Before I was a neat freak, I was a slob.
Growing up in a row house in Queens, New York, I shared a bedroom with my brother. We slept in bunk-beds. A rather small room in a rather small home where you heard every fight the neighbors had and they heard yours. The bedroom of my youth was the messiest room on a semi-permanent basis that I have ever seen. This was of course pre-Parris Island, so I was a completely different person.
We would only straighten up that room upon those occasions that my mother would completely lose patience with us. Neither one of us had particularly good grades, which would infuriate my mom because she always saw potential in us. My brother would catch the brunt of that anger, however, because I had jobs both before and after school from sixth grade on, so that made my father proud, and at least I was usually out of the way.
That room, though, it was as if a blizzard had hit, or someone had opened the door, and lobbed in a live grenade. You could find everything and anything in the debris, except whatever it was that you needed when it was needed. We were absolute chaos personified. (Thank goodness something drew me toward those yellow footprints. I swear... boot camp gave me discipline and Strat-O-Matic baseball made me better at statistics and probabilities than everyone else. This is how I became me, but those stories are not for today.)
Monday's trading session was chock full of everything, without revealing too much about too much --- if you catch my drift. Let's explore.
Footprints
We follow the clues. Predator/ OK. Fresher than we thought? Now alert. Human prints, probably local. Stay smart. Human prints, probably boots, not American, carrying heavy equipment.? Who, what? Human prints, probably boots, not American, carrying heavy equipment, and visibly trying to hide their movement? OK... get on the horn, and ask the company if anybody we know is out here.
Equity index futures markets were trading lower Sunday night into Monday morning. Kind of the opposite of what we see now at zero-dark thirty Tuesday morning. The Senate had passed the latest $1.9 trillion deficit spending plan in order to pass COVID relief on to where it is needed as well as prop up parts of the economy that have been left behind throughout the pandemic. Go ahead, have your political arguments here. Neither of you is really wrong. Neither of you will admit that the other side often does have a point. I don't care about your fight. I am only here to best determine how I might hunt and gather in this perverse environment created by the two of you.
Let's make a deal. You can choose from door number one, two or three:
1) Equity markets roared. The Dow Jones Industrials gained nearly a full one percent, propped up more than anything else by the Walt Disney Company (DIS) . Disneyland in Anaheim, California (and other theme parks) will apparently open to the public, with limitations, by April Fools Day. Is there something to that? Hmm.
2) Equity markets snatched defeat from the jaws of victory. The S&P 500 closed down 20 points, or slightly more than half of one percent, the caveat being that down 20 points from Friday's close was also down 61 points from Monday's high.
3) Equity markets took a serious beating. The Nasdaq Composite surrendered 2.4%, entering "pretend" correction territory -- while the Nasdaq 100 (all the tech with none of the financials) was slapped silly at -2.9%. I use the word "pretend" because the financial media has perverted the use of the terms "bear market" and "correction." There is no textbook definition for these terms. Why can these folks not understand that bear markets and corrections are human interpretations of market conditions that are developed over time, and not the products of simple mathematics. Talk about sensationalism. Gee whiz.
Facts are facts and the facts are that even as messy as this looks, this does not even come close to revealing what Monday left behind. The U.S. 10-Year Note yield hit 1.61% on Monday morning before billionaire investor David Tepper in a televised interview opined on potential interest in U.S. Treasury securities possibly coming from the likes of Japan. Tepper expects that yields may have run nearly as far as they will and are more likely than not to stabilize over the short to medium term. Tepper built on that logic to add that it might be "safer to be in stocks for now."
Breadth was better than decent on Monday. Winners beat losers by about 3 to 2 at the New York Stock Exchange while advancing volume beat declining volume by an even slimmer margin. Even up at the Nasdaq Market Site, where one expected to see blood in the streets, that blood was well contained. Up in midtown, losers did beat winners by just a smidge, but advancing volume managed to beat declining volume. In addition, aggregate trading volume across all equity markets decreased quite significantly on Monday from Friday. What does that mean to me? Quite simply it means that there was greater professional participation during Friday's broader market rally than there was during Monday's six and a half hours of mixed messaging.
