On Monday, markets started the day essentially flat (opening up 0.15% in the SPY, up 0.27% in the DIA, and down 0.33% in the QQQ). After that open, the SPY rallied slowly until 11:30 am. Meanwhile, the DIA rallied more strongly but only for 30 minutes. The QQQ sold off during the first 30 minutes but then rallied until 11:30 am. From that point, all three major indices had a midday slump before rallying right back to where they were at 11:30 am. This action gave us a white-bodied inside day candle in the SPY (crossing above its T-line in the process). QQQ printed a white-bodies Hammer candle. For its part, DIA printed a white, large-bodied candle with only a tiny upper wick (also crossing back above its own T-line by pennies). This happened on average volumes (down from the last week and a half) as traders wait on the Wednesday Fed move.
On the day, all 10 sectors were in the green with Energy (+1.68%) leading the way higher while Consumer Cyclical (+0.38%) lagged behind the other sectors. At the same time, the SPY gained 0.94%, the DIA gained 1.19%, and the QQQ gained 0.20%. VXX fell 5% to 53.16 and T2122 rose back out of the oversold area to 24.82. 10-year bond yields climbed (significantly from premarket open) to 3.492% while Oil (WTI) fell 1.15% to $67.51 per barrel. So, Monday saw markets calm down after the Friday bank worries. This came even though FRC got hammered (-47.11% after several trading halts during the day) and a few other regionals were also big losers. However, NYCB, PACW, FCNCA, and other regional banks also were big winners on the day.
In stock news, AMZN announced Monday that it will lay off 9,000 more employees in the coming weeks. (The company laid off 18,000 in November – January.) In leadership news, the CEO of NCLH announced Monday that he is retiring in June and will be succeeded by insider Frank Del Rio. At the same time, SBUX CEO Shultz left two weeks early with new CEO Narasimham taking over Monday. Elsewhere, MULN announced it has acquired both the North and South American distribution rights for the DragonFLY K50 electric supercar (capable of 0-60mph in 2 seconds and a top speed of more than 200mph). At the same time, PSNY officially launched an electric SUV in China and clashed its starting price by $29,000 in doing so. It is unclear if PSNY intends to offer the reduced prices in the US as well. Meanwhile, JPM CEO Dimon is heading up talks with other major bank CEOs in an effort to rescue and stabilize FRC. The Wall Street Journal reports sources to the talks tell them that some or all of last week’s $30 billion in deposits the big banks made at FRC may be converted to a capital injection. However, the same sources told WSJ that a complete buyout is also on the table. In other banking news, COIN has stopped support for the SBNY digital payment platform (more than a week after regulators took control of the bank and a day after NYCB entered into an agreement to buy the deposits and loans of SBNY). In M&A news, RBA completed its acquisition of IAA on Monday. In M&A rumors, Reuters reports the TMO and South Korean firm Celltrion are competing to acquire the BAX Biopharma Solutions unit. Sources told Reuters the sale could net BAX $4 billion.
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In stock legal and regulatory news, European Commission Vice President Vestager said Monday that tax deals between multinationals and EU countries amount to illegal tax breaks. She indicated new investigations into many multinational companies are likely to happen. Europe’s top court has not yet ruled on her ruling (thrown out by lower courts) against AAPL, AMZN, and SBUX. However, the same court did uphold her ruling against ENGIY and her actions have forced Luxembourg, the Netherlands, and Belgium to change their practices of giving breaks to corporations. Elsewhere, the NHTSA said Monday that F has recalled 1.5 million (2013-2018 Fusion and Lincoln MKZ) vehicles over faulty brakes and wipers. Meanwhile, GOOGL has denied charges from the US DOJ (and 30 states) that the company intentionally destroyed records of internal chat communications related to the search business as part of an antitrust case. GOOGL said it made “reasonable efforts” to preserve those records since the case was filed in 2020 but unfortunately those records have now been permanently deleted. In other potential news, IATA (an airline industry lobbying group) told Reuters Monday that increased airline travel may trigger UN-based global emission caps on the major airlines (AAL, DAL, UAL, JBLU, etc.) as soon as 2024.
