On Friday, stocks gapped a bit higher with SPY gapping up 0.43%, DIA gapping up 0.46%, and QQQ gapping up 0.25%.  Markets then ground sideways until 10 am, when volatility kicked in as Fed Chair Powell’s Jackson Hole prepared remarks led to some knee-jerking and then a 45-minute selloff that reached the lows of the day in all three major index ETFs about 5 minutes after 11 am.  However, the Bulls stepped in at that point, giving us a long, wavy rally that lasted until 3:30 pm when the SPY, IDA, and QQQ all hit their high of the day. Then we saw modest profit-taking the last 30 minutes across the board.  This action gave us indecisive, white-bodied, Bullish Harami Spinning Top candles in all three of the major index ETFs.  QQQ managed to close just above its T-line (8ema), while SPY closed just below its T-line, and DIA did not quite reach its T-line, even at the high of the day. 

On the day, nine of the 10 sectors were in the green with Technology (+0.81%) and Energy (+0.78%) leading the way higher Communications Services (-0.10%) being the only sector left in the red. At the same time, the SPY gained 0.70%, DIA gained 0.72%, and QQQ gained 0.78%.  VXX dropped 4.35% to 24.20 and T2122 climbed back up to the edge of oversold territory at 19.47. 10-year bond yields pulled back slightly to close at 4.231% while Oil (WTI) gained 1.27% to close at $80.05 per barrel.  This happened on slightly above-average volume in all three of the major index ETFs.  So, the volatility and bearish sentiment lasted about 45 minutes and then the day belonged to the Bulls heading into the weekend.  DIA has now taken out its uptrend (stretching back to October 2022).  QQQ is right at (and retesting) its uptrend line stretching back to January.  SPY remains the only one of the major index ETFs still above and not yet retesting its bullish trend stretching back to mid-October 2022.   

The major economic news reported Friday included August Michigan Consumer Sentiment, which came in a bit below expectations at 69.5 (compared to a forecast of 71.2 and the July reading of 71.6).  At the same time, August Michigan Consumer Expectations were also a bit low at 65.5 (versus the 67.3 forecast and the July 68.3 value).  In terms of forward-looking survey results, the August Michigan Inflation Expectations (over the next 12 months) were high at 3.5% (compared to the forecast of 3.3% and the July reading of 3.4%).  Finally, the August Michigan 5-year Inflation Expectation was 3.0% (versus the 2.9% forecast but in line with the July 3.0% value).

In Fed Speaker News, Fed Chair Powell’s Jackson Hole speech was the big news.  In his prepared remarks (released minutes prior to his speech, Powell said “It is the Fed’s job to bring inflation down to our 2% goal, and we will do so.”  His remarks continued, “We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.”  Still, he also left room for a continued pause in hikes in September by saying, “We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.”  Elsewhere, on the sidelines of the conference, Cleveland Fed President Mester also bolstered the hawk message, saying “We’ve come a long way, but you know, we don’t want to be satisfied because inflation remains too high.”  She continued, “We need to see more evidence to be assured that [inflation is] coming down in a sustainable way and in a timely way.”

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The other major central banker speaking Friday was European Central Bank President Lagarde.  She called for EU rates to be “higher for longer.” The ECB President said, “In the current environment, this means – for the ECB – setting interest rates at sufficiently restrictive levels for as long as necessary to achieve a timely return of inflation to our 2% medium-term target.”  Lagarde also went on to warn central bankers to fear wage increases “That could make inflation more persistent if expected wage increases are then incorporated into the pricing decisions of firms, giving rise to what I have called ‘tit-for-tat’ inflation.”  Interestingly, that argument seems to run contrary to both research and common sense.  In the US, by far the largest component of inflation in recent months has been the rise in the cost of shelter (rent and house prices), followed by the rise in energy prices, both of which are not driven by wages according to BLS data.  Finally, recent reports from economic researchers have said the main culprit behind inflation since 2019 has been the backlog of orders caused by the pandemic and the resulting cascade of supply chain issues.  In short, supplies fell much more sharply than demand around the world and stayed that way for two years.  So, Lagarde seems to be arguing that workers should accept stagnant wages and whatever inflation that comes every year, in order to avoid giving companies an excuse to raise prices even more than the wage increases they might demand. 

