How long now have I been writing about the rounding that we have seen across the scope of equity indices that we track? At least a couple of weeks, right? Seems like forever, as this pause, if not in action, at least in (upward) volatility now stretches into something of a pattern of its own. That said, though the VIX had bounced off of the 20 level late Friday to where it is now (22/23), put/call ratios have yet to arise from their collective slumber.
Urgency? Not exactly. Urgency is what you feel when tracking a predator (just to practice the skill), and you suddenly realize that the tracks are much fresher than you thought. Concerned? Perhaps. Concern is what you feel when it dawns upon you that something just might be tracking you. Let's just say recent trends have me alert enough to be concerned, but not alarmed enough to get completely defensive.
Funny thing about flat lines is that the move at the end is usually explosive, but could go either way.
Today is Thursday, Feb. 18. Monday, Feb. 8 was the last time that the S&P moved more than 0.47% in a single session. Last Friday was the last time that the S&P 500 moved more than 0.06%. The Nasdaq Composite has yielded 0.34%, and 0.58% back to back, showing at least some vulnerability, and at least some professional distribution. Not a lot though. Trading volume is down significantly this week from last week (and even day to day) at both of New York's primary equity exchanges and that's a good thing.
You see, losers beat winners both at both N.Y. sites on Wednesday. Declining volume beat advancing volume as well. Yet, trading volume decreased. This does not have to imply anything, but generally, the inference is that there was probably some profit-taking or repositioning but not a lot of enthusiasm and certainly no panic.
What is plain to see, other than the rounding of nearly every single domestic equity index that we follow, is that the selling has been somewhat heavier across the small-cap space, which is where much of the recent profits were.
School Circle, On Me
This is simply instructional, for new traders. Advanced folks can skip right ahead to the next segment if they like.
The chart above illustrates what I mean by rounding. It is not just the price action, which is plain to see, but also (see above the chart) the RSI or Relative Strength Index, which for the Nasdaq Composite is just coming out of what looked to be a technically overbought condition.
The lines at both 30 and 70 are there for a reason. While every stock is different, a decent rule of thumb for a basic interpretation of the RSI is that 70 is getting pretty hot and 30 is getting pretty cold. Readers will note that the Nasdaq Composite has at least struggled to gain ground every time the RSI has lingered at that level.
I also want the new kids to look below the chart at the daily MACD, or Moving Average Convergence/Divergence Oscillator. The two lines for beginners to start watching here are the black line or MACD line (which is the 12-day EMA {exponential moving average} minus the 26-day EMA), and the red line or signal line (which is a 9-day EMA of not the underlying security or index but of the MACD line itself). The black line is starting to round. It is not perfect, but please note that in hindsight, when red crossed over black the action tends to be bearish and when the black line crosses over red, the action is more bullish. Day traders use intraday formulas for watching these crossovers measured in EMA minutes rather than days quite closely.
One last note on Wednesday's action. Of the 11 sectors, Consumer Staples finished the day in fourth, Health Care in fifth, the REITs in seventh, and the Utilities in eighth. In other words, there was no broad professional fight into or out of a more defensive equity portfolio allocation. Just as easy to note that among defensive sectors, dividend payers are becoming less desirable.
For Joy, For Joy
You may have noticed that the Centers for Disease Control reported that U.S. life expectancy had decreased the most in the year 2020 since World War II. Kind of sobering to realize that if I am average in my demographic I am playing ball in the fourth quarter.
Then again, please don't call me average. I have always been athletic, and have really ramped up the activity in that department since "clinically" recovering from Covid-19. Of course, the post-viral syndrome gets a vote in how well the recovery of one's athleticism goes. My time for the mile is now almost two minutes slower than it was pre-Covid, and my max on the bench is 60 pounds lighter. I'll get there, with a little luck and the grace of God... I'll get there. I am back to exercising six days a week, which is where I was a year ago.
More importantly, at least at zero-dark thirty on a Thursday morning, how about those Retail Sales? The Census Bureau reported the first monthly increase for domestic retail sales in four months and the hottest increase in seven months. Of course the increase came as the latest stimulus checks went out. Sustainable? No. Faux sustainable? More on that probably within a month's time.
What was hot? Fun for one thing, was hot.
"Sporting Goods, Hobbies, Musical Instruments, and Books," which is all one category, saw sales increase 8% month over month, but it only begins there. Furniture sales popped 12% m/m, while sales at Electronics and Appliance stores soared an incredible 14.7%. Yes, these numbers are seasonally adjusted, but these are still post-holiday numbers over holiday season numbers, so incredibly impressive even if provided by your uncle (Sam) in D.C.
