Equity markets appeared to have changed their tune on Tuesday. Oh, there was still a sharp move over the final 30 to 40 minutes of the regular session. This time, however, instead of raising cash into the bell, buy programs took an already "up" day even higher. Surely this was not in response to the interest rate picture. The US 10 Year Note paid as much as 1.96% at its lows on Tuesday (Currently trading at a yield of 1.92% through Wednesday morning's wee hours.), as equity index futures continue to shade green.
Remember that sharp Monday reversal. where the U.S. indexes formed their recent lows and closed up for the day? That was already two and a half weeks ago. It took a week after that to confirm the end of the recent correction through high volume price discovery. So, capital is flowing into equites for roughly two and half weeks now, as the Treasury yield curve from top to bottom continues to stretch out (steepen), but the belly continues to warp (flatten). Many industrial commodities (not crude) bottomed around the same time as equities. Ditto for higher quality cryptocurrencies.
What gives? You know what topped as equities, some key commodities and higher quality cryptos bottomed? That's right. The US dollar. The US Dollar Index is lower since peaking at 97+ early that last week of January. The Pound is higher versus the US dollar as the Bank of England has been ahead of the Fed on their hawkish turn. The Euro is higher versus the US dollar as the European Central Bank started jawboning tighter policy intentions well ahead of when anyone expected them to. The dollar has also lost value versus it's Canadian peer over that time frame as the Bank of Canada sounded hawkish at that central bank's last policy meeting on January 25th.
Where has the US dollar not weakened? In its relationships to the Japanese Yen and Chinese Yuan. Quite simply, there is not the political will in Asia to tackle inflation that you see in the west. It seems the Bank of Japan welcomes their minor uptick in prices experienced there, and Beijing does what Beijing does. Western central banks however do appear to be either working together in order to maintain some kind of parity. Either that, or they're doing a good impression of doing so.
That said, January CPI prints on Thursday morning in the U.S. Earnings season has been quite good, relative to pre-season expectations. Year over year projections for that headline CPI print are for a very scary sounding 7.3%, up from December's 7% increase. Does that force the Federal Reserve back to the forefront? Will there be sticker shock? What if CPI printers below these projections? What will keyword reading algorithms do then? What will the US dollar do? This is becoming, after all... a dollar story. Currency war? Not if they all keep working together. They know that. At least most of them do.
Lights, Camera...
Action. On Tuesday, for a second consecutive day, small-caps led the way north, as the Russell 2000 gained 1.63% for the session. The index closed last night as it approached it's 21 day EMA. The Nasdaq siblings come next. The Nasdaq Composite gained 1.28%, while the Nasdaq 100 gained 1.21%.
Readers will note that the Composite (and the 100) both pierced their respective 21 day EMAs on February 2nd, were unable to hold that line, and have pressed up against that line as algorithmic resistance ever since. Wondering if this rally runs out of gas soon? I have already told you, CPI prints about 24 hours from now, and that could change "things." That said, if the worm turns, it will not be because these markets are getting overbought. The Nasdaq Composite is not even close as of yet. The "Comp's" Relative Strength Index and Full Stochastics Oscillator are both a long ways from getting there.
In fact the RSI has cooled over the past week as certain slices of the Nasdaq universe have not partied along with the band. As far as the daily MACD is concerned, yes you do have a bullish looking crossover that has survived for about a week, but look at how far below sea level both the 12 day and 26 day EMAs are. This indicator speaks to the potential for a longer runway.
Now, we'll sit down and chat with the S&P 500. Hey, little buddy. There are a lot of similarities here. The February 2nd strike into territory held by the 21 day EMA, and the failure to hold that line as well as the subsequent resistance at that same line are two. There are, though, a couple of differences. Most glaringly, the S&P 500 retook it's key (more key probably than any other line) 200 day SMA, and held that move.
This is due to the early year move toward value and defensive types, as well as the oils and banks. We see a Full Stochastics Oscillator that is a lot later in the rally than it is for the Nasdaq Composite, as this index is being pressed between support at the red line (50 day SMA) and resistance at the green line (21 day EMA). Something's gotta give. Probably soon. Oh, did I mention that Disney (DIS) reports tonight, ahead of that CPI number?
Painting Rocks
Eight of the 11 SPDR sector ETFs closed in the green on Monday, this time led by Materials (XLB) , Discretionaries (XLY) , and Financials (XLF) , as investors are starting to favor the growth with inflation story over the tightening into weakness market narrative. I remain unconvinced either way. That said, I am smart enough (I hope) to trade the environment presented regardless. Traders finally took profits across the Energy (XLE) after that fund had run an incredible 17.7% from the lows of January 24th through Monday's high.