This knowledge promises nothing going forward, but I think it matters that some of Friday's buyers sat on their hands on Monday. Eight of 11 sectors shaded green for the day, very interestingly led (using SPDR ETFs as proxies) by the Utilities ( (XLU) ) despite the fact that Utilities, due to their price stability and regular dividend payments, often compete for the same kinds of investors that Treasury securities do.
Then came your cyclicals -- the Materials ( (XLB) ), Financials ( (XLF) ), and Industrials ( (XLI) ) in that order. Technology ( (XLK) ) finished the day in last place at -3.1%, and within the sector, semiconductors took the most pain; the Philadelphia Semiconductor Index declined 5.4%, while the Dow Jones US Semiconductor Index sank 5.2%.
Fact is I only bought three stocks on Monday, and two of them were adds in both Advanced Micro Devices (AMD) and Nvidia (NVDA) . Guess we'll find out in a few hours if I can pretend to be a clever one, or if I'll wear the dunce cap. Either way, I will live until something else kills me.
Trading Notes
The S&P 500 has closed below its one 50-day simple moving average in two of the past three trading sessions, and Monday's piercing was just a kiss. This may be interpreted by our algorithmic friends (competitors) as support... or resistance. Looks like support right now. Remember they will race each other to the point of sale and force overshoot. That's a promise.
Oh, and the actual traders will not have a clue -- they'll be watching stupid videos on YouTube and sending each other funny memes. That's what they do in real time. They often do not even know what stocks they are in. Humans rule. Unite.
The Nasdaq Composite is in a trickier situation. This index has now closed below its own 21-day exponential average for five consecutive days as of Monday. In addition, that 21-day EMA has now crossed over the 50-day SMA. That was the sucking sound you heard late in the day on Monday as our algorithmic pals all heard alarms ringing on their platforms and started paying attention, thus quickly selling equities ahead of a morning rally. Nice job fellas.
Hear Ye, Hear Ye
Those of you who eat this stuff up are probably already well aware that the U.S. Treasury Department will raffle (auction) off $38 billion in 10-Year Notes and $24 billion in 30-Year Bonds this week. Less of you are probably aware that the Treasury will go to market with $58 billion in Three-Year paper (We don't follow that series all that closely) this afternoon. The yield curve is flattening a bit this morning. That's where your rally in equity index futures is coming from.
That 10-Year now yields 1.53% after paying more than 1.56% as I started researching this piece. The Three-Year note now pays just 0.33%, down from more than 0.34% over that same time frame, ahead of a very large offering. Hmm.
Is Tepper going to be proved correct almost immediately? Maybe. The yen is higher versus the U.S. dollar this morning, so if there is foreign appetite, I am not sure it will come out of Japan. The euro, British pound, Aussie and Canadian dollars are all stronger versus the greenback this morning. Yet, someone is buying Treasury securities in the secondary market this morning ahead of three days of intense borrowing. I get pricing in increased supply, but nobody is trading in their own fiat for ours... just yet.
Jerome, I mean Jay... how have you been. It's me, Janet. Can we talk?
The CDC
For those that have not heard, it is now officially safe for vaccinated people to hang out with vaccinated people. These vaccines by the way are the best stimulus plan that we have come up with. No word yet on singing in groups or placing two straws in a can of cola under the warm moonlight.
The Way We Tally...
... and track Money Supply is changing. I don't have time to get into it here right now, but the Fed is changing M1 so that it nearly mimics M2, while discontinuing the weekly reporting of monetary aggregates. I am not going to steal someone else's work, but I am paying attention and so should you.
First read this Feb. 23 release from the Fed. Then go to this blog, -- remember, I have told you that I am Austrian economist at heart -- and then form an opinion. Food for thought at the very least.
Economics (All Times Eastern)
06:00 - NFIB Small Biz Optimism Index (Feb): Expecting 96.1, Last 95.0.
08:55 - Redbook (Weekly): Last 4.6% y/y.
16:30 - API Oil Inventories (Weekly): Last +7.356M.
The Fed (All Times Eastern)
Fed Blackout Period.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (DKS) (2.31), (THO) (1.58)
After the Close: (MDB) (-0.39)
(Disney, AMD and Nvidia is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.)
