I saw my first robin of spring late last week. A few minutes later, I met about a dozen of his or her pals. Temperatures were indeed spring-like out in my neck of the woods last week, and will be again later this week.
Monday, however, the wind chill was in the single digits as I walked my morning walk, as I always do after writing Market Recon and prior to getting on with the rest of my day. On Monday, I only saw some Canadian Geese and they were trying to shield themselves from the wind. There are hints here or there. Hints that maybe our massed optimism is not misguided. This time.
Still no rabbits, though. Where are those little birds whose name I don't know that try to build their nest every year on a broken piece of siding that I leave in place for them? They'll come. They do every year, right?
Foolish it would be to count victories prior to battles fought. Foolish it would be to relax more than a year into the misery. Spring break? From what? From video games? Must be exhausting.
Recall the words of Sun Tzu: "If ignorant both of your enemy and yourself, you are certain to be in peril." Do we know ourselves well enough? Do we acknowledge weakness and work to improve our fabric of human existence? Do we act recklessly ahead of the proper time to relax our guard?
Not Quite Another...
... Manic Monday. Equity markets shaded green on Monday, as the long end of the U.S. Treasury curve took a day to digest. Actually, the spread between what the 3-Month T-Bill and the vaunted 10-Year Note payout has been in contraction since peaking on Thursday. Hence, there has been recovery for the Tech sector, and for both the Nasdaq Composite and Nasdaq 100. Just as interesting as the relationship between inflation expectations and potential economic growth on one side and equity performance on the other has been the incredible displays of either market courage or simple lack of fear expressed by our most focused upon metrics for measuring such emotion.
Not only has the VIX (CBOE Volatility Index) been in steady decline for nearly two weeks, but all of our CBOE Put/Call ratios are scraping along well below "normal" levels. The Total put/call ratio has been below both its own 200-day and 50-day simple moving average since one week ago, last Tuesday. Isolating options by type, Index-related options share this distinction, while equities only-related options stood on Monday at their lowest level since Feb. 24. No fear. None at all, ahead of February Retail Sales, ahead of February Industrial Production, and ahead of the FOMC Wednesday afternoon monetary policy dance party.
Trading volumes remained rather low, but did manage to increase from Friday at both of New York's primary equity exchanges. Cyclical-type names book-ended performance with Consumer Discretionaries out in front and Materials, Financials, and Energy all occupying the bottom three rungs on our ladder. Don't weep for these three groups as all three, using their sector SPDR ETFs as proxies, still stand very close to being technically overbought.
FYI, the Industrials as a sector ( (XLI) ) are indeed overbought as this sector is home to the transports and the Dow Transportation Average is indeed technically overbought. The Airlines, and Truckers are broadly overbought as well, not to mention, Maritime Transport.
It's a Dow Theorist's "dream come true." Only the rails stand as outliers, and it's not like they are down.
Readers will note that the Nasdaq Composite retook both the 21-day exponential moving average as well as the 50-day SMA on Monday after spending the majority of March below both of these key levels. Holding above these levels on Tuesday will be a focus for the session, though the action in and around the U.S. Treasury securities market will likely have an outsized impact -- especially if February Retail Sales on Tuesday morning surprise in a way that forces a rethink around expectations for inflation that sets up the FOMC for what markets would perceive as short-term failure. That could force a cross-over by that green line over that blue line. The folks on financial television will surely miss that, but the algorithms that control the point of sale certainly will not.
By the way, the Technology Select Sector SPDR ETF (XLK) has also retaken the 21-day EMA, as well as the 50-day SMA, but, and this might be a big "but"...
... the Nasdaq 100 has most certainly not yet passed this test...
...and under the right circumstances could act as a short-term weight upon this renewal of trend that dates back to March 5. That was the date of positive reversal, or the date that the recent rotation actually began to unwind. Of course, we still needed to see a "follow through" day, which Monday may have been for the Nasdaq -- higher prices on higher volume. I would just prefer that this "higher" trading volume actually rise above the 50-day trading volume SMA for that index, which it did not. That said, the rules as I have laid them out for confirmation of a return to trend have been met. Equity markets are, and more importantly, the Nasdaq Composite is, in my opinion, now back in a confirmed uptrend (which of course means that the index will sell off today just to spite me).
