This just might be the best tweet in weeks (though it has nothing to do with the markets):

Thanks for reading my Diary this week - I hope it was value added!
Enjoy the weekend.

Covered and then reshorted (MSFT)
Added to my (AAPL) , (QQQ) and (SPY) shorts (moved to medium-sized from neutral)
Bought some SPY puts (maturing at the close)
Bought small (PZZA)
Sold some (CBS) (after the run from the low $40s -moved from medium to small)
I was a bit over my skiis long the banks (after buying all the way down) and I sold some (JPM) June $100 and $110 calls (yesterday and today) to reduce to a delta equivalent medium-sized position after the +$12 rally from Chirstmas. (This is the first sale I have made in the banks and is keeping with my "pause" view over the next few months. I WILL NOT be disturbing my (WFC) , (BAC) and (C) long investment positions but I might further reduce JPM which I view on a reward risk basis the least attractive bank )
Note: Long PZZA (small), SPY puts, CBS (small), JPM, BAC (large), C (large), WFC (large), JPM, Short MSFT (small), AAPL (small), QQQ, SPY, JPM calls (June $100s and $110s).

Spyders (SPY) break the day's lows - following QQQs (QQQ) .

QQQs (QQQ) break the day's lows.
That's a start.

Back short (MSFT) - I believe covering was a mistake.

Here are some pithy comments from The Divine Ms M - from her morning commentary. (Pay heed!):

I am always focused on banks and semis because I see them as leading groups. They have been terrific in January so perhaps the last few days are simply days of rest. You can see the SOX relative to Nasdaq peaked a week ago as did the Bank Index relative to the S&P.

So far it has only been one week since they peaked and they were strong outperformers for the month as a whole but this is something to keep an eye on, especially if small caps stop outperforming. There is nothing wrong with big cap tech doing well but when it does well at the expense of everything else it is a problem for the market overall. It's as if the soldiers are retreating and the generals are left to fight the war.

Here is a summary of the most important macroeconomic developments of the week:

Positives

1) The Fed puts its flexibility in writing for both rates and the balance sheet with the latter only going to shrink by maybe another $500 billion.

2) Payrolls in January surprised to the upside with a gain of 304k, almost double the estimate of 165k but December was revised down by 90k. Previous months to that were also tweaked. Average hourly earnings rose just .1% m/o/m but the y/o/y gain of 3.2% is still good and average weekly earnings were higher by 3.5%, the best since 2008. Hours worked were unchanged at 34.5. The participation rate ticked up by one tenth to 63.2%, the most since 2013. The employment to population ratio was also up by one tenth to 60.7%, the most since 2009. There was also a sharp drop of about 650k in the category known as Not in Labor Force. Smoothing out the monthly data and with all the revisions puts the 3 month average job gain at 241k vs the 6 month average of 232k, the 12 month average of 234k. This is an improvement vs the 2017 average of 179k, the 2016 average of 193k, 2015 average of 227k and just below the 2014 average of 250k.

3) Progress seems to be being made in the trade talks with the Chinese. Protect that IP and get rid of those tariffs.

4) The January ISM manufacturing index did surprise to the upside with its print of 56.6, up from 54.3 in December and vs the estimate of 54.0. This though does come after a 4.5 pt drop in December to the lowest level since December 2016 and the January figure is at the 2nd weakest level since July 2017. Domestic demand supported the number as the export component fell to the weakest since October 2016. Of the 18 industries surveyed, 14 saw growth, up from 11 in December and vs 13 in November. ISM said "Comments from the panel reflect continued expanding business strength, supported by strong demand and output."

5) The final January UoM consumer confidence index was 91.2, up from the initial print of 90.7 and vs the estimate of no change but still well below the 98.3 seen in December. It's the lowest final print since October 2016, right before the election.

6) According to the Q4 Employment Cost Index, private sector wages and salaries rose 3.1% y/o/y for a 2nd straight month and that matches the best pace since 2008.

7) Chinese services PMI improved by almost 1 pt to 54.7 in January which is a 4 month high but many key components are below 50 such as new orders, backlogs, employment and export orders. Business expectations fell to the weakest level since January 2017.

8) India's manufacturing PMI for January went to 53.9 from 53.2.

9) South Korea said its exports in January fell 5.8% y/o/y but that wasn't as bad as the 7% expected decline. That is still though the 2nd biggest y/o/y drop since late 2016.

10) Japan's industrial production figure for December was a touch above the forecast.

11) Japan's retail sales figure for December was better than expected with its .9% m/o/m increase, more than double the .4% estimated rise.

