Red sky at night. Sailors' delight? An old adage? Yes, but one whose roots are found in science and has been taken as a positive sign by travelers for millennia. For a red sky at dusk often means that one sees the setting sun through a prism of dust particles. Aesthetically beautiful, but more importantly, a sign that high pressure and stable air exists just to the west and could likely move in for the short term.
Price discovery across domestic equities was painted in a rather negative light on Tuesday afternoon, which was really a bum rap if you ask me. You didn't, but I do think a lot, I do write about and... here you are. I guess there is at least some kind of relationship between us. Those who've read me for a while might recall a screen that I have mentioned in the past. Basically this screen turns all indices (of my choosing) that are up more than half of one percent or more for the day green... while turning those down half of a percent or more red. All those indices that remain anywhere between up 0.49% and down 0.49% remain orange as to signal insignificant change.
I am sure that none of you will be surprised to hear that there were no indices among my group that shaded green for the day. You might be surprised to learn that only the Dow Industrials, an index I follow really only for tradition's sake, ended the day in red, and that was only at -0.56%. (I don't routinely track the Dow Utilities.) That means that while the broadest, most focused upon large-cap indices, the S&P 500 and the Nasdaq Composite were both essentially down "small", while specialized large cap indices were either up small (the Dow Transports), or also down small (Nasdaq 100). Downsize a little and the S&P 400 (mid-caps), the S&P 600 & Russell 2000 (both small-caps) only nudged a tad higher.
The point is that Tuesday's market was far less negative than presented. While the sector performance tables show that really only the Energy sector had a nice day, and that the REITs and Financials were essentially flat, that the other eight sectors underperformed. Breadth, however, was quite strong across the landscape. Why? I told you yesterday. The market is broadening more than it is rotating. This isn't rocket science. Thank goodness.
Take the Information Technology sector for instance. The SPDR ETF (XLK) closed at -0.6% for the day. Hardware and the Semiconductors performed in general with the sector. That could be that they are more dependent upon an active consumer, or capital expenditures. Software, despite still being where the profits are, will remain the most important industry not only in the sector, but perhaps across the entire economy as viral spread slows velocity more quickly than science can re-engage the human inside the home with that other human across the street. The Dow Jones US Software Index closed flat for the day on Tuesday.
More broadly, which obviously includes energy stocks, transports that rely upon energy and less than large cap firms, the picture was quiet rosy. At the NYSE, winners beat losers by close to 4 to 3, as advancing volume decisively defeated declining volume (nearly 2 to 1). The margin of victory was a bit more narrow up at Times Square, but winners did beat losers, and advancing volume did beat declining volume.
1) Breadth is quite positive, despite negative performance at the headline level.
2) Large cap indices are still moving sideways close to the top of the chart. Volume does not appear to be significantly higher on either "up" or "down" days. In short, there is no widespread (at least not yet) professional distribution.
3) Negative news, such as slowing retail sales, or viral spread does not seem to be taking the kind of toll on market performance that one might expect. In fact, outside of a few names that have obviously become more volatile, market leadership remains intact. Year to date, the Technology sector has a comfortable lead on the other 10 groupings, at +34%. Over the past 30 days, Technology is in last place, but, and this is a big but... still shows gains for the period.
Red Sky In Morning
Sailors take warning? Red skies to the east at dawn can indicate elevated moisture in the atmosphere to the east. Still pretty? Yes. Warning to go find shelter? Also, yes. On Tuesday, we learned that October Retail Sales slowed significantly in aggregate, month over month to the least impressive pace of growth since the (world ended) economic rebound began in earnest last spring.
What was strong? Motor vehicles and parts. Nobody wants to use mass transit. Electronics and appliances. Whether for work or entertainment, still a sign of a stunted economy. Building Materials. Part of the "get me out of here" craze. Where was the weakness? Apparel. No need. Sporting Goods and Musical Instruments. In other words... group fun. Department Stores. No kidding. Furniture. Hmm, despite increased demand for someplace else to live.
The fact is that while vaccines reaching across certain milestones with increasingly positive looking data, and while from a macro perspective... there is a light at the end of the tunnel, the next three to six months probably get ugly. The consumer became far less aggressive in October. By all accounts, November is worse so far. The holidays are coming. So are defaults, and reductions in headcount at a wide swath of employers. According to JP Morgan, which I found in the Wall Street Journal... credit card usage is down 4% for the most recent week reported from the same week a year ago.
On That Note...
On Tuesday, Fed Chair Jerome Powell in reference to the pandemic said that "the next few months may be very challenging." He added, "The concern is that people will lose confidence in efforts to control the pandemic, and... we're seeing signs of that already." In addition, investors must remember that the suite of emergency lending programs entered into jointly by the Federal Reserve Bank and the U.S. Treasury Department expires in aggregate on December 31st. Heck, "this" Treasury Department likely expires in January. No word on any program extension.
On the bright side, Pfizer (PFE) is said to be "very close" to seeking an "Emergency Use Authorization" from the FDA for the vaccine candidate that the firm and collaborative partner BioNTech (BNTX) released interim data for a week and a half ago. This is the one that requires deep-freeze storage. No word as of yet on when Moderna (MRNA) will be ready to take that step, which is key. Though Moderna does not yet have the inventory, the finished product should be far more user-friendly for those involved in the logistics of distribution.
Nvidia (NVDA) Reports Tonight
Your pal Sarge is focusing on three things...
1) Gaming going into the holiday season.
2) Demand for the Data Center this deep into the pandemic.
3) Forward guidance at least on product shortages. Tell us something.
I Want Candy
Not in the name, just something I noticed while messing around with my charts last night. Could be fun to watch.
What you readily see is that Tootsie Roll (TR) hit stiff resistance on Tuesday at the stock's 200 day SMA. What you may or may not know, is that there are roughly 17.5 million shares in the float here. The firm is 59% owned by funds, while nearly 42% of the entire float is held in short positions. Seeing that the stock has been spiking month to date off of a double bottom... and knowing how risk managers think, I have to imagine that should this 200 day line be taken and held that at least a significant portion of risk managers will compel portfolio managers with short positions to act upon such a technically positive event. Food for thought. Possible squeeze imminent.
Economics (All Times Eastern)
08:30 - Housing Starts (Oct): Expecting 1.455M, Last 1.415 SAAR.
08:30 - Building Permits (Oct): Expecting 1.565M, Last 1.545M SAAR.
10:30 - Oil Inventories (Weekly): Last +4.278M.
10:30 - Gasoline Stocks (Weekly): Last -2.309M.
13:00 - Twenty Year Bond Auction: $27B.
The Fed (All Times Eastern)
10:00 - Speaker: Chicago Fed Pres. Charles Evans.
12:15 - Speaker: New York Fed Pres. John Williams.
13:20 - Speaker: St. Louis Fed Pres. James Bullard.
19:00 - Speaker: Atlanta Fed Pres. Raphael Bostic.
Today's Earnings Highlights (Consensus EPS Expectations)