"That ball is high! It is far! It is... GONE !!"
-- John Sterling, New York Yankees announcer
Seemingly, it came out of nowhere. Surely that could not be true.
We knew that certain indices designed to gauge professional investor sentiment had soured over the past week. We knew that among large-cap indices at least the Dow Industrials and Dow Transports had wandered close enough to becoming technically oversold that our eyes were glued to that action. We became concerned about the ability of markets to hold onto supportive 50-day simple moving averages. Sure, the focus would be on the S&P 500, as this index remains if not a proxy for equity markets in general, at least one of the two large-cap indices that all professionals glance at first prior to digging into all of the facts and numbers that must be part of individual marketplace interpretation.
Monday was a no-doubter. Ever see a slugger hit one out of the park, way out of the park? At no point on Monday, did markets show signs of the malaise that plagued trading floors last week. The overnight session (Tuesday's opening is still more than five hours off) doesn't look too bad either.
Most interestingly, I want you to take a look at this.
I usually show you the 50-day and 200-day SMAs (simple moving averages) because these two lines are where a considerable level of portfolio manager action is provoked, often forced by risk managers. The S&P 500 did experience a piercing (but clearly not breaking) of the 50-day SMA on Friday. On Monday, on the Fox Business Network, I had expressed the hope that the index could retake the 21-day EMA (exponential moving average), which is illustrated in green here, as this line puts more emphasis on recent price levels and is more of focus for the shorter-term crowd.
As readers will see here, though the S&P 500 did not experience an "Inside Day'' on Monday, which would be a pattern on continuance, the "real body" of the past three regular sessions appears to be trapped within these two lines. (The "real body" of any daily candlestick excludes the highs and lows, referred to as either the wicks or the shadows, and includes the area in between the open and close of said session.) This could have provided at least short to mid-term resistance, at least for certain sectors. Maybe. Maybe not.
As the S&P 500 did battle with, and successfully held that 50-day line, several sector select SPDR ETFs did the same.
The Consumer Discretionaries (XLY) , Communication Services (XLC) , and Financials (XLF) all fought that same fight and appear to have done so successfully. The Energy (XLE) and Utilities (XLU) sectors are currently engaged with, or still in close contact with their own 50-day SMAs.
The leadership on Monday came for the most part from semiconductors, software and internet stocks, and this made from a broader perspective, the Nasdaq Composite, yet again, where traders looked at least technically for leadership, as an attempt was made to avoid the apparent trap.
Readers will note that the Nasdaq Composite experienced a piercing of the 21-day SMA on Friday, but it was at this line where traders (and bots) decided to make their stand. This index spent almost the entire day above the 21-day SMA, and that has to be encouraging. Hopefully, this can pull momentum northward for the S&P 500 as well as the more troubled indices. I mean Dow theorists are still going to point at this...
You in the back... you have a question? Ahh, no, you don't have to worry about that. A bearish crossover of the 21-day EMA over the 50-day SMA does not constitute a "death cross" but a good question, though. There might be some algorithms that pick up on that should it occur this (Tuesday) morning.
Why the Surge?
Another good question.
What happened that turned squadrons of algorithms that appeared bent on distribution into an army of buy programs? You did notice the drop in trading volume, right? As aggregate trading volumes dried up at both of New York's primary equity exchanges, trading volumes also fell significantly for the likes of GameStop (GME) , BlackBerry (BB) , Bed Bath & Beyond (BBBY) , AMC Entertainment (AMC) and the like. Not to mention that share prices for these names, for the most part, contracted. Thus, there was reduced need for profit-taking elsewhere in order to either meet obligations or rebalance exposure.
There's more, much more.
A lot of you have probably been closely watching the numbers grow on the Johns Hopkins University website that has been tracking the pandemic globally for about a year now. At the time of this writing more than 26.3 million Americans have been confirmed as infected by the SARS-CoV-2 virus. My bet is that you may not have realized that on Monday, the number of U.S. citizens that have received at least the first of two doses of either the Pfizer (PFE) or Moderna (MRNA) vaccines now outnumber those that have at any point since the start, been infected.