12) The Eurozone unemployment rate for the region held at 7.9% as expected which is the lowest since October 2008.

13) Spain's economy was a bright spot in Q4 with its 2.4% y/o/y gain. Their economic performance has been one of the best in the Eurozone.

14) The German GFK consumer confidence index rose .3 pts m/o/m to 10.8 and that was the best since May. Income expectations and propensity to buy have improved as the labor market is still tight and wages are rising. However, "general prospects of economic growth were assessed less optimistically for the 4th time in a row...Consumers assume that the German economy is continuing to lose momentum. The still smoldering trade conflict between the USA, China and the EU, as well as the Brexit deadlock are ensuring dwindling optimism with respect to continued overall economic development in Germany. This is mainly affecting export performance."

15) As the Yellow Vest protests seem to be ending, French consumer confidence in January improved by 5 pts from December and was 3 pts better than expected.

16) The loan data for the Eurozone from the ECB for December held in there. Household loans rose 3.3% y/o/y and non financial loan growth was higher by 4% y/o/y, just off the peak in this cycle seen in September at 4.3%. Money supply growth was up by 4.1% y/o/y, 3 tenths more than expected.

Negatives

1) The Fed has become more 'flexible' because they don't like everything they are seeing with the global economy and the S&P 500 has taken over the reins of policy from here. The Fed has only 250 bps to deal with next downturn and also relying on QE is desperation since it doesn't help growth, only stock prices. I wonder what Bernie Sanders, Elizabeth Warren and AOC thought about what the Fed and Jay Powell said this week as 10% of households own 80% of the value of stocks. Someone please ask them because I'm very curious.

2) Within the BLS jobs report, the household survey said 251k jobs were lost and with the 11k drop in the size of the labor force, the unemployment rate rose one tenth to 4%, the highest since February 2018. Of note, the all in U6 rate jumped by 5 tenths to 8.1%, also the highest since February 2018.

3) After touching a revised 200k last week, the lowest since 1969 and due to seasonal issues around the MLK weekend, claims rose by 253k this past week and that was well above the estimate of 215k. Smoothing out this noise puts the 4 week average at 220k from 215k last week and 221k in the week prior. Continuing claims jumped by 69k to the highest level since April.

4) Earnings season has been lackluster. EPS beats are running at about 65%, below the average of 70%. The beats are half the average and only 30% of companies are exceeding revenue forecasts.

5) Pending home sales for December fell 2.2% m/o/m instead of rising by .5% as expected. That follows declines in 4 of the previous 5 months. The seasonally adjusted index is now at the lowest level since 2014. The West was the only area that saw a gain in sales from the prior month but still fell y/o/y. The NAR expressed the issues we all know that is afflicting the industry, "The stock market correction hurt consumer confidence, record high home prices cut into affordability and mortgage rates were higher in October and November for consumers signing contracts in December." With respect to the government shutdown and its impact, "75% of realtors reported that they haven't yet felt the impact of the government closure." While thus 25% did, the NAR said "the partial government shutdown has not caused any obvious damage to home sales." The NAR also cited an increase in inventory in certain markets.

6) There was little change in the average 30 yr mortgage rate w/o/w at 4.76% but mortgage applications did fall. Purchases were lower by 2.3% w/o/w and down by 7.1% y/o/y. Refi's were weaker by 5.5% w/o/w and 27% below last year's level.

7) The January Conference Board Consumer Confidence index fell to 102.2 from 126.6 and that was about 4 pts less than expected and all to do with the 10 pt drop in the Expectations component as the Present Situation held steady. The headline index is at the lowest since July 2017 while the Expectations part fell to the weakest since October 2016, the month before the presidential election. The answers to the labor market questions were mixed as those that said jobs were Plentiful did rose by 1.1 pts after falling by 1.3 pts last month but those that said jobs were Hard To Get rose .7 pts to a 3 month high. The specific Employment question asking whether we'll see more or fewer was notably soft. Those expecting More Jobs fell to the least since October 2016 and those seeing Fewer Jobs rose to the most, also since October 2016. Income expectations also deteriorated as those expecting an Increase fell 4.2 pts to the lowest since January 2017. Spending intentions were also mixed with big upside in home buying goals but a 3 yr low in those planning on buying household appliances. Square that. The Conference Board is explaining the sharp drop in Expectations to "financial market volatility and the government shutdown...Shock events such as government shutdowns (i.e. 2013) tend to have sharp, but temporary, impacts on consumer confidence. Thus, it appears that this month's decline is more the result of a temporary shock than a precursor to a significant slowdown in the coming months."

