WMT Beats-Raises As Default Fears Ease

Wednesday was the Bulls’ Day.  The SPY gapped up 0.52% and the DIA gapped up 0.54%.  Then after a modest 30-minute pullback, those bulls started running in a long, steady rally that took us to the highs of the day at about 2 pm.  Meanwhile, the QQQ was more muted, gapping up 0.34% and then recrossing the gap before the Bulls stepped in to drive that same long, steady rally to the highs at 2 pm.  From there, we saw very modest profit-taking and a sideways grind into the close near the highs in the SPY, DIA, and QQQ.  This action gave us large-bodied, white candles with larger lower than upper wicks in all three major indices.  The SPY and DIA both crossed back above their T-line (8ema) and DIA crossed back above its 50sma while QQQ continues its rally and is starting to get a bit extended above its own T-line.

On the day, nine of the 10 sectors were in the green with Financial Services (+2.29%) leading the way higher as Utilities (-0.11%) was the only red sector and lagged the rest.  At the same time, the SPY gained 1.19%, DIA gained 1.30%, and QQQ gained 1.21%.  VXX fell 3.32% to 36.36 and T2122 jumped back up out of the oversold territory to 66.67.  10-year bond yields spiked up to 3.581% while Oil (WTI) jumped up 2.62% to end at $72.72 per barrel.  So, Wednesday saw the three major indices get back “in sync” as the bulls ran and then modest profits were taken to end the day.  While volume was less-than-average, all three indices were closer to average volume than has been the case for several days.    

In economic news, Preliminary April Building Permits came in a bit shy of expectations at 1.416 million (compared to a forecast and prior month reading of 1.437 million).  This was a 1.5% month-on-month decline, which was improved from March’s 3.0% month-on-month decline.  However, at the same time, April Housing Starts were very slightly above expectation at 1.401 million (versus a forecast of 1.400 million and the March value of 1.371 million).  Later in the morning, EIA Weekly Crude Oil Inventories showed a much larger than expected inventory build of +5.040-million-barrels (compared to an expected drawdown of 0.920-million-barrels or the prior week’s 2.951-million-barrel increase in inventories).  With all that said, the main economic news came from the Debt Ceiling front.  Both President Biden and Speaker of the House McCarthy told the press (separate events) that the two sides are making progress and neither thinks the US will default on its debt. 

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In stock news, WAL gave an update on their deposits saying that they continue to rise in May after the March and early April spate of withdrawals. Elsewhere, the CEO of FSR told an automotive conference in Germany that the company is actively pursuing partnerships with rivals PSNY and an EV maker supported by Mercedes.  The partnerships are intended to allow the small EV companies to get to scale and work together to solve supply chain challenges that companies like TSLA can solve on their own.  Later, in other EV news, TM announced they are partnering with SZKMY (Suzuki) and Tokyo-listed Daihatsu on a mini-electric commercial van.  Each partner will release their own branded version of the vehicle later this year.  At the same time, PFE announced it is planning to raise $31 billion through its largest-ever debt offering.  PFE intends to use the proceeds to complete its $43 billion deal to acquire SGEN.  The debt offering is expected to close on May 19.  As the economy weakens, many grocery and household product makers are adding to their low-cost products and smaller-size packages specifically for dollar stores like DLTR and DG.  Among these, according to Reuters, are EPC, KHC, HSY, CAG, PG, and SJM, who all have dedicated dollar-store units or teams.  This falls in line with a Tufts University study that found dollar stores to be the fastest-growing US food and household goods retailers.  Meanwhile, FDX pilots voted overwhelmingly in favor of a strike if needed as the pilots union and company enter the final stages of negotiations.  (However, pilots cannot strike until after given permission by the National Labor Relations Mediation Board and after a cooling-off period if and when an impasse is reached.)  Finally, the Wall Street Journal reported that TPG and Francisco Partners are collaborating on a $5 billion bid to acquire NEWR.

In stock legal and regulatory news, Reuters reports that Qatar’s sovereign wealth fund (the second-largest shareholder of CS prior to its forced sale) is seeking legal help in an attempt to recover the haircut it took when CS was sold to UBS at “a fraction of its value.” At the same time, according to multiple sources, Reuters reported META is set to face an unspecified but claimed to be the largest fine ever levied by the EU.  The fine is a result of META failing to comply with warnings and deadlines from a top EU court and continuing to transfer European user data from EU-based servers to US-based servers.  (The prior record fine levied was $821.2 million levied against AMZN.)  In Congress, a bipartisan group of lawmakers introduced legislation making it illegal for automakers (including GM, F, STLA, TSLA, and VLKAF) from eliminating AM radios from new models of their vehicles.  The bill would direct the NHTSA to mandate that new cars include AM radio at no additional charge.  Elsewhere, AVGO has offered “interoperability remedies” in order to address EU antitrust concerns over its deal to acquire VMW for $61 billion.  The EU Antitrust Agency recently extended the deadline for its final decision to July 17.  Meanwhile, the FAA is forecasting a 4.5% increase in flights over the Memorial Day holiday period, expecting the total to be just shy of the pre-pandemic peak.  (DAL expects a 17% increase in passengers from 2022 while AAL and UAL both expect unspecified increases over last year.)  Then, after the close, WBA reached a $230 million settlement with the city of San Francisco over its role in the city’s opioid epidemic.