In stock news, on Friday ERIC announced that it forecasts $1 billion in patent cross-licensing revenue from its licensing agreements with Chinese phone maker Huawei.  At the same time, C reported that net outflows from its equity funds have continued.  C says there were $6.1 billion in outflows from equity funds during the week that ended August 23.  Elsewhere, RAD shares plunged Friday when the Wall Street Journal reported that it is getting ready to file for Chapter 11 bankruptcy.  (RAD closed down 51.04%.)  Later, Bloomberg reported that BA is close to restarting the delivery of 737 MAX jets to China after a four-year pause following the deadly crashes in 2019 and 2020.  By late afternoon, Reuters reported that BB had received an acquisition offer from private equity firm Veritas Capital.  (BB closed up more than 18% on the day.)  Meanwhile, UAW workers voted overwhelmingly (97% in favor) to authorize a strike against GM, F, and STLA any time after the current contract expires on September 14.  (As of now, the negotiations between the union and “Big 3” are contentious and not making much progress according to media reports.  Some economists say a strike on all three would cost the economy $500 million per day.)   Late in the day, Reuters reported that TWNK is exploring a sale after receiving takeover interest from major snack food makers.  This news caused a massive spike in the price of TWNK at 2:40 pm.  On the day, TWNK pulled back to close up 21.73%. 

In stock legal and regulatory news, on Friday the MA Supreme Court reversed a lower court ruling in a blow to HOOD.  The decision gives MA state regulators a significant victory in their enforcement action against the online broker, by ruling that the broker does have fiduciary responsibility.  (This was central to the MA case, which claims that HOOD breached its fiduciary responsibility by encouraging inexperienced investors to place risky trades via gamification.)  Elsewhere, AZN joined the other major pharma companies by filing suit against the US over Medicare drug price negotiation plans.  At the same time, the SEC reported that MMM has agreed to pay $6.5 million to settle the charges that it had violated the Foreign Corrupt Practices Act by bribing Chinese officials to curry favor.  Later the SEC also reported that WFC has agreed to pay $35 million in penalties to settle charges that the company overcharged its customers for advisory fees.  Late Friday evening, the FTC suspended its challenge of AMGN’s $27.8 billion acquisition of HZNP.  This pause is effective until September 18 and will give the agency time to consider whether it should settle the case rather than continue a lengthy court fight.  (AMGN may have offered some compromise since it announced “it would be pleased if its commitment were honored.”) Finally, on Sunday, MMM tentatively agreed to pay $5.5 billion to settle 300,000 lawsuits claiming defective MMM earplugs caused permanent hearing loss among US military veterans. The settlement would stop the need for MMM’s once-court-blocked attempt to avoid liability by shifting it to a subsidiary that was then declared bankrupt.

Overnight, Asian markets were nearly green across the board.  Only Malaysia (-0.02%) remained in the red while Japan (+1.73%), Shanghai (+1.13%), and Shenzhen (+1.01%) led the region strongly higher.  In Europe, we do see green across the board at midday.  The CAC (+0.69%), DAX (+0.51%), and lagging FTSE (+0.07%) lead the region higher on volume in early afternoon trade.  In the US, as of 7:30 am, Futures are pointing toward a modestly green start to the day.  The DIA implies a +0.25% open, the SPY is implying a +0.18% open, and the QQQ implies a +0.29% open at this hour.  At the same time, 10-year bond yields are up slightly to 4.239% and Oil (WTI) is off fractionally to $79.72 per barrel in early trading.

There is no major economic news scheduled for Monday.  There are no major earnings reports scheduled for before the opening bell.  Then, after the close, HEI reports. 