What Could Possibly Go Wrong?
You guys watch the COVID numbers like a hawk? I do. I hate this disease and its long-term impacts on the individual to an unimaginable degree. Numbers have stopped improving, gang. They stopped improving a while ago, even with ever-improving rates of vaccination. Just what is going on here? This is why I led off with images of springtime, and quoted Sun Tzu in my preamble. Are we ignorant of ourselves and our enemy? It would appear.
Dr. Anthony Fauci, who has served across administrations and has become a political lightning rod most likely because early in the pandemic, he, like other professionals in his field, misunderstood the need for masking, appeared on television on Sunday. By the way, I kind of like his pragmatism. Knock his caution? The man has spent a lifetime studying contagion. Did you think he would err on the side of recklessness? We'll leave that to others who think this war is over every time we win a battle.
Fauci, who maybe I like just because he is a Brooklyn kid, said, "When we see that leveling off at a high level, there's always a surge of a risk (risk of a surge?) back up. And in fact, unfortunately, that's exactly what's happening in Europe right now." Grammar aside, he's not wrong. The U.S. daily count of new infections is running sideways, not lower, at elevated levels, as we saw in Europe. In fact, out on Long Island (NY), the infection rate has never dropped below 4%, and seems to be slowly rising. Infection rates in New York City are slightly lower than out on Long Island, but also seem to be slowly rising of late.
Over the past few days, several European nations have suspended use of the COVID-19 vaccine developed by AstraZeneca (AZN) due to possible complications concerning blood clots. Should vaccination slow significantly across Europe, so will economic recovery not just for one of the planet's most important developed markets, but globally. This also could put more pressure on Pfizer (PFE) and BioNTech (BNTX) , on Moderna (MRNA) , on Johnson & Johnson (JNJ) , and on the Russian vaccine to immunize a greater percentage of Earth's population.
Understand this: it is not like each country can take care of itself and be okay. Even if the U.S. were to successfully immunize its own population, and the virus were permitted to run rampant elsewhere, the virus still mutates... potentially rendering the immunized vulnerable. Get it? Whether we like it or not, the entire planet has to be immunized, or nobody gets to relax. That's not a scare tactic. That's the way science works.
-- AbbVie (ABBV) is in discussions to sell its $5 billion portfolio of women's healthcare drugs that were acquired with the purchase of Allergan. Proceeds would likely be used to pay down debt. The shares popped on Monday, closing at $110.26. Technically, ABBV needs $113 to break out of its current period of consolidation. We see that, we can think $135. ABBV fails here and my thinking is support shows sound $102, which was our old pivot, you may recall.
-- Advanced Micro Devices (AMD) introduced its 7 nanometer version of the EPYC Zen-3 based processor on Monday. The new product, known as EPYC-Milan keeps AMD one step ahead of Intel (INTC) in the attempt to keep growing market share. Bear in mind that Intel is under new management and will hold their own dog and pony show at some point over the next couple of weeks. I am long both, will stay long both,and have been adding to AMD for the better part of two weeks. AMD closed at $82.50,and needs $82.96 to take the 21-day EMA. I expect to see this on Tuesday morning.
Economics (All Times Eastern)
08:55 - Redbook (Weekly): Last 8% y/y.
08:30 - Retail Sales (Feb): Expecting -0.5% m/m, Last 5.3% m/m.
08:30 - Core Retail Sales (Feb): Expecting -0.2% m/m, Last 5.9% m/m.
08:30 - Import Prices (Feb): Expecting 1.1% m/m, Last 1.4% m/m.
08:30 - Export Prices (Feb): Expecting 1.0% m/m, Last 2.5% m/m.
09:15 - Industrial Production (Feb): Expecting 0.5% m/m, Last 0.9% m/m.
09:15 - Capacity Utilization (Feb): Expecting 75.6%, Last 75.6%.
10:00 - MAHB Housing Market Index (Mar): Expecting 83, Last 84.
10:00 - Business Inventories (Jan): Expecting 0.3% m/m, Last 0.6% m/m.
16:30 - API Oil Inventories (Weekly): Last +12.792M.
The Fed (All Times Eastern)
Fed Blackout Period.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (JBL) (0.82)