In miscellaneous news, on Wednesday, the NY Fed published a report that said the downside risk to the economy “eased a bit so far this year, but remains elevated.” At the same time, a Reuters poll of 116 economists found that 60% believe rates are at the same level they will be at year-end. Interestingly, 26% predict no hike and at least a 25-basis-point rate cut before year-end.  Only 14% are expecting another rate hike by the end of the year.  Meanwhile, the Fedwatch Tool tells us markets (futures) are pricing in a 29% chance of a quarter-point hike in June.  However, those futures also see a 43% chance of a rate cut in September, a 79% probability of a cut in November, and a 95% chance of a rate cut in December. So, somebody is (or somebodies are) wrong. The question is whether it is the market, the majority of economists, the Fed, or some combination of the three.

After the close, CSCO, SNPS, CPRT, STNE, and TTWO all reported beats on both the revenue and earnings lines.  Meanwhile, VSAT and ZTO both missed on revenue while beating on earnings.  It is worth noting that CSCO, SNPS, and STNE all raised their forward guidance.  Meanwhile, TTWO lowered its forward guidance.

Overnight, Asian markets leaned heavily to the green side.  Japan (+1.60%), Taiwan (+1.11%), and Hong Kong (+0.85%) led the region higher while only India (-0.28%) and Shenzhen (-0.12%) showed any red.  Meanwhile, in Europe, the bourses are mixed at midday with the big exchanges rallying.  The DAX (+1.68%), CAC (+0.92%), and FTSE (+0.55%) are leading the region higher in early afternoon trade.  In the US, at 7:30 am, Futures are pointing toward a modestly green start to the day.  The DIA implies a +0.09% open, the SPY is implying a +0.22% open, and the QQQ implies a +0.27% open at this hour.  At the same time, 10-year bond yields are rising again at 3.6% and Oil (WTI) is flat at $72.80/barrel in early trading.  

The major economic news events scheduled for Thursday include Philly Fed Mfg. Index and Weekly Initial Jobless Claims (both at 8:30 am), April Existing Home Sales (10 am), Fed Balance Sheet and Bank Balances with the Fed (both at 4:30 pm).  We will also have testimony from Fed Vice Chair (for Bank Supervision) Barr at 9:30 am.  The major earnings reports scheduled for the day include WMS, BABA, BBWI, CSIQ, DOLE, GRAB, BEKE, MSGE, and WMT, before the open.  Then, after the close, AMAT, CVCO, DXC, FTCH, FLO, GLOB, and ROST report. 

In economic news later this week, on Friday, we hear from two Fed speakers (Chair Powell and Williams).  In terms of earnings reports later this week, Friday, we hear from DE and FL.

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So far this morning, WMT, BEKE, CSIQ, WMS, MSGE, and EXP all reported beat to both the revenue and earnings lines.  Meanwhile, BABA, DOLE, and BBWI all missed on revenue while beating on earnings.  It is worth noting that BEKE and WMT have raised forward guidance while WMS lowered its guidance.  It is also worth noting the MSGE has a 132% upside earnings surprise, BEKE posted a 100% upside surprise on earnings, CSIQ posted a 95% upside surprise on earnings, DOLE posted a 79% upside surprise on earnings, and WMS had a 56% upside surprise on earnings.  So, the sandbagging remains strong.

With that background, it looks like all three major indices are running up to test the next potential resistance level in premarket trading. DIA is also retesting its recent downtrend line. However, it is the QQQ (and the handful of massive tech names) that are leading this march higher, until yesterday’s good news gave financials a boost. Over-extension from the T-line is not a problem in general. However, QQQ is getting stretched. Still, the T2122 indicator sits in the mid-range telling us we have at least a little room to move. Be careful of chop and watch for rotation if traders start to think we are overcooked and look to start locking in profits. We still cannot say we have a nicely trending market anywhere except for the QQQ.

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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🎯 Friday 6/21/19  (10:09 am) Aaron B: Today, my account is at +190% since January. Thanks, RWO HRC Flash Malcolm Thomas Steve Ed Bob S Bob C Mike P and everyone that contributes every day. I love our job.

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