Winners beat losers by a loose 5 to 3 at both of New York's primary equity exchanges. Advancing volume took an even 65% of the composite for NYSE listed stocks, and a 68.9% share of the pie for Nasdaq-listed names. Aggregate trading volume increased slightly on Tuesday from Monday for NYSE listed names, S&P 500 subordinate names, and Nasdaq Composite subordinate names. Only aggregate trading volume for Nasdaq-listed stocks decreased at all, and it was this >< close. All in all, Tuesday's rally counts as a day of accumulation. Broad accumulation.
Easy Peasy
In a rare moment of political cooperation, the House of Representatives passed legislation on Tuesday evening that would keep the federal government funded through mid-March under a temporary resolution that would keep the government funded at fiscal 2021 levels, allowing these "highly skilled" negotiators to continue with the task at hand. The bill now goes to the Senate.
For those not keeping up with the story... Yes, the government's fiscal year ends as September melts into October, and "we" are already operating under temporary conditions that will run dry by February 18th. See how easy this is when nobody wants to look like the bad guy?
Promises In The Dark
But promises, you know what they're for
It sounds so convincing, but you've heard it before
'Cause talk is cheap and you gotta be sure
And so you put up your guard
And you try to be hard
But your heart says try again
- Benatar, Giraldo (Pat Benatar), 1981
On That Note...
In an interview with The Financial Times, President Biden's chief medical advisor Dr. Anthony Fauci said, "As we get out of the full-blown pandemic phase of Covid-19, which we are certainly heading out of, these decisions (restrictions, etc.) will increasingly be made on a local level rather than centrally decided or mandated. There will also be more people making their own decisions on how they want to deal with the virus."
My focus here, as I think almost everywhere, masking and social distancing has become localized, is on the words... "As we get out of the full-blown pandemic Phase of Covid-19, which we are certainly heading out of." We can only hope. It seems based on recent history that a new variant that changes things and scares the snot out of a whole lot of people emerges every five months or so. Omicron showed up around Thanksgiving.
You Don't Say?
According to Bloomberg News, Beijing actually bought 62.9% of the extra goods agreed to in January 2020 for the two years ending 2021 in the high profile "Phase One'' trade deal between the U.S. and China. I don't think this is really news to anyone. Pretty sure we all saw this coming in January of 2020.
What The?
While rank and file Peloton (PTON) employees will receive severance packages that include both compensation and benefits, employees facing the axe were also offered one year free subscriptions to Peloton. Hey, why not try to turn them into recurring revenue as they face their exit interviews. How nice. Meanwhile, the corps of instructors whose senior members are reportedly paid upward of $500K annually will not be included in the 20% of the firm's labor force being shown the door.
Now, I don't argue against anyone making what they are or might be worth. That said, Peloton, I do get that these folks are popular, and they do drive the cult-like enthusiasm of your devoted users, but just who are you bidding against for this talent? How many jobs could be saved, if this portion of payroll was left disproportionate to other parts of the firm, but at least brought in line with the market? Unless I'm wrong. Maybe all of those other streaming workout subscription services are paying their on-air talent like this.
But, Of Course...
On Tuesday evening, GlobalFoundries (GFS) , the U.S. based contract semiconductor chip foundry majority owned (85%-ish) by the United Arab Emirates state investment fund Mubadala, released the firm's fourth quarter financial results. GFS posted adjusted EPS of $0.18 on revenue of $1.85B. Both numbers were decisive beats of Wall Street consensus, while the revenue print was good for year over year growth of 74.5%.
The firm guides current quarter revenue toward a range of $1.88B to $1.92B, above the $1.84B that Wall Street had in mind, while taking projected adjusted EPS to $0.24 at the midpoint, well above the $0.17 consensus view. Who could have seen demand surge for a U.S. based chip foundry at a time like this? Key customers include Qualcomm (QCOM) , NXP Semiconductor (NXPI) and Qorvo (QRVO) .
I came in long GFS for a trade. Readers who may have done the same, already know that the shares are trading above $58 overnight. What I see is traffic to the upside, with the 50 day SMA at $59.50, and a 61.8% Fibonacci retracement of the early December through late January selloff landing at $61.80.
My plan? To sell these shares on this morning's pop, especially if they make a run at the 50 day line... and if that works out, reload on the swoon. Of course, everyone has a plan until making enemy contact. This is probably a decent name for the next year, but only (for me) adding on weakness.
Economics (All Times Eastern)
10:00 - Wholesale Inventories (Dec-rev): Flashed 2.1% m/m.
10:30 - Oil Inventories (Weekly): Last -1.046M.
10:30 - Gasoline Stocks (Weekly): Last +2.119M.
13:00 - Ten Year Note Auction: $37B.
The Fed (All Times Eastern)
10:30 - Speaker: Reserve Board Gov. Michele Bowman.
12:00 - Speaker: Cleveland Fed Pres. Loretta Mester.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (CVS) (1.88), (DKNG) (-.80)
After the Close: (MAT) (.33), (PEP) (1.52), (UBER) (-.29), (DIS) (.63)
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