Win Streak, Consolidation, and Powell Talks

Wednesday was another indecisive day in the Market.  SPY gapped up 0.14%, DIA gapped up 0.15%, and QQQ gapped up 0.11%.  From that point, all three major index ETFs put in a gradual morning selloff, reaching the low of the day at noon, followed by a gradual afternoon rally.  This action gave us indecisive candles in all three.  The SPY and QQQ both printed Doji candles while the DIA printed a black-bodied Spinning Top.  All three remain above their T-line (8ema) as well as their 50sma.  This came on well below-average volume in the SPY, DIA, and QQQ.

On the day, eight of the 10 sectors were in the red with Energy (-1.44%) again out front leading the way lower while Technology (+0.28%) was again trying to pull the rest of the market higher by holding up best.  At the same time, the SPY gained 0.07%, DIA lost 0.12%, and QQQ gained 0.06%.  The VXX fell another 1.9% to close at 20.00 and T2122 fell again but remained in the middle of its mid-range at 41.67.  10-year bond yields fell again to 4.492% and Oil (WTI) plummeted another 2.25% to close at $75.63 per barrel.  So, Wednesday gave us a ninth-straight day of gains in the QQQ, eighth-straight in the SPY, and the first lower close in nine days in the DIA.  However, again this was another low-volume and indecisive day as the rally seems to be losing steam (particularly in the large-cap index ETFs).

The only major economic news reported Wednesday was a change in forecast by the EIA.  The agency now forecasts a 300k barrel-per-day decrease in total petroleum consumption in the US by year-end.  Previously, the EIA had forecast a 100k barrel-per-day increase in petrol consumption by the US by year-end.

In Fed speak news, FOMC Chair Powell spoke at a Fed Research and Statistics Div. 100-year anniversary celebration Wednesday.  In his remarks, Powell emphasized the need for economic forecasting and models to be agile given unpredictable global events.  Reuters also reported that NY Fed President Williams spoke at the same celebration as Powell.  Williams lauded recent research and statistics improvements by the Fed, which he said three decades ago was all about the “here and now” (tactical view), but after a large transformation now allows the FOMC to make longer-term and more strategic decisions.  Later Reuters reported that the Cleveland Fed has officially begun the search for a successor to current branch President Mester who retires next June.  (Mester has held the Cleveland Fed Presidency since 2014.)   After the close, Fed Vice-Chair Jefferson indicated to a gathering that he favors erring on the side of doing too much (on inflation) versus not doing enough.  In prepared remarks, Jefferson said, “If (inflation) expectations were to begin to drift, the reality or expectation of a weak monetary policy response would exacerbate the problem.”

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In stock news, the CEO of STLA said Wednesday that the next new model from Chrysler will be an electric crossover vehicle.  Elsewhere, FTS announced Wednesday that it has completed a $500 million private placement of senior unsecured notes.  Later, CZR announced it had reached a tentative 5-year deal with the Culinary Worker Union, averting a potential strike by 10,000 employees at its nine Las Vegas locations.  However, potential strikes are still pending against MGM and WYNN properties in Las Vegas.  Later, SPR announced plans to raise $200 million by issuing more class A common stock.  At the same time, AMZN announced it has begun cutting jobs in its Music division.  However, AMZN would not confirm the number of layoffs.  Later, NVO announced it would discontinue its long-lasting insulin Levemir.  The discontinuation will be phased, beginning in January and lasting through 2024.  The company cites other alternative insulins available and manufacturing constraints as the reason.  (NVO also offers other basal insulin drugs such as Tresiba.)  At the same time, LMND announced it has reached the two million customer milestone (after achieving 1 million in late 2020).  Later, META announced it would require advertisers to disclose when AI is used to create or alter political, social, or election-related ads on Facebook and Instagram. 

In stock government, legal, and regulatory news, Reuters reported Wednesday that C has agreed to pay $25.9 million to settle charges from the CFPB related to allegations of discrimination against Armenian-Americans on credit card applications based solely on the applicant’s last name.  Later, the NHTSA announced that GM is recalling nearly 1,000 Cruise driverless robotaxis after one of the vehicles dragged a pedestrian during an accident in October.  At the same time, TGT asked an FL judge to dismiss a shareholder lawsuit that alleged the company had ignored potential risks of offering LGBTQ merchandise during Pride Month.  The company claims the allegations are completely without merit and have nothing to do with the stock, but are instead just the expression of the plaintiff’s disagreement with the company decision.  (The plaintiff is a front for a nonprofit run by long-time anti-progressive activist and former advisor to the ex-President, Stephen Miller.)  Later, KO announced Wednesday it is withdrawing two soft drinks in Croatia in response to Croatian state inspection authorities’ orders after batches of the products were suspected of causing illnesses.  Meanwhile, Reuters reports that GOOGL will be asked to explain measures taken to protect children in line with EU rules.  (This is related to YouTube and the report says TikTok faces the same inquiries.)  Later, LLY received both US and UK approval for its Zepbound weight-loss drug.  The drug will compete with wildly successful Wegovy from NVO.  (Analysts expect that niche to be a $100 billion annual market by the end of the decade.)

