This is how I would characterize Tuesday's markets: Cautious. Wall Street was "cautious" as some traders and investors returned to work in between three day holiday weekends. Trading volume was very light in some spots, and more active in others as hot spots, or should I refer to them as "cold" spots drew most of the attention.
Price discovery for equities was really dependent on Tuesday upon price discovery for Treasury securities. Sellers hit the US sovereign debt yield curve, from three month T-Bills all the way out to the 30 Year Bond. The US Ten Year Note bottomed for the day at yield greater than 3.86%, while the Two Year Note gave up more than 4.34% at its low. Both notes have found overnight support, the Two Year in particular.
Readers will see that while Treasuries have been hit over the past few weeks, that the yield spread between the US Ten Year and Two Year Notes, while still deeply inverted, has recovered to a significant degree...
While this could be seen as a mildly positive development from an economic perspective, the spread is still miles away from where it needs to be to represent healthy underlying macroeconomic conditions. The same might be said for the more important yield spread between the US Ten Year Note between the US Three Month T-Bill and the US Ten Year Note. While a three month look back might look like there has been quite the recovery...
... The nine month look back puts things back in perspective. We (we being the US economy) are a long way from putting a healthy looking slope on display...
Equities
The move higher for yields put some pressure on the Technology sector (XLK) and growth type names that have lost the right to be called "growth" types in 2022. For the day on Tuesday, The Dow Jones Industrials actually posted a pedestrian gain on the session, led by Verizon (VZ) , Caterpillar (CAT) and Chevron (CVX) . Those three names were up 2.12%, 1.2% and 1.19%, respectively. Telecom, Heavy-Duty Industrial, and Big Oil. Old economy? Or what's old is new again?
While the S&P 500 gave up 0.4%, and Russell 2000 gave up 0.65%, the Nasdaq Composite surrendered 1.38%. The intense pressure really came from two directions. Six of the 11 S&P sector SPDR ETFs shaded red for the day as five shaded green. Energy (XLE) led to the upside, gaining 1.07% ahead of this weekend's OPEC+ meeting as Russian President Vladimir Putin made some noise.
Discretionaries (XLY) gave up 1.62% for the session, as the Dow Jones US Automobile Index took a beating of 9.06%. This beating was Tesla (TSLA) centric as panic selling hit the electric car maker that made yet another 52 week low while surrendering 11.41%.
After Tesla, it was the semiconductors that were slapped around on Tuesday. The Technology SPDR backed up 0.95% as the Philadelphia Semiconductor Index lost 1.79% and the Dow Jones US Semiconductor Index gave up 2.56%. Large-cap chip names leading the way lower included Nvidia (NVDA) , Marvell Technology (MRVL) , and ASML Holding (ASML) . These three names were down 7.14%, 3.07%, and 2.57%, respectively.
Breadth
Tuesday really was a tale of two markets. As old-school type names were rewarded at the expense of new economy types, the difference in price discovery was quite apparent in market breadth. Losers beat winners by a narrow margin at the NYSE as advancing volume actually took a 50.6% share of composite NYSE trade. Meanwhile, losers beat winners by a rough 2 to 1 at the Nasdaq, as advancing volume took but a 26.5% share of composite Nasdaq trade.
Aggregate trading volume increased slightly for listings of both exchanges on a day over day basis from the Friday before Christmas, but was significantly lower than it was the Tuesday prior if that comparison makes sense. In other words, while trading volume did edge higher, I am not sure that we want to call Tuesday a day of professional distribution. It felt more like an algorithmic response to a higher yield regime and possibly a margin-call inspired fire sale in Tesla.
Knock Three Times
With the routine monthly meeting of OPEC+ scheduled for this Monday. Russia's Putin signed a decree banning sales of crude and crude products under contracts that "directly or indirectly imply a price cap mechanism." Putin's decree will come into effect on February 1st and will remain effective for five months, The G-7 $60 price cap on Russian oil currently has not set an expiration date.
The decree permits the Russian President to grant exceptions under certain circumstances even if buyers appear to be complying with the G-7 cap. This is basically so Russia can keep selling resources to China and India even if they appear to be observing the cap.
On that note, the chart of Sarge oil services name Halliburton (HAL) appears to be trying yet again to break out...
I gave you this chart a couple of months ago when it was a simple-looking cup with handle pattern. Now, Halliburton seems to have added a mini-basing period of consolidation at the top of the chart that has used the stock's 200 day SMA as support and the $40 level as resistance. This morning, HAL knocks on that door for the third time since the right side of the cup apexed back in early November.
Should the door open, my price target remains $48. as my panic point moves up to $33 from $31. I think a break of that 200 day line would trigger some action on my part. ($31 was where I would lose 8%.) Halliburton reports in late January.
How The Mighty Have Fallen
Did you ever think that Apple (AAPL) would trade at its lowest level since June of 2021 and it would not be the headline market story? The fall of Tesla has become the market's lead story as that name made a new 52 week low on Tuesday. This new 52 week low thing has become a daily occurrence for the name.
Sure, it's easy to blame CEO Elon Musk for focusing on Twitter more than Tesla and then using Tesla as a piggy bank in order to fund the purchase and then operations at his social media company. But the problems at Tesla are indeed deeper than that.
Last week, Tesla doubled its discount (to $7.5K) for US consumers willing to take delivery of the firm's two highest volume models this year amid indications that the electric vehicle maker is struggling with reduced demand for its products. This week a story ran at Reuters that said that Tesla had pulled forward to Saturday an expected production shutdown at the Shanghai facility set for January.
Apparently Tesla is facing demand problems in China as well. The piece at Reuters cites data from CMBI (China Merchants Bank International) that shows average daily retail sales of Tesla vehicles in China as being down 28% December to date from a year earlier. This is while sales of electric vehicles were up 15% from a year ago in that country. In fact, sales made by Tesla's larger electric vehicle rival, BYD (BYDDF) in China increased 93% from a year ago.
Where does TSLA go? Readers know that I went long a little more than a week ago at $150 and sold the shares at $140 the next day thanks to my 8% rule. What was I thinking? Thank goodness for the rules of risk management.
Readers will see that TSLA closed on Tuesday at a 41% discount to its own 50 day simple moving average and a 57% discount to its 200 day SMA, all while closing down almost 74% from the stock's November 2021 high. The stock's reading for relative strength is about as weak as weak gets, while the stock's daily MACD is deeply negative as well.
Readers will also see that the stock has now pierced the lower trendline of its downward sloping Pitchfork in place since reaching that November 2021 peak.
The volatile period enclosed in the orange box from early 2020 is why you have heard talk of potential support in the mid-$60's. I am not sure I see that, as that time period was deeply impacted by the spreading pandemic globally. Support will show. I just don't know where. For me, this name is a trader, not an investment until it builds a base, which it will. Safe to say, I may day-trade this name for sport this week. There is no chance in heck that I would hold it over a three day weekend.
Economics (All Times Eastern)
07:00 - MBA 30 Year Mortgage Rate (Weekly): Last 6.34%.
07:00 - MBA Mortgage Applications (Weekly): Last +0.9%.
08:55 - Redbook (Weekly): Last 7.6% y/y.
08:30 - Pending Home Sales (Nov): Expecting -0.9% m/m, Last -4.6% m/m.
10:00 - Richmond FedManufacturing Index (Dec): Expecting -7, Last -9.
16:30 - API Oil Inventories (Weekly): Last -3.069M.
The Fed (All Times Eastern)
No public appearances scheduled.
Today's Earnings Highlights (Consensus EPS Expectations)
After the Close: (CALM) (4.24)
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