74/barrel in early trading.

There are no major economic news events scheduled for Monday.  The major earnings reports scheduled for the day include FL and PDD before the opening bell.  Then after the close, ACDC reports.

In economic news later this week, on Tuesday we get Feb. Existing Home Sales and EIA Crude Oil Inventories.  Then Wednesday, Q1 Interest Rate Projections, the Fed Rate Decision, and Fed Statement are all reported and the Fed Chair Press Conference takes place.  On Thursday, we get Building Permits, Q4 Current Account, Weekly Initial Jobless Claims, and New Home Sales.  Finally, on Friday, Feb. Durable Goods, Mfg. PMI, S&P Global Composite PMI, and Services PMI are reported.

In earnings later this week, on Tuesday, we hear from CSIQ, TME, AIR, GME, and NKE.  Then Wednesday, OLLI, WOOF, WGO, CHWY, KBH, MLKN, SCS and WOR report.  On Thursday, we hear from CAN, DOOO, CMC, DRI, FDS, and GIS.  Finally, on Friday, EXPR reports.

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So far this morning, FL posted beats on both the revenue and earnings lines.  (FL  posted a massive beat on revenue…at 86.5% positive surprise.)  However, PDD missed on revenue while beating on earnings.  It is worth noting that FL also lowered its forward guidance.

With that background, it looks like the SPY is remaining in its range from the previous seven days. At the same time, DIA was below its own seven-day range but has climbed back up into that area now. Meanwhile, the QQQ (which has been the market leader for some time) seems to be continuing its pullback inside Thursday’s big bullish candle…at least in premarket action. Overextension is not an issue in any of the indices at this point. However, T2122 is well into the Bullish Reversal Zone (extended). Another issue we have to deal with today is that the banking situation in the US (mainly regionals) is not settled. FRC is down more than 20% in premarket action (which is actually a 26% recovery from the premarket lows). On the other hand, NYCB and PACW are up 30% and 18% respectively. So be prepared for volatility swings as the explosiveness of regional banks spills over into other areas of the market on what would normally be a “wait and see” a couple of days ahead of the Fed Meeting Wednesday.

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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