8) The NABE January Business Conditions Survey reflect the economic caution.

9) China's private sector weighted manufacturing sector for January fell further below 50 at 48.3 from 49.7 in December and that was below the estimate of 49.6. Negatively, "new orders dipped further into contractionary territory." Positively, "new export orders rose notably above the 50 level, reaching its highest point since March 2018, showing that companies export orders have obviously rebounded since the truce in the China-US trade war." Overall, Caixin said "countercyclical economic policy hasn't had a significant effect."

10) The state sector weighted Chinese manufacturing PMI index was little changed at 49.5 from 49.4 and thus remaining below 50. That was though a touch above the estimate of 49.3. Business expectations fell to the lowest level since January 2016.

11) Manufacturing PMI's m/o/m fell in Japan (50.3), Taiwan (47.5), South Korea (48.3), Thailand (50.2), Indonesia (49.9), Vietnam (51.9), and the Philippines (52.3).

12) The jobs data out of Japan was pretty mixed in December with the unemployment rate down one tenth to just 2.4%, a 26 yr low, while the jobs to applicant ratio holding at 1.63, just off the highest level since 1974. The issue was that 450k jobs were lost at the same time 510k people left the labor force (and why the unemployment rate fell). That's the biggest number of lost jobs since 2009.

13) South Korea reported a weaker than expected industrial production.

14) Exports in Vietnam, a growing manufacturing presence, in January ytd fell 1.3% y/o/y instead of rising 5.5% as expected. Imports grew by 3.1% ytd y/o/y, half the estimate.

15) Exports in December in Hong Kong fell 5.8% y/o/y, well more than the estimate of down 1.7%. While the comparison was tough as exports were up 6% y/o/y one year ago, it is the biggest decline since March 2016. Exports to China fell almost 9%, to Germany down by 11% but were lower only .7% to the US. Imports were also soft, falling 7% y/o/y vs the forecast of a 2.1% decline.

16) January consumer confidence in Japan fell to the lowest level since November 2016.

17) The Eurozone manufacturing PMI for January was left unrevised at 50.5, basically stagnating. Markit said "Some temporary factors remain evident, including an auto sector that is struggling to regain momentum after new emissions regulation and some signs of 'yellow vest' disturbances dampening demand in France. However, there appears to be a more deep rooted malaise setting in, which reflects widespread concerns about destabilizing effect of political uncertainty and the damage to exports from rising trade protectionism."

18) The Euro area said its economy grew by .2% q/o/q and 1.2% y/o/y as expected. Versus last year that is the slowest rate of growth since Q4 2013. This marks the 5th quarter in a row that has seen a moderating pace of growth. Italy's economy contracted for a 2nd straight quarter. Germany cut its own 2019 GDP forecast to just 1%.

19) Economic confidence in January in the Eurozone continued to weaken as the index fell to 106.2 from 107.4 and that was .6 pts below expectations. That is also the lowest since November 2016. Within, manufacturing, services and retail all were down but consumer confidence was up slightly after the weakest print since March 2017 last month and construction got back what it lost in December.

20) German retail sales in December fell 4.3% m/o/m, well worse than the estimate of down .6%. That's the biggest one month fall in 11 years.

21) The German jobs still remains good as their January unemployment rate held at 5%, the lowest since Checkpoint Charlie fell. The number of unemployed though fell by 2k which was not as much as the estimate of a decline of 10k.

22) With confidence still shaken from the Yellow Vest protests, French consumer spending in December was pretty soft, falling 1.5% m/o/m vs the forecast of a decline of .3%.

23) The UK manufacturing PMI fell to 52.8 from 54.2 and that was .7 pts less than expected. That's a 3 month low and Markit said "Despite the temporary boost provided by clients' pre-purchases and efforts to build up stocks, the underlying trends in output and new orders remained lackluster at best."

Peter Boockvar examines the economic data:

The January ISM manufacturing index did surprise to the upside with its print of 56.6, up from 54.3 in December and vs the estimate of 54.0. This though does come after a 4.5 pt drop in December to the lowest level since December 2016 and the January figure is at the 2nd weakest level since July 2017.

After falling 10.5 pts in December, new orders rebounded by 6.9 pts. Backlogs thought barely changed off the flat line, rising .3 pts to 50.3. Inventories were up slightly both for manufacturers and customers. Exports weakened further, falling 1 pt to 51.8 and that is the least since October 2016. Employment was down by .5 pt to 55.5, the lowest since April 2018. Supply constraints did ease as supplier deliveries fell to the lowest since November 2017 and also with the fall in commodity prices sent prices paid down by 5.3 pts to the least since February 2016.

