Gem of a Tuesday, JOLTS Jolt, OPEC + Roils Oil, Dip in Chips

‘Emerald Tuesday.’

“Ruby Tuesday” didn’t sound good. The truth is, I enjoy a risky rally as much as anyone else. Really. I like to see account balances increase, especially for accounts that I don’t manage myself (for a change). But honestly, I would have preferred to see the stock markets trade sideways on Tuesday after Monday’s rally, or even retrace some of Monday’s gains. Instead, Tuesday’s rally was even more impressive than Monday’s action. The Philadelphia Semiconductor Index absolutely soared from 4.46% to Monday’s run of 3.76%. The Dow Transportation was hot again, up another 3.64%, this time on airline strength after being led by ocean shippers and railroads on Monday.

Looking at the major indexes, the Russell 2000 ran another 3.91%, the Nasdaq Composite 3.34% and the S&P 500 3.06%.

The S&P 500, as is the case with the five indices mentioned above, appeared to halt short of testing its own 21-day exponential moving average (EMA), as daily moving average (MACD) convergence divergences only started to improve a bit. However, relative strength in two days has moved away from technically oversold levels, and while far from overbought, it now looks close to neutral.

The Dow Transports seem to be just a little ahead of the rest of the pack. Readers will see that Transportation actually made contact with the 21-day line on Tuesday, potentially sparking some resistance. Note that while the S&P 500 has closed the gap created in mid-September (that little orange rectangle), the Dow Transportation has a much bigger gap to fill and hasn’t even begun that process yet.

Kick in the Tires Tuesday

For a second day in a row, the 11 SPDR ETFs selected by the S&P sector are shaded green, with Energy (XLE) in the lead. Interestingly, on Tuesday, these 11 sector ETFs gained at least 1.52% for the session, with the five cyclical sectors ranking one to five and the four defensive sectors ranking eight to 11. (Talk about optimism — wow!)

This time the trading volume was there, unlike on Monday, where it was only there in certain places. The increase in volume took an incredible 94.1% of composite trades for stocks listed on the New York Stock Exchange and an almost equally impressive 91% of composite trades listed on Nasdaq. Overall trading volume listed on the NYSE rose 7% day-over-day from Monday, while overall trading volume listed on the Nasdaq rose 13.3% day-over-day. ‘other.

The catalysts for Tuesday’s rally were different from Monday’s. Tuesday’s run was initially driven by the Reserve Bank of Australia’s 25 basis point hike in its benchmark rate, where the world was expecting 50 basis points. Could this signal a pivot from the Federal Open Market Committee (FOMC), or at least a slowdown in its hostile behavior?

Second, the JOLTS (Job Openings and Labor Turnover Survey) number for job postings apparently fell in August, from about 11.2 million jobs in July to about 10.1 million. Yes, more than 10 million open positions would still be a lot. That said, the US economy has rarely seen open job openings fall by around 10% month-over-month, and we have yet to see September data. Surely that’s a sign of tighter labor market conditions to come, right? We will see.

So why?

So why would I have seen a sideways action or even a minority percentage retracement on Tuesday instead? Why can’t I enjoy a two-day run that drives the S&P 500 up 5.8%, even though my P/L may look nicer?

It’s simple. To attempt to determine if there has been a change in trend, I need to see some space between the first day and a secondary attempt to push the stock markets higher. This “space” allows digestion. It also allows people like us to determine where short hedging ends and where the real portfolio accumulation begins. The two days together like that, at least in my opinion, now become one movement, as if Monday and Tuesday were one long day. In this case, I don’t believe Tuesday confirms Monday, even with the heavy trading volume.

Of course, there may have been a buildup on Tuesday. This is not our argument. In order to confirm, we have to see (somehow) portfolio managers make the decision to take advantage of the inflated liquidity levels, and we have to see this as contagion. Luckily for us, it’s employment week, so we should see some volatility over the next few days. In addition, the consumer price index (CPI) for September is due next Wednesday. Markets won’t move at the same pace through all of this. I promise.

Simply put, it’s healthier even for bulls if the markets move sideways at this point, or even retrace some of the two-day move without giving it all back. Monday’s lows are slightly higher than last Friday’s lows. Bulls will need to see Monday’s lows hold during the five-day week. Even testing these stockings would be a bitter pill to swallow.