In economic news later this week, on Tuesday we get Conference Board Consumer Confidence, JOLTs Job Openings, and API Weekly Crude Oil Stocks Report.  Then Wednesday, ADP Nonfarm Employment Change, Q2 GDP, Q2 GDP Price Index, July Goods Trade Balance, July Retail Inventories, July Pending Home Sales, and EIA Crude Oil Inventories are reported. On Thursday, we get Weekly Initial Jobless Claims, July PCE Price Index (year-on-year), July PCE Price Index (month-on-month), July Personal Spending, August Chicago PMI, and the Fed Balance Sheet.  Finally, on Friday, August Average Hourly Earnings (month-on-month), August Average Hourly Earnings (year-on-year), August Nonfarm Payrolls, August Private Nonfarm Payrolls, August Participation Rate, August Unemployment Rate, August S&P US Mfg. PMI, August ISM Mfg. Employment, August ISM Mfg. PMI, and August ISM Mfg. Prices are reported.

In terms of earnings reports later this week, on Tuesday, BMO, BNS, BBY, BIG, CTLT, CHS, DCI, SJM, NIO, PDD, AMWD, HPE, HPQ, YY, and PVH report.  Wednesday, we hear from PDCO, CHWY, COO, CRWD, FIVE, GEF, OKTA, PSTG, CRM, VEEV, and VSCO.  On Thursday, ASO, CAL, CPB, CM, CIEN, DG, GCO, GMS, HRL, BEKE, OLLI, PSNY, SIG, TITN, UBS, ARMK, AVGO, DELL, LULU, NTNX, and VMW.  On Friday, DDL reports.

In miscellaneous news, CNBC reported Saturday that with 9 million open jobs (in June) and only 5.8 million unemployed workers, a serious imbalance exists. Economists have suggested easing immigration policy to help address the problem, which an economist from the Cato Institute (Libertarian) estimates is costing the US “something like $1 trillion a year” in lost GDP.  (The current immigration process takes about 5 years for a person to legally enter the US and join the workforce.)  However, a survey taken by that same institute found Americans are split on easing immigration restrictions.  As you probably expected, that split is largely along political lines.  Elsewhere, CNBC also reported Saturday that AMZN is expanding its biometric authorization process.  The company already has 200 Whole Foods Market stores that allow customers to have cards on file and then authorize payments by scanning their palms.  AMZN says it will expand that number to 500 stores by year-end. Finally, it seems a primary driver of Asian (and probably European) markets are Chinese measures announced Sunday. China reduced the tax on stock trades, eased restrictions on executives selling shares, and lowered deposit ratios for margin trading. All the moves were to encourage more trading in Shanghai, Hong Kong, and Shenzhen. However, while there was a pop, many investors were looking for stronger action to actually stimulate the Chinese economy.

With that background, it looks like the Bulls are retesting the T-line (8ema) in all three major index ETFs in the early session. The QQQ candle is showing some bullishness (not just a modest gap higher) while the two large-cap index ETFs are much smaller premarket candles. The bulls still have a lot of work ahead of them since in addition to the 8ema, the 50sma remains overhead (we are still looking at a Blue Ice Failure pattern in all three). There is also a number of levels created by previous swing points to overcome. In other words, the Bears have the momentum. As far as extension goes, none of the major index ETFs are too far extended from their T-line and the T2122 indicator is sitting right at the upper edge of the oversold territory. So, both sides have room to run but the Bulls obviously have more slack if they could manage a rally.

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.

Ed

🎯 Mike Probst: Rick, Got CTL off the scanner today. Already up 30%. Love it.

🎯 Dick Carp: the scanner paid for the year with HES-thank you

🎯 Arnoldo Bolanos: LTA scanner really works $$, thanks Ed.

🎯 Bob S: LTA is incredible…. I use it … would not trade without it

🎯 Malcolm .: Posted in room 2, @Rick… I used the LTA Scanner to go through hundreds of stocks this weekend and picked out three to trade:  PYPL, TGT, and ZS.   Quality patterns and with my trading, up 24%, 7% and 12%…. this program is gold.

🎯 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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