Can't you hear me? I don't know what to tell you. The man in the darkened window is right there. I can see him. I think he's ignoring me.
Hey, Sport, the futures are lower. What gives? Nothing. It's like I don't exist. Ohhhhh, I see, he's got those new noise blocking earbuds in. He's bopping along to something. What's that? Well, alright. The man in the window has asked us to travel down the Wall Street rabbit hole with him. Whaddaya say? Seems harmless.
In the edited words of two-time (nominated for a third) Medal of Honor winner Sergeant Major Dan Daly: "Come on you bleep of bleep, do you want to live forever?"
Long Distance Runaround
Long distance runaround
Long time waiting to feel the sound
I still remember the dream there
I still remember the time you said goodbye
- Squire, Anderson (Yes), 1971
Taking Advantage
Just who took advantage of whom remains to be seen.
Volatility reminiscent of those haunting days of March 2020 filled the air with the stench of panic. The VIX approached 39 as risk managers up and down Wall Street (working from home) tapped (DM'ed) their charges (portfolio managers) on the shoulder (through the internet).
Between the highs and lows of what we are still trying to call the "regular" trading session on Monday, the S&P 500 closed up 0.28%, after being down 4%. The Nasdaq Composite had been down 4.9% at the lows, but somehow managed a 0.63% gain on the day. The small-cap Russell 2000, perhaps stole the show, down 2.8% at the low, entering well into "bear market" territory, before rallying itself to 2.29% increase for the session. Even Bitcoin and Ethereum reversed off of their lows.
Investors and traders had come into the week a bit rattled. Already focused on this Wednesday's FOMC policy statement, economists at Goldman Sachs intimated over the weekend that the Fed would likely set up a March liftoff for the Fed Funds Rate and potentially take some kind of tightening action at each and every policy meeting thereafter until the inflation monster's thirst for blood had been sated. Goldman's implication was that the Fed could raise short term rates more than four times this year.
Then Wharton School (UPenn) professor Jeremy Siegel, who appeared on multiple financial television outlets, brought some kerosene to Goldman's bonfire. The professor announced his expectation for a hawkish Fed Chair this Wednesday, a bear market for the Nasdaq Composite, a bottom that could be months away, and the potential for an incredible eight rate hikes this year.
"Sold to you" shouted all of the high-speed algorithms at once, and with great elan. The rest of us just kind of looked at each other.
Not So Fast
There was a moment, maybe more than a moment on Monday where we could smell some fear. I have only smelt that fear a few times -- October 19, 1987 being the grandpappy of them all, and all of the mini-crashes since to a lesser degree. Monday was nowhere near any of those, but there was almost a capitulatory feel to the trading at the lows. Only we got that itch, that "buy the dip" itch. What were we thinking? Mother?
I started to nibble, and then I got more aggressive. I almost thought that maybe I was getting too far out on my own. Then I saw a tweet from real Money's Helene Meisler that Satori's Dan Niles was on CNBC. Niles, who I greatly respect, said, "As much as I hate to do this, I'll probably be buying some stocks today." Niles added, "I think you have to be incredibly selective, valuations for the first time, arguably, in a very long time, are now starting to matter and cash flows matter."
Around the same time, I saw the Tim Collins' Real Money piece, " Get in a Name You Like Today, but Do it for Tomorrow", and I knew I was not alone. I may have been walking the walk, but there were other smart folks on the same trail.
On Monday, without going all in, I started to re-establish some position size in existing longs such as Disney ( DIS) , Advanced Micro Devices ( AMD) , Microsoft ( MSFT) ahead of earnings, and beaten-down spec plays, Redwire ( RDW) and Planet Labs ( PL) . I also sold short-term dated calls against each and every one of these, with the exception of Redwire, because there is just no premium there. In addition, I let newly established longs such as Kohl's ( KSS) and Grayscale Ethereum Trust ( ETHE) stand. (KSS, you may recall, had been a name that I had been day-trading in between the breaking news and the opening bell on Monday morning.)
