WMT Has Huge Beat and Raises Guidance

Stocks gapped down modestly on Monday (-0.69% in the QQQ, -0.45% in the SPY, and -0.31% in the DIA).  The three major indices rollercoastered their way sideways until about 12:30 pm.  At that point, all 3 of those indices rallied up above the gap to new highs of the day at 2 pm.  Then a slow, protracted selloff took us back down to Friday’s close by 2:45 pm before accelerating into a hard selloff the last 30 minutes.  This took us out to a close very near the lows of the day.  This action gave us black-bodied candles with long upper wicks and small lower wicks.  (In other words, black Inverted Hammer candles in the DIA, SPY, and QQQ.)  It is worth noting that all 3 major indices are still extended above their T-line (8ema), especially the QQQ and SPY. 

On the day, all ten sectors were red after the late selloff with the Financial Services sector (-1.28%) leading the losses and Communications Services (-0.17%) holding up best.  Meanwhile, the SPY lost 0.78%, the DIA lost 0.60%, and the QQQ lost 0.88%.  The VXX rallied to close dead flat at 16.98 and T2122 dropped and fell just outside the overbought territory at 77.88.  10-year bond yields rose a bit to 3.874% and Oil (WTI) plunged 4.22% to $85.21 per barrel.  So, all-in-all, Monday was a pause day that ended up with very modest pullbacks across the market.

In Fed news, Fed Vice-Chair Brainard gave us a study in contradiction Monday when she said that she “thinks it will probably be appropriate soon to move to a slower pace of (rate) increases.”  However, later in the speech, she said “Inflation is very high in the United States and abroad” and “Monetary policy will need to be restrictive for some time to have confidence that inflation is moving back to target…For these reasons, we are committed to avoiding pulling back prematurely.”  In other words, there was a little something for both sides of the debate and the listener will interpret her words to support the position they held before she started talking.

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In stock news, Reuters reported Monday that AMZN is planning to lay off 10,000 employees from corporate and technology positions.  Elsewhere, Investing.com reports that VLKAF (Volkswagen) has reached its goal of delivering 500k electric vehicles more than a year earlier than they had forecast.  (For reference, TSLA, the leader in electric cars, has delivered 3.2 million cars total since 2015.)  After the close, Reuters reported that FDX (specifically the freight division) is furloughing an unspecified number of employees due to business conditions that are hurting shipping volumes.  In addition, ILMN announced after hours that it is cutting 5% of its global workforce. At the same time, activist investor Ancora Holdings said Monday that it will fight the sale of IAA (in which Anchora holds a 4% stake) to RBA for $7.3 billion (which was a 19% premium on the IAA price at the time of the deal).  Ancora claimed it was a poorly structured deal that resulted from a weak sale process that was not in the best interest of the shareholders.  Finally, GOOGL paid nearly $400 million to settle the allegations brought by 40 states that the tech giant illegally tracked users’ locations back in 2014 (action brought in 2018).

In BRKB (Warren Buffet) news, Monday filings of 13F documents show that Berkshire has taken a 60 million share position in TSM.  They also took a 5.75 million share in LPX and a 434k position in JEF.  In the oil industry, Berkshire added to its holdings of both CVX and OXY.  Among other big names, BRKB maintained its holdings in AAPL ($133 billion) and BAC ($38 billion).  Finally, Berkshire increased its holdings of PARA by 13 million shares.  All the stocks in which a new Berkshire position was announced were trading higher in the post-market session.

In energy news, Reuters reports that CVX is sending crews to cap old wells that are leaking methane and other gases.  This action is ahead of new regulations coming in CO after voters set limits on unused wells.  CVX estimates it will cost between $80k and $100k per well to cap each of the 500 wells in that state, each of which produces as much emissions as 22,000 cars each year.  Elsewhere, on Monday afternoon, executives at DUK and AEP told Bloomberg that they see the recently passed “Inflation Reduction Act” as significantly reducing their customer’s energy bills.  They went on to say that the law will shift the majority of those savings onto the top 1% of taxpayers.  However, they had not fully analyzed the dollar value of potential savings of their customers.

So far this morning, MT, BAM, AZN, USFD, RWEOY, BDX, NIO, DDS, TDG, KELYA, SBH, SLVM, and NICE all posted beats on both the revenue and earnings lines.  At the same time, AEG, WRK, TPR, EPC, and EYE all missed on revenue while beating on the earnings line.  On the other side, PRMW beat on revenue while missing on earnings.  Unfortunately, WE and SIX missed on both the top and bottom lines.  It is worth noting that USFD and PRMW raised their forward guidance.  However, BDX, NIO, TPR, SBH, WE, and YETI all lowered their forward guidance.