That said…

There are two potential downside forces at play for US stocks on Wednesday. The first step is the OPEC+ meeting in Vienna on Wednesday. Rumors of a crude oil production cut of 1 million barrels per day have pushed oil prices higher for several days. Now it looks like Moscow and Riyadh are pushing for a reduction by the cartel and its allies of up to 2 million barrels a day.

The fact is that not all OPEC+ members are producing to quota and whatever the announced production cut, the actual physical production cut will be less. That said, professional estimates seem to indicate that an announced cut of 2 million barrels per day would still end up reducing physical production by 1 million barrels per day. It’s a lot. It’s also inflation for consumers, whether they’re at the pump or heating their homes. This is not what the United States wants.

This is what Russia wants, however, as its aim appears to be to disrupt global energy markets as much as possible, and rising prices are likely to work in Riyadh’s favor as well. Is the White House reacting in a way to restrict the export of US oil or US refined petroleum products? There will be a response, and then there will be the so-called Russian oil price cap soon. It’s all getting very messy, and it’s all inflationary, at headline level and in the run-up to next month’s midterm elections. Boring, it won’t.

The second potential negative force would be the scuttlebut in Washington that the U.S. Commerce Department is preparing to announce restrictions ultimately banning U.S. companies from selling cutting-edge tech products to Chinese entities that go further and sweep wider than the restrictions already. announcements that hit Nvidia (NVDA) and Advanced Micro Devices (AMD) earlier this year.

Rumor has it that two rules will be established, one intended to prevent Chinese chipmakers and technology companies from acquiring advanced American chips for supercomputers, artificial intelligence and/or military applications. It appears that a size threshold of 14 nanometers may be set for US exports to China.

Second, the United States can also implement a rule that places foreign countries on a sort of notice amounting to an export blacklist if they are not deemed to be cooperating with efforts to ensure they do not violate no US export controls. These developments would obviously weigh on the performance of the technology sector and the semiconductor industry.

In the semi-finals

Micron Technology (MU) made headlines on Tuesday announcing an agreement to invest up to $100 billion over several years to build a chip-making campus in Clay, New York, north of Syracuse. The plan calls for an initial investment of about $20 billion by the end of the current decade, and builds from there, so we’re nowhere near $100 billion. Heck, we’re seven to eight years from $20 billion. Construction work on the New York facility would begin in 2024.

This news comes after Micron previously announced a $15 billion plan to build a new facility in Idaho in the wake of the Chips and Science Act. Intel (INTC) and Texas Instruments (TXI) recently announced US expansion plans. Once the Idaho and New York factories are operational (so not very soon), about 40% of Micron’s chip production will be in the United States, compared to 10% today.

send the clown

You don’t really want to read Twitter (TWTR) here, do you? My expectation, and I’m no legal expert – just a guy with a knack for economics and financial markets – is that the deal closes at $54.20. There is no reason to buy TWTR near this price and there is no reason to sell TWTR until this price is reached. Unless you need the money now.

Breakouts?

Readers know that my energy aspirations are currently Chevron (CVX) and Occidental Petroleum (OXY). I expect energy markets and energy stocks to sell the news on Wednesday regardless of what the news is about as this sector has been too hot this week. That said, I noticed two cup and handle designs in space that are very well developed and still developing. Call it two to watch, not two to buy this morning. I’m not long either of those names myself right now. I have swapped the two in the past.

Marathon Petroleum (MPC)

Pivot: $107

Potential target: $128

Devon Energy (DVN)

Pivot: $74

Potential target: $89

Economy (all Eastern times)

07:00 – 30-year MBA mortgage rate (weekly): Last 6.52%.

07:00 – MBA Mortgage Applications (Weekly): Last -3.7%.

08:15 – ADP employment report (September): 202,000 expected, 132,000 last.

8:30 a.m. – Trade balance (August): Latest -70.7 billion.

09:45 – S&P Global Services PMI (Sep-Rev): Flashed 49.2.

10:00 a.m. – ISM non-manufacturing index (Sept.): Expected 56.0, last 56.9.

10:30 a.m. – Oil inventories (weekly): Last -215K.

10:30 a.m. – Fuel stocks (weekly): Last -2.422M.

The Fed (all Eastern times)

4:00 p.m. – Speaker: Atlanta Close. fed. Raphael Bostic.

Highlights of Today’s Earnings (PSE Consensus Expectations)

Before the Open: (LW) (0.49), (RPM) (1.33)

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