That's right. There are 330 million (or so) Americans on this planet, and if you randomly selected any one of us, there is a higher probability that this individual has received at least one "jab" than of having ever been infected. Quite a milestone.
There's still more, much more.
Now, don't get excited. The Congressional Budget Office (CBO) is kind of famous for misinterpreting economic conditions. Not quite as bad as the IMF, but close. That said, people still pay attention to any projections made by this office. So do keyword reading algorithms.
The CBO is ramping up GDP expectations for 2021, 2022, and quite optimistically sees sustained 2.6% growth right through 2025. The data factors in the recent $900 billion relief package, and the CBO believes that this package alone adds 1.5% to GDP in 2021, returning the size of the U.S. economy to its pre-pandemic level (but not trend) at some point later in the year as the official unemployment rate drops to 5.3%.
Now, we've covered vaccination numbers and CBO daydreaming based on government spending. Government spending is where we go next.
More powerful than either of those factors, from a markets perspective is the negotiation going on between President Biden, who brought forward a proposal for an additional $1.9 trillion in Covid relief (deficit) spending, and has this week been "discussing" the idea with a handful of Republican senators who have proposed a much smaller package of little more than $600 billion.
This is the rub. The Democrats can force a spending bill through of any size and shape they really like through a process known as "reconciliation," which would require just a basic majority as long as they don't lose anyone. In order to appear more bipartisan, the president will need at least 10 Republican senators to "see it his way," and so has been "horse-trading" with some of those on the right perceived as more moderate.
As this president tries to become a unfier, the backlash may come from the extreme members of his own party who would rather not compromise. The same goes for the moderate Republicans that the president has been negotiating with. The fact is that even if there is some compromise, this next package will hit the tape closer to $1.9 trillion than $600 billion as the Democrats do hold the power, and this is more than significant leverage. A bipartisan super majority would legitimize any legislation moving forward, though, and would be desirable.
This is probably our non-earnings lead story at least until January "jobs day" on Friday.
Traders might already know, and the rest would want to know, that shares of Inovio Pharmaceuticals (INO) "popped" 33% on Monday, landing at $16.96 -- and the stock has continued to trade higher overnight. Inovio is one of a number of smaller operations still working on developing a vaccine for Covid-19 and that candidate is still in clinical testing.
What is going on here?
A number of items. Two weeks ago, the company raised $150 million through a secondary offering of 17.7 million shares, so $8.50 a share. That's right, the Inovio just sold stock at $8.50. Since then, the stock has been mentioned on Reddit and this just in.... Blackrock (BLK) , disclosed through a filing with the SEC, that the investment giant now owns roughly 14.2 million shares, or 8.4% of the company.
Oh, two more things you may care about. Inovio's vaccine candidate showed 94% efficacy in Phase 1 testing, and as recently as late last week, so after the secondary offering, more than 27% of the company's entire float was held in short positions.
Tonight's the night. The Chiefs play the Buccaneers this Sunday. Tonight matters more, though, for most of us.
Investors look forward to quarterly results from half of the FANG crowd. Both Amazon (AMZN) and Alphabet (GOOGL) report this evening. Scuttlebutt has it that Amazon is set to report more than $100 billion in quarterly revenue for the first time. FYI, consensus is up around $120 billion, so $100 billion would be a significant disappointment. Investors are going to focus on AWS as much as anything, after Microsoft's (MSFT) Azure hit the ball out of the park in the fourth quarter.
As for Alphabet, word is that the company is going to be a little more revealing tonight, in regards to business unit breakdowns, than it has been in the past. A positive? I'll let you know in half a day.
Go, get 'em, gang.
Economics (All Times Eastern)
08:55 - Redbook (Weekly): Last 3.9% y./y.
16:30 - API Oil Inventories (Weekly): Last -5.272M.
The Fed (All Times Eastern)
13:00 - Speaker: New York Fed Pres. John Williams.
14:00 - Speaker: Cleveland Fed Pres. Loretta Mester.