It was a Monday
A day like any other day
I left a small town
For the Apple in decay
- "Long, Long Way From Home" Jones, McDonald, Gramm (Foreigner) 1977
Day Like Any Other Day?
Apple started out on Monday morning at the doorstep of a $3T valuation. It then proceeded to surrender not only all of the stock's pre-opening gains, but another $3.59 (-2%) as well, making the world's most widely held public corporation an underperformer for the session.
Oh, Apple had plenty of company, among Sarge-faves alone. Nvidia ( NVDA) took a 6.44% pounding, while Ford Motor ( F) was hit in the teeth for 4.83%. Thank goodness for Pfizer ( PFE) .
The fact is that some blood hit the floor on Monday. Traders and investors had been seeking confirmation, for virtually the entire past week, as equities acted better than the week prior, but on ever-dwindling trading volume. Oh, trading volume did return on Monday, increasing from Friday's levels for names listed at both of New York's primary exchanges, while aggregate trading volume for stocks subordinate to the S&P 500 soared to levels 15% above the 50-day trading volume simple moving average for that index.
In short, at least a significant enough portion of the "smart" money sat out last week's rally, but did sell the pop created last week, once the worm turned on Monday of this week.
Bear in mind that volume tends to be higher on Fridays than it does on Mondays, and also tends to be very light pre-FOMC on Fed weeks, so there could be (no promises) something significant found here.
Session at Hand
Any and all who paid attention on Monday already know how ugly market breadth was for the day. Pressure was experienced on indexes representative of all cap sizes. The four more "defensive" sector-select SPDR ETFs took the top four places on the daily performance table, the only four sectors that closed in the green, mind you.
Growth and cyclical type sectors were taken to the woodshed, with Consumer Discretionaries ( XLY) , thanks to the beating taken by lodging, travel, recreation-based, and automobile stocks, and Energy ( XLE) both surrendering more than 2% for the session as uncertainty regarding the trajectory of the pandemic hit markets facing the likelihood of tighter monetary policy across North America and Europe sooner rather than later.
For Monday, losers beat winners at the NYSE by almost 5 to 2, and at the Nasdaq by almost three to one. New lows trounced new highs at the Nasdaq by almost 11 to 2, while advancing volume comprised 40.4% of the Nasdaq Composite and just 22.8% of the NYSE Composite. The S&P 500 and Nasdaq Composite both closed out the day at or near session lows.
Trouble With the Curve
Bond traders bought both the long and short end of the U.S. Treasury yield curve on Monday. Most notably, the 10-Year Note gave up just 1.42% by day's end, which was down seven basis points, as the curve itself continued to flatten a day ahead of the FOMC's two-day policy meeting that will likely culminate on Wednesday with an increase in the pace of the tapering of the central bank's asset purchase program. This would be in response to the 6.8% year-over-year increase in headline level CPI for November that came on top of 6.2% growth in October.
So, why is the yield curve flashing yellow warning lights and ringing alarm bells as this decision nears? Surely, financial markets want the central bank to address rising inflation. No? Unless, markets are sending an overt message that the Fed is being forced to respond to accelerating consumer-level inflation due to the nature of modern day American politics and an overly sensationalistic mainstream media, and not because the burst of inflation can be called anything close to "persistent" after only a couple of quarters.
Perhaps the bond market itself sees this unwelcome and indeed quite painful bout with inflation as transitory. It's either that, or the bond market doubts the sustainability of the also rapidly growing U.S. economy.
Just a few months ago, we all saw slower economic growth in our future as the third quarter did disappoint. Everyone points toward the Atlanta Fed's GDPNow model when it sends an apocalyptic message. Don't hear much about that model now that it currently shows 8.7% (q/q SAAR) growth for the fourth quarter to date. Perhaps markets feel that the Fed will kill this very welcome burst of economic growth along with the killing of the unwelcome (inflation) as it becomes increasingly difficult to separate the two.
Remember, no leading reserve currency central bank has ever had to turn on the jets, so to speak, on the fly as a global pandemic rapidly shut down commerce across global, domestic, regional, and local levels. No central bank has then, when the results have, within less than two years, proved wildly successful, had to turn to shutting down this monetary mass mechanism that in fact sustained an entire planet... almost as quickly.
Readers will note that the spread between the yields of the 10-Year and 2-Year Notes is now approaching the levels seen earlier this month, which is the flattest it's been in a year.
I would love to join the chorus of Fed bashers who throw their hands up, and publicly cast blame. Ranting always makes for easier television or article writing. Fact is that headline inflation as measured by the CPI has only been above 6% for two months, after seemingly stabilizing between 5% and 5.5% for five months, which I find perfectly understandable (if a bit hot for my liking) given the circumstances.
The Fed is, in fact, moving toward addressing that inflation, which has been hottest and mostly clustered around the energy space this whole time due to errors in policy that were made earlier this year at the Executive level. This had absolutely nothing to do with monetary policy, other than the excess liquidity that was by necessity already on the table. Oh, and fuel prices have notably contracted in December, so far.
Where Are We Going?
As of Monday night, futures trading in Chicago had started to price in a 5% chance of a short-term rate hike this Wednesday. That will not happen.
