Some Days
There are some days where a tired ache shows itself around midweek and slows one's mental energy and intellectual agility by week's end. Not today, not this week, bucko.
There are other days, like today, like this week, where the energy burns strong and builds into the weekend. Those days, one rises at zero dark-thirty and cannot wait to work, cannot wait to attack the day. To finish the week with the kind of power few ever realize they even have.
I think today is that kind of day. Full battle rattle. Two sources of water. Pack some socks. Do a few push-ups. Rock and roll. For we have been granted one more sunrise. This sunrise. We have been granted at least one more day on this side of the dirt. Let us dig, dig so deep inside of ourselves, knowing that our effort is made in the name of those we love. Yes... we love. Purity. Leave nothing in the tank this day. Seek only... victory.
Have We Bottomed?
There are so many variables that go into a last sale in the year 2022 that I am not ashamed to say I do not know. Beijing acts to support the Chinese economy and Chinese markets. Globally, equities love it. Russian and Ukrainian negotiators apparently come up with a complex plan for a cease-fire. I mean, The Financial Times did not come up with a 15-point peace plan all by themselves. Of that I feel sure. However, these negotiators have leaders who, right or wrong, are less eager to compromise. I can see the points made by the defender, so I am biased. I do not see the points made by the aggressor as valid enough to invade and try to destroy a neighbor completely.
Obviously, equity markets love the idea of a peaceful exit from where Eastern Europe stands right now; energy markets, not nearly so much. What if the aggressor -- in this case, the Russian army, which has taken an embarrassing beating on the field of battle -- turns to more lethal weapons of mass destruction as a means toward subduing its enemy while preserving its own troops and material? They have those kinds of weapons. The invaded do not. Obviously, as the invader grows ever more desperate, this threat becomes a potential reality. Not only would such an event create a new bottom for financial markets, it would remove financial market performance from our list of priorities.
For now, though, I must admit that the third consecutive "up" day for US equities did surprise me. Not that my P/L did not love it. I just thought there would have been post-FOMC profit taking that would have set in by now.
Do I expect to see some profit taking on Friday? Let's just say it would not surprise me. That said, nothing in these markets would further surprise at this point. Clearly, something is now different. In just a few days, the markets have turned and confirmed that turn.
Didn't See Anything
I was 18 years old. Walking the left flank of a patrol. The main body on my right, I could catch a glimpse of them every once in a while so that I was able to maintain an appropriate distance. Someone is coming. I hear the rustling in the dried vegetation on the forest floor. There it is again. It gets close. What the heck? Now so close, whomever is stalking me must be right on top of me. I still don't see anything.
I stop moving, scanning the woods from my rear to my front. Nothing. I get down on the ground, trying to be invisible. Whoa. Face to face with a fairly long snake. Remember, just a few months earlier, I had been a kid from Queens, N.Y. I was still learning how to be at home in the wilderness. Skin... black as coal. It had rounded eyes. My handbook, which I had actually read, said that it was not poisonous. Glanced at me as I was nothing more than an obstacle. Nothing more indeed.
Lesson learned, though. I learned just how easy it was to sneak up on me. What a gift. To discover a weakness in a non life-threatening situation. A lesson I still work to defend against to this day. Always be open to change. Maintain flexibility. Adapt.
Thursday Into Friday Morn
On the third day of the present equity market rally, trading volumes did slow down dramatically. That said, upside momentum built throughout the regular session after the indexes showed some early weakness. By the time that the closing bell had rung its last, the small-cap Russell 2000 had gained another 1.69% to lead the league for the day, followed by the Nasdaq Composite (+1.33%),and the S&P 500 and Dow Industrials, both closing up 1.23%.
All 11 S&P sector SPDR ETFs closed in the green, led by Energy (XLE) , which gained 3.44% for the session, and followed by Materials (XLB) and Discretionaries (XLY) , all three groups considered to be cyclical in nature. Staples (XLP) and Utilities (XLU) , both defensive in nature, brought up the rear.
Winners beat losers by a rough 7 to 2 at the New York Stock Exchange and by a little more than 3 to 1 at the Nasdaq Market Site. Advancing volume took a 74.7% share of NYSE-listed composite trading volume and an 81.4% share of such volume for Nasdaq-listed names. However, as mentioned above, aggregate trading volume did decline significantly on Thursday from Wednesday for NYSE-listed securities, Nasdaq-listed securities, names subordinate to the S&P 500, and names subordinate to the Nasdaq Composite. In other words, the pros were a good deal more tentative on Thursday than they had been on Wednesday.
As far as Treasuries are concerned, the yield paid by the US 10-Year Note remains inverted against the yield paid by the US Seven-Year Note, but now has about 2 basis points of room versus the Five-Year Note and more than 22 basis points of space versus the Two-Year. West Texas Intermediate (WTI) crude and gold are both off of their overnight highs as the US Dollar Index is now off the greenback's overnight lows.