Action! Not Words
Because all I need is some
Action, action, action, not words
Gimme action, action, action not words
- Allen, Clark, Elliott, Lange, Savage, Willis (Def Leppard), 1983
Despite the midday bullish reversal, losers did beat winners at the NYSE by about 450 names, and at the Nasdaq market site by a little more than 200. Aggregate trading volumes were absolutely tremendous, up 24.1% from Friday for NYSE-listed stocks, and up 19.5% for Nasdaq-listed names, which is incredible considering that Friday was a monthly options expiration day and volumes for that day were significantly elevated.
Advancing volume took 44.1% of the NYSE composite, and an impressive 51.8% of the composite for stocks domiciled at the Nasdaq. Check this out, this really illustrates the point. While aggregate trading volume for Nasdaq Composite subordinate names soared 44% beyond the 50-day trading volume simple moving average (SMA) for that index, the aggregate trading volume for S&P 500 subordinate names screamed to an incredible 52% above its own 50-day trading volume SMA, as that index came much closer to re-engaging with its 200-day (price) SMA than anyone had a right to expect.
Not only did the index come this >< close to making contact with its 200-day line, but it bounced off of a nearly perfect 38.2% Fibonacci retracement of the November 2020 (off of a double bottom) through early January 2022 rally. The stuff market bottoms are made of. Only if it is "the" bottom, or at least a notable part of building a bottom.
You know these tales are told after the fact by people who pretend it was obvious. Eight of 11 sectors did close in the green, with the bottom three (all red) all being what we would refer to as defensive in nature. That's a positive.
Too Fast For Love
Too fast
Too fast for love
Too fast
You're too fast for love
- Sixx (Motley Crue), 1981
Were we early? If only Monday had been Tuesday. One thing I don't think anyone wanted was a rip-roaring bullish reversal the day before the day before the Fed.
Overnight equity index futures so far appear to be expressing their veto power over that afternoon love investors showed U.S. equity markets. Picking a bottom is nearly impossible, but if one does not start layering in where the mud gets deep, then one ends up a bit light when the train leaves. On that note, one never knows, does one? They call it risk for a reason.
The Fed still has to address inflation. That said, the extraction of perversely loose monetary policy will get an assist from an economy that appears to be slowing a bit too quickly and the simultaneous and more abrupt removal of even more perversely loose fiscal policy. The risk is in not wrecking any progress made in labor markets as we go about this, but as I have mentioned, the Fed can't solve this inflation riddle because while inflation's roots are in policy, the overt public expression of this elevated regime of prices had been forced through scarcity. The FOMC, try as they might, cannot change the trajectory of the virus, nor force U.S. ports to function more efficiently.
Nor can the Fed force the Russian Army to back off from the Ukrainian border, the Chinese Air Force to halt its purposeful intimidation of the island of Taiwan, or North Korea's intentional choosing of these times to play dangerous games with expensive toys, as well as with South Korea and Japan. Jerome Powell is a pretty good Fed Chair as far as Fed Chairs go, but that is asking a bit much.
The Clock
The clock says it got late fast this morning. I've got to go, but I promise, I promise to be back in a few hours at Real Money, so we can talk some markets, tackle some names, and if good fortune smiles our way, kick some tail. No, go. Be great today. Because greatness has chosen you.
Economics (All Times Eastern)
08:55 - Redbook (Weekly): Last 15.2% y/y.
09:00 - Case-Shiller HPI (Nov): Expecting 18.1% y/y, Last 18.4% y/y.
08:30 - FHFA HPI (Nov): Expecting 1.0% m/m, Last 1.1% m/m.
10:00 - CB Consumer Confidence (Jan): Expecting 111.9, Last 115.8.
10:00 - Richmond Fed Manufacturing Index (Jan): Expecting 15, Last 16.
16:30 - API Oil Inventories (Weekly): Last +1.404M.
The Fed (All Times Eastern)
Fed Blackout Period.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: ( MMM) (2.02), ( AXP) (1.83), ( ADM) (1.36), ( ERIC) (2.15), ( GE) (0.82), ( LMT) (7.14), ( RTX) (1.02), ( VZ) (1.28)
(MSFT, DIS and AMD are holdings in the Action Alerts PLUS member club. Want to be alerted before AAP buys or sells these stocks? Learn more now.)