These futures markets are also pricing in a 3% chance that there will still be no first rate hike through the year 2022 in its entirety. I don't believe that happens either, but I do believe there is more of a chance that the FOMC never gets the Fed Funds Rate to lift off in 2022 due to evolving circumstances than they pop the cork on rates this week.
Futures markets are still pricing in a 57% probability of a first rate hike in May, a 50/50 chance of a second rate hike by July that rises to a 64% likelihood by September, and also a 57% chance that there will be a third rate hike prior to year's end 2022.
Rug Pull
Monday was also a bloody day for meme stocks and cryptocurrencies. Shares of GameStop ( GME) fell almost 14% to close at $136.88, days after the company posted a broadening quarterly loss from the prior quarter and held an inexplicable post-earnings call. Shares of AMC Entertainment ( AMC) suffered a 15.3% smack-down just days after reporting that the CEO and CFO had sold $10.2M worth of common stock. Both names are trading lower than their Monday night closing prices overnight.
Then there's Bitcoin and Ethereum. Both gave up roughly 6% on Monday, but do appear to have stabilized overnight. Now, I kind of get what happened here. Many traders probably have nice profits to protect. Binance Asia Services announced on Monday that it would drop its application for a license in Singapore due to regulatory reasons and wrap up that business by February. That's a serious ding, and creates investor awareness of regulatory risk elsewhere.
I have long stated that I do see a potential purpose for Ethereum as a medium of trade, which for me is essential for any "crypto" to ever actually be considered currency. Otherwise, blockchain-based assets are just that -- commodities with a potentially valuable industrial purpose that could (but have not yet) prove to be a store of value, based like any other store of value at market-determined prices. For that reason, I think I would like to tiptoe into Ethereum, but not this close to the top. I have mentioned $3,500 as a point of first entry with an intent to scale down. That is still my very loose plan.
As for everything else mentioned in this segment, I would certainly like to watch Bitcoin here. There is no doubt that a younger generation of alternative-seeking investors have flocked toward Bitcoin the way that my generation sought out physical gold. They are not even close to similar, but that is the way that this cookie has crumbled. I need to see how Bitcoin hangs in there should investors need to raise cash in order to fund other priorities should broader financial markets face a significant correction. I am not necessarily a Bitcoin skeptic. That said, nor am I Bitcoin convinced.
Now for the two meme stocks. I have not been to a movie theater since 2019, and I doubt that my first time back will come anytime soon. I also don't play video games, but my children do. I do not remember what year they last bought a physical game disk or cartridge either in a store or online. I think they just download their games now. Day trade these names? Sure. Own overnight? Not me.
Trading
Readers who follow me closely will note that I have updated my chart for Pfizer as the company has announced the intended acquisition of Arena Pharmaceuticals ( ARNA) and as more and more early studies do appear to show some decent efficacy for the Pfizer/BioNTech ( BNTX) Covid vaccine against the Omicron variant of the virus.
Note that even with this recent surge, PFE's Relative Strength and Full Stochastics Oscillator are nowhere near "technically overbought" levels. The daily Moving Average Convergence Divergence (MACD) is a little extended with the nine-day exponential moving average (EMA) still in negative territory, but that moving average will correct, which will pull it closer to both the 12-day and 26-day EMAs, which are poised for their first bullish crossover since mid-October.
Pfizer (PFE)
Price Target: $66 (up from $63)
Pivot: $55 (up from $52)
Panic: $51 (failure at the 21-day EMA)
For the purposes of comparison, I left the bull flag pattern that I drew up for you not so long ago, on this Nvidia chart in light blue, while drawing the new pattern, which that breakout produced in darker blue. This newer pattern might also be called a larger bull flag pattern with a pivot of $347, but with the stock in deep decline, I think I'll forego that option for now.
The stock is not yet oversold, which means that it could come in a little more. I no longer feel foolish about peeling off partials as price targets were overrun on the way up. The last price target I gave you was $387. The stock never reached that level.
Nvidia (NVDA)
Price Target: $387
Pivot: $323
Panic: $270 (up from $259, failure at the 50-day SMA)
Note: Panic Points are unique to my analysis. Action is required according to my code at both target prices and panic points. Action does not have to be complete, but after action is taken, both target prices and panic points must be adjusted.
Economics (All Times Eastern)
06:00 - NFIB Small Biz Optimism Index (Nov): Expecting 98.2, Last 98.2.
08:30 - PPI (Nov): Expecting 9.2% y/y, Last 8.6% y/y.
08:30 - Core PPI (Nov): Expecting 7.2% y/y, Last 6.8% y/y.
08:55 - Redbook (Weekly): Last 15.3% y/y.
16:30 - API Oil Inventories (Weekly): Last -3.89M.
The Fed (All Times Eastern)
Fed Blackout Period.
Today's Earnings Highlights (Consensus EPS Expectations)
No significant corporate quarterly results scheduled for release.
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December 14, 2021 at 07:50PM
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No Ordinary Day, Trouble With the Curve, Crypto, Memes, Trading Pfizer, Nvidia - RealMoney
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