Overnight, Asian markets leaned heavily to the upside.  Hong Kong (+4.11%), Taiwan (+2.64%), and Shenzhen (+2.14%) led the region higher as tech stocks soared on the optimism caused by the Biden-Xi talks and joint statements (and despite Chinese Industrial Production and Retail Sales data disappointing).  Meanwhile, in Europe, stocks are much more mixed and even lean to the red side at midday.  The FTSE (-0.03%), DAX (-0.05%), and CAC (+0.31%) lead the region showing more red than green in early afternoon trading.  However, as of 7:30 am, US Futures are pointing toward a gap higher to start the day.  The DIA implies a +0.33% open, the SPY is implying a +0.70% open, and the QQQ implies a +1.12% open at this hour.  10-year bond yields are back down to 3.812% and Oil (WTI) is off seven-tenths of a percent to $85.27/barrel in early trading.

The major economic news events scheduled for Tuesday include October PPI and NY Empire State Mfg. Index (both at 8:30 am), and API Weekly Crude Oil Stocks report (4:30 pm).  The major earnings reports scheduled for the day are ARMK, BERY, ENR, AQUA, HD, SE, TME, VVV, and WMT before the open. Then, after the close, AAP and GSM report.   

In economic news later this week, on Wednesday, October Retail Sales, October Import/Export Price Indexes, October Industrial Production, September Business Inventories, EIA Weekly Crude Oil Inventories, and a Fed speaker (Williams) report. On Thursday, we get October Building Permits, October Housing Starts, Weekly Initial Jobless Claims, and Philly Fed Mfg. Index.  Finally, on Friday, October Existing Home Sales are reported.

In earnings reports later this week, on Wednesday, ARCO, LOW, TGT, TCEHY, TJX, ZIM, BBWI, CSCO, CPA, HP, HI, NVDA, and SONO report.  Then on Thursday, we hear from BABA, BJ, BV, DOLE, KSS, M, NTES, WB, AMAT, FTCH, GPS, KEYS, PANW, POST, ROST, WSM, and WWD report.  Finally, Friday, we hear from FL, JD, and SPB.

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So far this morning, WMT, HD, SE, TME, VVV, ENR, and AQUA all posted beats on both the top and bottom lines.  (WMT and HD in particular posted significant beats on both revenue and earnings.)  Meanwhile, ARMK beat on revenue while missing on earnings.  It is also worth noting that WMT raised its forward guidance.

With that background, premarkets are very bullish, in part because WMT says sales are stronger than expected and its inventory glut has been significantly reduced. Between this and the HD revenue beat, traders seem to be reading through that the consumer is in much better shape than the bears had been suggesting. Still, we do have the PPI data at 8:30 am, and while it tends to follow in line with the CPI data, there is still a chance that we get a premarket shock later this morning. Be careful chasing any bullish moves. We know that price moves in a lightning bolt, zig-zag pattern. And, once again, at the moment, our zig is in need of a zag if this is going to be a sustained move higher. Can good news overcome the need, sure…but only in the short-term. So, even if the bulls rule the day, don’t expect this to be a vertical rally. In addition, we have more big retail names coming up later this week. There is no guarantee they will have had the same results that WMT and HD had last quarter. Finally, remember that we get another read on the US consumer this week as the big retail names all report.

So, continue to be deliberate and disciplined…but don’t be stubborn. Remember it’s 100 times more important to avoid big mistakes than it is to pick big winners. If you have a loss, admit you were wrong and take that loss before it gets out of hand. And when price does move in your direction, always move your stops in your favor and take a little profit off the table. You have to remember the “Legend of the man in the green bathrobe“…in that situation, it is NOT HOUSE MONEY you’re betting, it’s YOUR MONEY! And there is absolutely no reason to keep raising your bet (risk) just because you’ve had a win. Finally, keep in mind that trading is not a hobby. It’s a job. The money is real. So, you have to 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.

Ed

Swing Trade Ideas for your consideration and watchlist: IGT, TWOU, ELF, VRT, ANET, KGC, HZNP, GOLD. You can find Rick’s review of tickers on his YouTube Channel here. Trade your plan, take profits along the way, and smart. Also, remember to check for impending earnings reports. Finally, remember that any tickers we mention and talk about in the trading room are not recommendations to buy or sell.

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