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  1. Home
  2. / Investing
  3. / Stocks

The Band Plays On, Risky Business, Keep Your Eyes Open, Down Memory Lane

Plus, a look at what's going on inside the trader's brain as he looks at Walt Disney, Airbnb and SoFi Technologies.
By STEPHEN GUILFOYLE
Aug 13, 2021 | 07:04 AM EDT
Stocks quotes in this article: XLE, XLB, XLI, XLK, MU, LRCX, KLAC, AMAT, DIS, ABNB, SOFI, MRNA, DSEY

Almost Relentless

The S&P 500 closed just below the day's high Thursday, which by the way was an all-time high. As usual. Equity markets had shown some early weakness. Initial jobless claims had contracted for a third consecutive week after that nasty slap in the face in mid-July. Continuing Claims had also printed in welcome contraction. Positive. On the other side of the coin, producer prices startled to the upside for July, a day after consumer prices had, if not at the year-over-year headline level, at least month over month and after broken down into categories, been more soothing. That's negative. Negative for margin.

Yields spiked early as equities opened in that hole. Both asset classes would find their footing and build gradual momentum into their closes. Trading volume, which has been a missing component for weeks, continued to go missing. Investors should be keenly aware that while the already mentioned S&P 500, Dow Industrials, Dow Transports, Nasdaq Composite and Nasdaq 100 all closed in the green (albeit up small) that losers beat winners by a rough 250 names at the New York Stock Exchange and by more like 600 at the Nasdaq market site. Declining volume decisively beat advancing volume down at 11 Wall Street despite the ever-dwindling aggregate trading volume for NYSE-listed names. Advancing volume did edge out declining volume up at Times Square.

Dare I mention that small to mid-cap stocks were a drag on the markets on Thursday as defensive and growth sectors took equity market leadership away from the cyclical sectors that had led earlier in the week. Among Sector Select SPDR ETFs. Energy (XLE) , Materials (XLB) and Industrials (XLI) all closed in the red.

Thinking Out Loud

Risk has continued to pile on despite what appears to this observer to be ever less conviction. There have been risk-off days, and even weeks, but for the most part any profit-taking or correction-making has been done in an organized and rotational way. In other words, capital created has been almost simultaneously re-allocated elsewhere.

Do I see cause for a pause, or even a dip? You know I do. Can I go all in on that hunch? Despite my instincts, which have tended to be pretty good over a 30- or 40-year period, I cannot. Have I thinned out my herd? Yes, I am skinnier than I was. Have I raised cash? Yes, but again, I was nearly fully invested as recently as very late July. I have doubled cash levels, but from what was for me a pandemic-era low.

I remain decisively net long, though it is with a distinct lack of enthusiasm. My bet is just less well spread across the marketplace. Making money has been child's play for a year and a half. Despite this wall of liquidity that had been created by a federal government that has been forever funded at little cost by a compliant central bank, the game (hardly a game) becomes more difficult to play at this point.

We all see the Delta variant of the SARS-CoV-2 virus spread. We all see that there are breakthrough infections among the vaccinated, while the virus spreads like wildfire among the unvaccinated. We all fear a potential children's pandemic after previous variants of this virus had allowed many among us to sleep at night whereas that threat was concerned.

Equipped

"Given the accelerating velocity of history, we should begin charting deliberately the next phase in its trajectory."

- Former National Security Advisor Zbigniew Brzezinski

"Success depends upon previous preparation, and without such preparation there is sure to be failure."

- Confucius

Liquidity created to this point has permitted an S&P 500 trading at 22x forward-looking earnings to become the norm. That is a proper valuation with this level of cash sloshing around many a night and in this interest rate environment. Equity markets have priced in at least part of the president's economic agenda. Good chance that what eventually passes will contract in size from what has been drawn up. Equity markets have already bet on a Fed that will not withdraw accommodative policy very easily.

That is probably a good guess, unless they (and I) are wrong about just how transitory the bulk of our current pace of consumer inflation really is. Then, the central bank would be forced to be more aggressive than anything most "experts" have projected. Equity markets have also more or less bet on the economy evolving just enough to mitigate continued or oppressive negative impacts created through reduced human interaction in response to the also-evolving virus.

That is where the greatest risk is. I am too uncertain to predict an angry market correction. I am, however, smart enough after being burned every now and then across a long career to not be surprised by such an occurrence -- in particular, at this time of year. Prepare for what I hope never happens? Because at some point, I know it will? Something like that. Eyes open.

How About That?

Anyone else notice the Philadelphia Semiconductor Index backing up 1.1% on Thursday? Or the 0.9% hiccup for the Dow Jones US Semiconductor Index? All while the Sector Select Technology SPDR ETF (XLK) actually gained 0.6%? Yeah, about that: Analysts at Morgan Stanley penned a cautious note forecasting an end to the current memory cycle while downgrading Micron (MU) . I think the term "winter is coming" may have been used. As we have seen earlier this week when memory gets slapped around, Lam Research (LRCX) , KLA Corp (KLAC) and Applied Materials (AMAT) go with it. Trading note: KLAC still has to get down to $320 to close the gap created in late July.

Trader's Brain

Hey Moron... nice job selling half of your Disney (DIS) going into the digits....

That means that I hung on to half of that long, doesn't it? Disney gets its own Real Money piece in a couple hours.

Hey Genius... looks like that Airbnb (ABNB) $148/$142 bear put spread that you laid out for the "Sargemaniacs" on Liz Claman's show may have worked out....

What time is it? Options markets don't open for hours.

Holy Moly.. you gonna add to that SoFi (SOFI) long or just take this one on the chin?

The revenue growth is still there. Third-quarter guidance rots. Fiscal year guidance stands. I'll buy SOFI down to $14. Don't bet against Anthony Noto.

Note: A Centers for Disease Control (CDC) advisory panel meets today (Friday) to discuss considerations for COVID vaccine booster shots beyond the Food and Drug Administraiton's action taken on Thursday to protect those with weakened immune systems. Expect another wild day for Moderna (MRNA) as well as the other vaccine names, but most especially Moderna. 

Economics (All Times Eastern)

08:30 - Import Prices (July): Expecting 0.4% m/m, Last 0.4% m/m.

08:30 - Export Prices (July): Expecting 0.2% m/m, Last 0.2% m/m.

10:00 - U of M Consumer Sentiment (Aug-adv): Expecting 81.3, Last 81.2

13:00 - Baker Hughes Oil Rig Count (Weekly): Last 387.

The Fed (All Times Eastern)

No public appearances scheduled.

Today's Earnings Highlights (Consensus EPS Expectations)

Before the Open: (DSEY) (.12)

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Guilfoyle was long DIS, SOFI and MRNA equity, long ABNB puts and short ABNB and MRNA puts.

TAGS: Earnings | ETFs | Federal Reserve | Indexes | Investing | Stocks | Consumer | Financial Services | Media | Semiconductors & Semiconductor Equipment | Real Money | Consumer Discretionary | Coronavirus

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