The impression that you sell
Passes in and out like a scent
But the long face that you see comes from living close to your fears
If this is up then then I'm up but you're running out of sight
You've seen your name on the walls
And when one little bump leads to shock miss a beat
You run for cover and there's heat, why don't they
Do what they say, say what they mean
One thing leads to another
- Woods, Agius, Curnin, West-Oram, Greenall (The Fixx), 1982
Tentacles
Monday morning. Or is it late Sunday night. I think it's Monday morning. I know it is Monday in Beijing where the People's Bank of China (PBOC), China's central bank, announced on it's website that it would reduce the reserve ratio requirement for large banks by 50 basis points, effective December 15th. Currently the "RRR" for large banks, after taking a number of targeted cuts for inclusive financing into account, stands at 10.5%. This news has worked somewhat to counteract news on Friday that real estate developer Evergrande (EGRNF) warned investors that the firm may be unable "to continue to perform its financial obligation."
You thought it was all about Omicron and inflation? Oh, indeed it is, generally. Still news like Friday's doesn't help global markets, and markets, at least some markets, always like easier money. U.S. equity futures were up across the board through the wee hours and they did noticeably "pop" on Sunday night as the RRR cut made the rounds as a rumor prior to becoming hard news. Still, the optimism seems to fade as we approach what most folks in North America consider to be dawn.
Did anyone else notice Bitcoin's semi-crash on Saturday? The world's best known cryptocurrency gave up about 20% before recovering somewhat on Sunday. This morning, I see BTC/USD trading around $47,400. Ethereum (ETH/USD) trades at $3.962 as I bang away on this keyboard. Of course, at least a significant part (opinion alert) of this crypto selloff comes on the heels of a week where equities took a nasty beating. It does not take much imagination to see that as the Russell 2000 gave up 3.86%, the S&P Midcap 400 2.78%, and the Nasdaq Composite 2.62% in an environment where really only the Utilities escaped with their shirts that cryptocurrency holders (or are they hodlers?) would need to raise cash at week's end.
Marketplace
So, it came to pass that the S&P 500 and Nasdaq Composite would give up their respective 50 day simple moving averages on Friday. Nine of 11 S&P sector-select SPDR ETFs would close lower, with the already mentioned Utilities (XLU) trading higher and the REITs (XLRE) essentially flat. All of your favorite small to mid-cap equity indices gave up their ever more important 200 day SMAs. Trading volumes would remain heavy, and quite decisively negative over the five day period.
Traders need to note that while it appeared that tech was indeed quite weak last week, that beat-down was rather uneven. As the Dow Jones US Software Index surrendered 3.93%, led lower by DocuSign (DOCU) , Teladoc (TDOC) , CrowdStrike (CRWD) , and Coupa Software (COUP) , who were down 45.6%, 15.7%, 15.3%, and 15.1%, respectively. Note that Coupa is set to report tonight. In addition, taking from the Communication Services (XLC) sector, the Dow Jones US Internet Index sank 4.8% for the week.
However, staying within the tech space, the Philadelphia Semiconductor Index ran 1.26% higher, led by Marvel Technology (MRVL) at up 16.1%, and followed by NXP Semiconductors (NXPI) , On Semiconductor (ON) , and Lam Research (LRCX) who were all up between 3% and 7% for the five days. Traders may want to note that as the VIX ran to 34.6 on Friday, and is already now well below that level at 29-ish, that Put/Call ratios ran to what are usually unsustainable levels on Friday as well.
As investors trembled silently inside scary, darkened rooms, the CBOE Total Put/Call Ratio ran higher than it had since May of 2020...
While stripping out options for everything except equities, the ratio only offers the highest reading of the year...
Perhaps markets get off to a decent start this week, which as we know, has absolutely nothing to do with how the week ends.
My Thoughts
I think the market will move on any headlines that sound either optimistic or not so optimistic in regards to the Omicron variant's impact on travel, and even more importantly, the everyday business of going to work or school. The Fed has gone into "blackout" ahead of their December 15th policy statement, which is also when the FOMC will next release their "usually highly inaccurate" economic projections.