In energy news, Reuters reported that US crude oil exports to Europe have hit another record this month, at an average of 2.1 million barrels per day so far in March. The report cited lower demand from US refineries and the broad discounts in the WTI benchmark price. Meanwhile, over in the Natural Gas space, the front-month April Natty contract continued falling Monday. The price closed at $2.24/mmBtu, the lowest closing price since February (which was itself the low since July 2020).
In miscellaneous news, President Biden used his first veto to slap down the anti-ESG bill (which forbade federal employee retirement funds from considering ESG issues for any reason when choosing investments, regardless of the implications of such or customer preferences). The bill had passed both houses of Congress with small majorities. So, it is unlikely supporters can overcome the veto. On the other side of the political aisle, a few GOP lawmakers have already requested all documents and personnel records from the Fed and FDIC relating to the failures of SIVB and SBNY banks. Their letter to the agencies seems to state a conclusion (before beginning) with the letter demanding the records, citing what “appears to be glaring bank mismanagement and regulators lack of basic supervision and enforcement of…rules.” There is no word on when the investigation will begin or when hearings will be held.
Overnight, Asian markets leaned heavily to the green side. Japan (-1.42%) and New Zealand (-0.29%) were the only red in the region. Meanwhile, Shenzhen (+1.60%), Thailand (+1.40%), and Hong Kong (+1.36%) led the area markets higher. In Europe, we see green across the board at midday. The FTSE (+1.37%), DAX (+1.64%), and CAC (+1.50%) are leading the continent higher in early afternoon trade. As of 7:30 am, US Futures are pointing toward a move higher to start the day. The DIA implies a +0.88% open, the SPY is implying a +0.80% open, and the QQQ implies a +0.54% open at this hour. At the same time, 10-year bond yields are climbing fast to 3.549% and Oil (WTI) is up fractionally to $67.79/barrel in early trading.
The major economic news events scheduled for Tuesday are limited to Feb. Existing Home Sales (10 am) and API Crude Oil Stocks Report (4:30 pm). The major earnings reports scheduled for the day include CSIQ and TME before the opening bell. Then after the close, AIR, GME, and NKE report.
In economic news later this week, on Wednesday, EIA Crude Oil Inventories, Q1 Interest Rate Projections, the Fed Rate Decision, and the Fed Statement, are all reported and 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 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.
So far this morning, CSIQ and TME reported beats on both the revenue and earnings lines. It is worth noting that CSIQ also lowered its forward guidance.
In late-breaking news, this morning Treasury Sec. Yellen told an American Bankers Association audience that the government is ready to guarantee more deposits if the banking crisis were to worsen. In an apparent attempt to stave off criticism (mostly from GOP lawmakers but also the most progressive Democrats), she said the actions taken so far were not aimed at any specific banks or classes of banks but instead were to protect the broader US Banking system. She went on to say “And similar actions could be warranted if smaller institutions suffer deposit runs that pose a risk of contagion.” FRC (currently the most troubled bank) jumped 15% in premarket after her remarks were published. Finally, as of this morning, the Fed Funds Futures are saying that there is an 86.4% probability of a quarter-point hike by the Fed tomorrow and a 13.6% chance we see no hike.
With that background, it looks like the bulls are making another charge this morning (at least in the premarket). SPY is challenging Thursday’s high and DIA is well above its recent high. However, while QQQ is moving up, it remains below the recent highs from Thursday and Friday. Overextension is still not an issue in any of the big indices and T2122 is up out of the oversold territory at this point. While the regional banking issue may cause more turbulence, I suspect we may be in the “wait and see” area ahead of Fed actions on Wednesday. So, the bulls may make a run this morning and we should be prepared for bank-caused volatility. However, much like Monday afternoon, I think we may drift until there is certainty on the Fed’s move.
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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