Then I saw it. Department Store sales printed +23.5% m/m (which still left the group -3% y/y), a number of the likes of which I am sure that I have never seen. Non-Store retailers enjoyed an increase of 11%. Let this sink in. In January, Department Store sales growth in percentage terms more than doubled the rate of growth enjoyed by e-commerce over the same period. This will not change your day, but I did not see anyone else in the Fin-media biz cover the story and it nearly knocked me out of my chair so I had to point it out.
The Sears, JCPenney, and Macy's (M) by me have all closed. These sales must have all been at Kohl's (KSS) ? The others are all part of a dying mall. The Kohl's by us stands alone about a mile away from that mall, and yes, there are cars in the parking lot every day. And yes, I count them because that's who I am. The number is rising.
Scary
What do I fear most in this world? Something bad happening to someone I love.
What do I fear most, from a selfish perspective? A second round with that awful virus. I did not even know I could get that sick and stay that sick for so long. This is one reason why I watch with great elan as the nation and my region both appear to have maybe turned a positive corner in terms of new infections, related hospitalizations and related deaths.
That said, Pfizer (PFE) reported late Wednesday that a new laboratory study (not human trials) suggests that though the vaccine co-developed by the firm and German biotech BioNTech (BNTX) could still neutralize the South African mutation of the virus, antibody protection provided by the vaccine might also be reduced by as much as two-thirds in comparison to the antibody protection provided versus the original strain. Understand that no one on the planet knows the magic number in terms of antibody response needed to protect individuals from becoming either infected or severely ill. This reduced protection may be enough to protect against this mutation.
There will come a day, however, or a mutation if you will, that will evade what has to this date been authorized for use. All of the vaccine manufacturers with products already on the market, and even a few who have not quite crossed that line just yet, are already working on updates or booster shots. Remember when you were a kid, and your mother smacked you for sharing a drink with a friend or not washing up before eating? Well, she was right all along, and many of the behaviors that civilization has been forced to adopt over the past year are here to stay.
You may go to a ballgame in a few months, but they will not pack the house. You may stand on line for a ride at an amusement park someday, but not right on top of each other. You will probably carry a mask with you for the rest of your life as ordinarily as you carry a wallet. Oh, and you are probably going to be offered a Covid shot every year or so, and be eager to get it.
Trading Notes
Twilio (TWLO)
Twilio beat on both the top and bottom lines for the fourth quarter, while posting a surprise (adjusted) profit. GAAP EPS were still awful. Shhh. That said, revenue growth was impressive and so is the company's guidance for revenue. However, Twilio does not expect this even adjusted profitability to last into Q1.
Customer accounts continue to expand with some nice vigor and TWLO probably is a nice investment at the right price, but the shares are up 11% in after hours / pre-opening trade. I have been day-trading the name overnight (or is that called night-trading?), and am long small.
I expect to sell the shares once I see which way the early winds blow. These are not the prices to build on an existing long position, in my opinion.
Apple (AAPL)
The Apple chart is discouraging right now. Readers will note that the stock's breakout failed in late January, and that our former pivot has now acted as resistance. In addition, AAPL failed to close above its own 50-day SMA of $131.42 on Wednesday.
Thursday morning is crucial for this name, technically. The longer the share price lingers below that blue line, the greater the chance that portfolio managers with profits, make like Warren Buffett and reduce their exposure.
The October high of $126 has been my panic point. If I take that route, I see $122 as a potential area for re-entry.
Economics (All Times Eastern)
08:30 - Initial Jobless Claims (Weekly): Last 793K.
08:30 - Continuing Claims (Weekly): Last 4.545M.
08:30 - Export Prices (Jan): Expecting 0.8% m/m, Last 1.1% m/m.
08:30 - Import Prices (Jan): Expecting 1.0% m/m, Last 0.9% m/m.
08:30 - Housing Starts (Jan): Expecting 1.66M, Last 1.669M SAAR.
08:30 - Building Permits (Jan): Expecting 1.67M, Last 1.704M SAAR.
08:30 - Philadelphia Fed Manufacturing Index (Feb): Expecting 20.1, Last 26.5.
10:30 - Natural Gas Inventories (Weekly): Last -171B cf.
11:00 - Oil Inventories (Weekly): Last -6.644M.
11:00 - Gasoline Stocks (Weekly): Last +4.259M.
The Fed (All Times Eastern)
08:00 - Speaker: Reserve Board Gov. Lael Brainard.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (GOLD) (0.31), (HRL) (0.41), (SO) (0.42), (WMT) (1.51)
After the Close: (AMAT) (1.28), ROKU (-0.03), (TTD) (1.88)
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