The Call
Beijing, to this point, has still failed to criticize Russia's actions in Ukraine or even term those actions as an invasion. Rather, Beijing has expressed sympathy for the concerns that Moscow had raised as reason for said invasion. China has also appeared to coordinate with Moscow on the spreading of disinformation beneficial to the Russian effort. There are concerns that Beijing might take action that could aid Moscow in avoiding the full effect of global sanctions placed upon Russia as a consequence of its unprovoked aggression. On Thursday, US Secretary of State Antony Blinken said, "We're concerned that they're considering directly assisting Russia with military assistance to use in Ukraine."
On Friday, Presidents Biden of the US and Xi of China will hold their first phone call since the invasion as Xi is likely to present China as eager to prevent the war in Ukraine from worsening or expanding while Biden is likely to try to deter Beijing's further involvement. About the call, according to The Wall Street Journal, Blinken added that the president "will make clear that China will bear responsibility for any actions it takes to support Russia's aggression, and we will not hesitate to impose costs.'' In other words, President Biden will try to drive home the points made by National Security Advisor Jake Sullivan in Rome on Monday.
Should news come out of this call, and it very well may not, this could be a market-moving event. That said, there is a very good chance that what comes out of this call will be as "hush-hush," as was that Rome meeting on Monday.
But Wait, There's More...
As if a call between the US and Chinese leaders was not enough to chew on for Friday, the Pentagon's Defense Intelligence Agency released its new summary of global threats. On the war in Ukraine, from the report: US Army Lieutenant General Scott Berrier, who heads the agency, said, "Protracted occupation of parts of Ukrainian territory threatens to sap Russian military manpower and reduce their modernized weapons arsenal, while consequent economic sanctions will probably throw Russia into a prolonged economic depression and diplomatic isolation. As this war and its consequences slowly weaken Russian conventional strength, Russia likely will increasingly rely on its nuclear deterrent to signal the West and project strength to its internal and external audiences."
Sobering. That's what that is. That's how important this call between Biden and Xi is. Russia has to believe that intensifying hostilities or threatening to use weapons of mass destruction would leave it in an even more isolated position for a much longer period of time.
Mortgage Rates
On Thursday, Freddie Mac (FMCC) said that the average rate for a 30-year fixed mortgage had moved above 4% for the first time since 2019. The average 30-year mortgage spent the majority of 2021 under 3%. Is this the end of the ultra-low mortgage rate? Is this the beginning of the end of ever-charging-forward real estate markets, pricing out the middle to lower classes and forcing young adults to delay household formation? Can't know that just yet, but these questions must be on every prospective homeowner's mind... or home seller's mind, for that matter.
Double Bottom?
The S&P 500 stands down 7.44% year to date early on Friday morning. In December, I gave you The Walt Disney Company (DIS) as my projected "stock of the year". DIS is down 9.96% this year. (Wonder how many other FinTV/Fin media pundits follow up on their calls, when they don't look so good.)
That said, I am not made of stone. I do get long a call like that, so I do live with the consequences of what I write. However, I also do everything in my power to drive down my net basis when the going gets tough. That includes making strategic additions to said positions, trading around the core, and selling covered calls as well as strategically selling naked puts that increase potential equity exposure at a discount.
In short, I have taken down my net basis to $132.79 and have (finally) been in the green on this trade since mid-week. The shares took back their 21-day exponential moving average (EMA) on Thursday and suddenly, from a technical perspective, appear to be in better shape than they had seemed to be at least since the night that earnings were released in early February.
This potential double-bottom reversal is still a long way from fruition. The pivot would be a rough $157, with the share closing at $139.47 on Thursday, so I may be getting ahead of myself. That said, both Relative Strength and the Full Stochastics Oscillator have pulled away from the threshold of being technically oversold and now show a neutral reading, while the daily moving average convergence divergence (MACD) appears ready for a bullish crossover. All with an unfilled $164 to $174 gap, created in November, acting as (my opinion) a gravitational force.
No, I am not out of the game on this one.
Economics (All Times Eastern)
10:00 - Existing Home Sales (Feb): Expecting 6.14M, Last 6.5M SAAR.
10:00 - Leading Indicators (Feb): Expecting 0.3% m/m, Last -0.3% m/m.
13:00 - Baker Hughes Oil Rig Count (Weekly): Last 527.
13:00 - Baker Hughes Total Rig Count (Weekly): Last 663.
The Fed (All Times Eastern)
12:30 - Speaker: Richmond Fed Pres. Tom Barkin.
14:00 - Speaker: Chicago Fed Pres. Charles Evans.
15:00 - Speaker: Reserve Board Gov. Michele Bowman.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (ONON) (.00)
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