Expect markets to remain highly volatile until then, as that is probably around when we will hear something on Omicron that does not have to be labeled as anecdotal in nature. Keep in mind that the 50th week of the year is typically the S&P 500's weakest in terms of seasonality between September and March. That's not this week. This is the 49th week of the year. That's next week... when we hear from the Fed, and when we likely hear something hard on Omicron. Oh, joy.
For that reason, I think I am likely to remain "skinny" for now, and prioritize trading over investment at least for the next 10 business days or so.
Send In The Clown
Another reason for the increased volatility on Friday afternoon, was algorithmic reaction to news that former Treasury Secretary Larry Summers (who appeared on "Wall Street Week '' at Bloomberg Television) had opined on what he thought the Fed should be doing right now: "I'd be signaling four rate increases next year - with two-sided uncertainty, depending on how the inflation figures work out. That will be a jolt. But a jolt is what is required to restore credibility."
All I can think is "Thank goodness this guy has not recently been placed in a position bearing any real responsibility." Talk about a lack of finesse. Just think about this part of that quote... "with two-sided uncertainty, depending on how the inflation figures work out." Well, no kidding, genius. Any freshman in high school with a passing interest in economics could have come up with that one.
Week Behind/Week Ahead
Yes, November CPI is due this Friday. Yes, the print is probably going to hit the tape leaving scorch marks. What we have to determine is that while the pace of inflation has accelerated to much higher levels than anyone had projected, just how much of this inflation is indeed "transitory" as much of it obviously is... due to supply chain issues that still have to be unkinked, how much of it is flexible... such as what is created through job creation, hours worked and wage growth... and what is truly sticky. That last part is basically based on what kind of price changes are driven by a transition from an economy "driven" by dependency on energy provided through the use of fossil fuels to a more "ESG" friendly future (which will not come cheaply).
One quick take away from last week, we all know that Non-Farm Payrolls (taken from the Establishment data) printed at a very disappointing 210K (seasonally adjusted) jobs created. What the media fails to discuss, why I have no idea, is that the Household survey showed an extremely robust November increase of 1.136M employed persons. Obviously at least one of these numbers is very, very incorrect. Maybe both. ADP reported 534K private sector jobs created in November. ADP relies on hard data. Both of the government surveys are just that... surveys that are then extrapolated over a much larger population than they probably should be. The answer? Probably that the ADP Employment Report is the best monthly indicator for job creation we have here in the U.S.
The Final Frontier
Investors probably want to keep in mind that one of the space industry's most hyped investor conferences takes place on Tuesday this week (December 7th). You'll hear from a slew of industry names, some you have heard of, some maybe not. Three Sarge faves that have been beaten down of late, are expected to participate. Those would be Palantir (PLTR) , Redwire (RDW) , and Red Planet Labs, which is private (for the moment), but is half of the SPAC merge with dMY Technology Group IV (DMYQ) that is expected to close this week.
Short-Term Trader
Readers will note that Salesforce (CRM) , while down 9.1% last week (versus the 3.9% surrendered by the Dow Jones US Software Index) found support just above its 200 day SMA for each session from Wednesday through Friday. In addition, the stock finished off what was a weak session on Friday with what appears to be a "hammer" candlestick, meaning that the shares fought back far more than half of the way after reversing higher intraday... after finding that already mentioned support. There also remains an unfilled gap in between $277 and $283 that was left behind after earnings.
Readers will also note that long-time Sarge fave Advanced Micro Devices (AMD) could be in a bit of a jam. After the stock lost the 21 day EMA on Friday, one sees that the intraday rebound in this name was not nearly as strong as what we see above in Salesforce. The body of the red candlestick (in between the open and close, excluding the wicks) on Friday engulfs the body of the white candlestick on Thursday, on increased trading volume. This is a negative short-term signal. Readers should also be cognizant that AMD gave up 4.4% last week, while as mentioned above, the SOX (Philadelphia Semiconductor Index) was up 1.26%.
Economics (All Times Eastern)
No significant domestic macroeconomic data scheduled for release.
The Fed (All Times Eastern)
Fed Blackout Period.
Today's Earnings Highlights (Consensus EPS Expectations)
After the Close: (COUP) (.02), (MDB) (.35)
(MRVL, CRM, and AMD are holdings in the Action Alerts PLUS member club. Want to be alerted before AAP buys or sells these stocks? Learn more now.)