After the close, ALTG, AMC, APP, CENX, DIT, GNW, HUBS, JXN, KGC, MFC, MGM, SPNT, TTEC, TWLO, VSAT, and DIS all reported beats on both the revenue and earnings lines.  Meanwhile, ATO, BGS, CTVA, ENS, G, MATV, SU, and MODG all missed on revenue while beating on earnings.  On the other side, AE, AFRM, JAZZ, TTWO, and LYFT all beat on revenue while missing on earnings.  Unfortunately, ASH, FLT, HP, and UHAL missed on both the top and bottom lines.  It is worth noting that ALTG, APP, HUBS, LYFT, and TWLO raised their forward guidance.  However, MODG and TTEC both lowered their guidance.

Overnight, Asian markets were mixed again with Japan (+1.49%) by far (by more than 1%) the biggest mover.  On the downside, Thailand (-0.48%) paced the losses followed by Malaysia (-0.37%).  Meanwhile, in Europe, the bourses lean heavily to the green side with only three of 15 exchanges in red at midday.  The CAC (+0.76%), DAX (+0.44%), and FTSE (+0.45%) lead that region higher in early afternoon trade.  In the US, as of 7:30 a.m., Futures are pointing toward a mixed and flat start to the day.  The DIA implies a +0.13% open, the SPY is implying a +0.10% open, and the QQQ implies a -0.06% open at this hour.  At the same time, 10-year bond yields have rebounded to 4.543% and Oil is up 0.45% to $75.67 per barrel in early trading.

The major economic news scheduled for Thursday includes Weekly Initial Jobless Claims (8:30 a.m.), WASDE Ag Report (noon), and Fed Chair Powell speaks again at 2 p.m.  The major earnings reports scheduled for before the open include AEE, MT, BDX, CLMT, TAST, COMM, DBD, EPC, GLP, GRAB, HBI, HE, HBM, IHRT, KELYA, LI, EYE, NOMD, ACDC, RCI, SN, SCSC, SONY, SLVM, TPR, TDG, USFD, WRK, WWW, and YPF.  Then, after the close, CANO, CPRI, FLO, HOLX, ILMN, LNW, MTD, NWSA, NGL, PBR, RBA, STN, TTD, TPC, U, and WYNN report. 

In economic news later this week, on Friday, Michigan Consumer Sentiment, Michigan Consumer Expectations, Michigan 1-Year Inflation Expectations, and Michigan 5-Year Inflation Expectations are reported.

In terms of earnings reports later this week, on Friday, AQN, AU, and STNE report.

Ping An Insurance Group to take over China’s largest private property developer Country Garden.  The Chinese State Council instructed provincial governments to arrange the rescue of Country Garden by Ping An.  However, Reuters also reported that Ping An spokesman categorically denied it has been asked to do so.  Elsewhere, NERC said that more than half of the people in North America (180 million) could face electricity shortages this coming winter during extreme cold periods due to a lack of natural gas infrastructure.  In somewhat related news, TX passed a state constitutional amendment to create a $10 billion fund to improve the reliability of the state’s energy-generating infrastructure.  (However, this will have no impact this coming winter.)

So far this morning, MT, BDX, TAST, CTTAY, CRARY, EPC, GRAB, LI, EYE, NOMD, RCI, SN, TDG, and WWW all reported beats on both the revenue and earnings lines.  At the same time, AZN, DDS, SLVM, TPR, USFD, WB, and WRK reported revenue misses while beating on earnings.  On the other side, AVAH and BAK reported beats on the revenue line while missing on earnings.  Unfortunately, COMM, GLP, HBI, and SONY missed on both the top and bottom lines.  It is worth noting that HBI lowered its forward guidance while LI, EYE, and NOMD raised their own guidance.

With that background, it looks like more indecision this morning as the premarket opened not far from the prior close and have printed small candles with mostly wicks so far in the early session. All three major index ETFs remain well above their T-line (8ema) and 50smas. So, the Bulls still have control of the short-term trend, even though we are consolidating. Keep in mind that all three still remain 4%-5% below their summer highs. So, the Bears remain in control of the longer-term trend. In terms of extension, the T-line is catching up to the DIA and even the SPY. However, the QQQ remains a bit stretched above its T-line. At the same time, the T2122 indicator is back in its mid-range. So, there is some room to run in either direction. Be aware of potential volatility from the Jobless Claims before the open and Chair Powell’s speech in the afternoon.

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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