Of the 18 industries surveyed, 14 saw growth, up from 11 in December and vs 13 in November. ISM said "Comments from the panel reflect continued expanding business strength, supported by strong demand and output." In contrast, the regional manufacturing surveys were much more mixed with most barely above breakeven. Assume the truth lies somewhere in the middle.

This said, it's clear that domestic demand is better than that from overseas as seen in the export component.

ISM

EXPORT ORDERS

The final January UoM consumer confidence index was 91.2, up from the initial print of 90.7 but still well below the 98.3 seen in December. It's the lowest final print since October 2016, right before the election. Keep in mind that this is a phone interview and therefore is very timely and likely took place this week. From December, current conditions fell 7.3 pts while expectations were down by 7.1 pts.

I'll point out one particular detail because of differing stories. With spending intentions, those planning on buying a home fell to the lowest since 2008. In contrast, the Conference Board figure on this same question went to a record high. Quite a discrepancy.

UoM said "The end of the shutdown caused only a modest boost in the Sentiment Index; while consumers became somewhat more optimistic about the outlook for the national economy, they viewed current economic conditions slightly more negatively due to the worse than anticipated impact of the shutdown on the economy." The CBO said the shutdown will cost the economy a permanent $3b in a $20 Trillion economy. Thus miniscule so I wonder why the UoM is citing so much the shutdown as the main influence on confidence.

UoM CONSUMER CONFIDENCE

From Knowledge@Wharton How Large Companies Can Compete With Startups.

Working a scale higher on my (SPY) and (QQQ) shorts on the market ramp.
No trades in individual equities yet today.

The ten year U.S. note yield is +5 basis points.

Yield is now 2.68%.

The 2s, 5s cure remains flat.

The still low rate condition and flat yield cure should continue to inhibit the near term performance of bank stocks.

As promised, I have covered my small trading short rental in (MSFT) for a push.

From Peter Boockvar: 

I'm certainly encouraged by what was said yesterday by the players negotiating a China-US trade deal and it seems pretty likely we'll get something substantive agreed upon. I guess the question then is whether the tariffs will immediately go away upon a deal rather than being used as part of the 'enforcement mechanism' that is being talked about. I of course want them to go away, all of them. As for buying more soybeans, the Chinese said they would buy 5mm more tons after buying 5mm tons after the Trump/Xi meeting in December. This follows purchases that went to ZERO after the tariff rates ramped up. But, keep in mind before this trade spat that China was buying 30mm tons per year. Also, the price of soybeans is now at $9.22 per bushel vs above $10 pre tariffs.

The economic data reported overseas is again reflecting a global slowdown. China's private sector weighted manufacturing sector for January fell further below 50 at 48.3 from 49.7 in December and that was below the estimate of 49.6. Negatively, "new orders dipped further into contractionary territory." Positively, "new export orders rose notably above the 50 level, reaching its highest point since March 2018, showing that companies export orders have obviously rebounded since the truce in the China-US trade war." Overall, Caixin said "countercyclical economic policy hasn't had a significant effect." Chinese stocks though shrugged it off and rallied on hopes of a trade deal.

Elsewhere, manufacturing PMI's m/o/m fell in Japan (50.3), Taiwan (47.5), South Korea (48.3), Thailand (50.2), Indonesia (49.9), Vietnam (51.9), and the Philippines (52.3). 50 of course is the dividing line between contraction and expansion so in Asia we saw 4 are contracting, two are flat lining and two are just above 50. The one that rose and is the furthest from 50 was India whose PMI went to 53.9 from 53.2.

South Korea said its exports in January fell 5.8% y/o/y but that wasn't as bad as the 7% expected decline. That is still though the 2nd biggest y/o/y drop since late 2016. South Korea is a great proxy on global trade.

The jobs data out of Japan was pretty mixed in December with the unemployment rate down one tenth to just 2.4%, a 26 yr low, while the jobs to applicant ratio holding at 1.63, just off the highest level since 1974. The issue was that 450k jobs were lost at the same time 510k people left the labor force. That's the biggest number of lost jobs since 2009. I caution though that these numbers are hugely volatile month to month.

The Eurozone manufacturing PMI for January was left unrevised at 50.5, basically stagnating. Markit said "Some temporary factors remain evident, including an auto sector that is struggling to regain momentum after new emissions regulation and some signs of 'yellow vest' disturbances dampening demand in France. However, there appears to be a more deep rooted malaise setting in, which reflects widespread concerns about destabilizing effect of political uncertainty and the damage to exports from rising trade protectionism." The euro, notwithstanding data such as this, continues to trade well vs the dollar and is higher this morning.

Bottom line to all these overseas data points, they continue to reflect an obvious come down in global economic growth and helps to explain the sharp drop in bond yields across the board. The Japanese 10 yr yield is back below zero, the German 10 yr yield is only at .15% and the US 10 yr yield at 2.63% is approaching the recent low seen on January 3rd. While many are celebrating central banks backing off from any tightening, they should ask themselves and focus on why.

It also helps to explain why McDonalds which has 37,000 locations around the world and thus is a good proxy on growth said this on Wednesday when they reported earnings, "Consumer uncertainty is growing from France to China to the UK and elsewhere around the globe, in response to tightening economies and shifting political environments."

For those caring about gold, yesterday the World Gold Council released its review of 2018 and highlighted the growing influence of central banks in terms of demand. Central banks "net purchases jumped to their highest level since the end of US dollar convertibility into gold in 1971, as a greater pool of central banks turned to gold as a diversifier." On a percentage basis, gold reserves at central banks were up 74% on 2017. Overall gold demand was up by 4% vs 2017 while the supply of gold was up by just 1%. It's gotten really hard to find new supplies around the world.

For those that are counting - my average cost today on (SPY) and (QQQ) shorts are $270.50 and $168.15, respectively.

When talking heads self confidently say "as January goes so goes the year" (which you will hear all day in the business media) - remind them of Warren Buffett's quote:"If past history was all there was to the game, the richest people would be librarians."

Stated simply.

* Invest with a calculator and a contrarian streak
* Ignore the January barometer and axiom ("as January goes, so goes the year") as it is an antiquated and non rigorous exercise that has become outdated with the dominance of ETFs and quant strategies (that worship at the altar of price momentum) as well as being influenced by the outsized role of the Federal Reserve on the price of equities.
* (Smart men and women may disagree) but consider that the above influences has inhibited price discovery - so don't believe the charts as much as you might have in the past.
* Use the market's gyrations and absence of price discovery to trade and invest for the short and long term.
* Calculate "value" and when the spread between price and value widens, capitalize on the discrepancy.
* Trade unemotionally. (Remember how hard it was to buy in late December and consider how hard it is to sell or short today).
* Never ever drop your pre-established risk profile and appetite regardless of market condition.Invest with a calculator and a contrarian streak.

"Price is what you pay, value is what you get."
- Warren Buffett

* Problems in India, a slowdown in Prime Services, a higher spend and foreign exchange headwinds may weigh on the shares over the near term

My view on Amazon (AMZN) : Bearish short term, bullish long term.

I placed Amazon on my Best Ideas List on December 26, 2018 at $1383 - and I sold the shares for a near $300 profit only a few trading days afterwards.

I suppose the appeal of every stock is in the eyes of the beholder. And this observer continues to see about $1500 as a good reentry level.

I have moved my (SPY) and (QQQ) shorts from small to medium sized at $270.02 and $167.90, respectively.

At the core of my market concerns is the diminished outlook for economic and profit growth in 2019-2020.... and there was nothing in the recent high-frequency data or earnings reports that changes this outlook.
Indeed, for every Facebook FB there is an Amazon (AMZN) or a DowDuPont (DWDP) with regard to fourth-quarter earnings
With political turmoil continuing and our thesis regarding private- and public-sector debt loads unchanged, the market -- much like in previous periods such as January and September, 2018 -- has detached itself from the real economy.
One must look to the economic message of the bond market, and with a 10-year yield down to 2.63% here on Friday morning, that message is loud and clear.
We have learned that this widening gap between reality and fantasy can continue for a while, particularly with the Fed at the market's side, as the market over the short term is a voting machine
But in the long run, the markets are a weighing machine.

Meanwhile, in Italy, the economic news and data worsens.

"Latest survey data signaled subdued overall operating conditions in the Chinese manufacturing sector at the start of 2019. Softer demand conditions led companies to revise their production schedule... Underlying data indicated that weakness largely stemmed from muted domestic demand."

The disconnect between financial assets and the real economy continues, both in the U.S. and "over there."
On Thursday evening, China's Caixin Markit Manufacturing Managers Index printed at 48.3 in January, which was down from 49.7 in December and below the consensus forecast of 49.5. This was the second consecutive month of contracting data and the worst number since mid-2016.

China is the second-largest economy in the world.
Two tweets on the subject from Lisa Abramowicz at Bloomberg:

As it is said, the S&P fiddles as China burns.

Three from Charlie Billello, including the dreaded Double Meat Double Guac Double Top chart pattern: