* Sometimes it's that simple!

Today we took the elevator down.

We always seem required to find a reason for the market's action during the day -- it is the essence of the after-hours financial media shows.

Most commentators have suggested that the market's weakness was virus-related.

I would take issue with that view, though neither the consensus nor my opinion can be verified.

To me it was not the possible expansion of the virus' victims, an economic number or a particular earnings report -- it may simply be that buyers were exhausted.

In terms of the damage, there were several worrisome signs leading up to the decline including the strength in bond and gold prices (which didn't modify a further market advance), a number of 1999-like sell-side research price target hikes (on several market leaders and heavily weighted stocks in the indices), etc..

There were also some worrisome signs in the action today:

* Dip buyers failed to appear.
* Worse than 2-1 negative breadth.
* JPMorgan's (JPM) outsized $3.50/share decline
* Further breakdowns in popular stocks such as Caterpillar (CAT) , Disney (DIS) and other widely held equities.

My portfolios are very liquid though I have a sizeable Spyder put position that provides me with gamma and increasing exposure should today's market swoon continue.

I continue to believe that upside reward is dwarfed by downside risk.

I pressed my short book with more (SPY) puts today.

I am not covering anything.

Gold prices (higher) and bond prices (also higher) are not delivering equity friendly messages.

I will be out to a long lunch with friends beginning at 12:30 pm today.
I then have a 2 pm conference call - so I wont be back till later.

A reminder that I have a large short position in (JPM) :

Jan 22, 2020 ' 12:05 PM EST DOUG KASS

Hedging With the Most Beloved Bank Stock

* Shorting more JP Morgan

I am pressing my (JPM) short hedge (against my medium-sized bank longs).

According to our partner Jason Goepfert at Sundial Capital, when the Nasdaq Composite (NAZ) hits a 52-week high and INTC gaps higher the next morning it is is pretty consistent profit taking signal for the tech heavy NAZ over coming days/weeks (Figure 1).  Since 1999, there was a negative median return for every time period up until 3-months, with very low likelihood of a positive return.  Only the late October 2017 instance saw consistently positive return going forward.

Figure 1 - History suggests not chasing the NAZ following gap higher in INTC


Source: www.sentimentrader.com

As you know I am laser focused on breadth.
Now -660 decliners over advancers.

Market breadth is -300 with the S&P, Nasdaq and DJIA trading higher..

The PMI misses at 51.7 vs. consensus of 52.4.

The bond market (yields are down again) are not modifying optimism in the domestic economy or in the S&P Index.

* Here is one strategist's view...
BankAmerica's Hartnett on what to watch for a market top:If the Fed signals "Carry On Liquidity" next week, then our irrational bullishness continues in Q1. BUT some Fed officials are sounding concerned over the risk rally & the rate of growth of the Fed's balance sheet is set to slow significantly in Q1. Peak liquidity = the key risk for the market. Other signs to watch for a market top: 1) Peak Positioning: If the Bull/Bear Indicator rises to >8 from 7.1 today = sell signal; we've had 12 "sell" signals since 2002 & a 100% hit ratio, with a 9% median global equity peak-to-trough drop in the following 3 months. 2) SOX Index peaking at 2020. 3) FX vol inflecting from record lows. 5) Bonds inflows reversing (watch VCIT, HYG, EMB & IEAC ETFs); 6) Bond yields failing to break new lows. Buy puts as the SPX nears 3,500 (P/E 20x).

* It feels like deja vu all over again
* It is a sign of these foolish times when the Johnny Come Latelys raise their price targets (dramatically)

As Charles Dickens wrote:
'It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness."

The best of times is that the markets are at all-time highs.

The worst of times is that, in this detachment from the real economies - the entirety of the +30% gain in the S&P over the last 13 months has been an upwards reset in valuations (with operating profits actually lower year over year).

Another sign of foolishness...

We are now at that stage of the Bull Market where analysts, money managers, strategists and other "talking heads" participate in one-upmanship - with price targets ramping up geometrically as stocks continue their relentless rise.

Many of these commentators never saw the magnitude of the rise coming - but the pressures associated with the climb force them to leap frog their price targets despite little in the way of a fundamental view change.

It feels like deja vu all over again.

Back in early late 1999/early 2000 rapid stock price moves higher were followed by narratives that tried to explain the climb (after the fact) rather than having a narrative that eventually is reflected in the stock price.

This is another thin reed indicator why traders and investors might consider (as famous trader Joe Gruss once told me):

"Dougie, yell and roar and sell some more."

Disney (DIS) is among the most liked companies in the world.
It's shares are almost universally accepted as having "value" and being attractive over the long term.
However, I have been, at times, a long term bear on Disney's secular prospects - and on multiple occasions I have been short. 
The shares have been conspicuously weak over the last few weeks - during a continued and relentless market decline.
As the coronavirus' toll mounts - I expect DIS shares to remain vulnerable.
A direct hit (read: closure) to their Shanghai facility is likely.
Here is my investment rationale.

* And I agree
* But, for now (S&P futures +7), Mr. Market doesn't agree!
Tony's near term concerns - increased optimism, complacent correlations, buoyed investor sentiment, an overbought and emerging relative weakness in important sectors (e.g., financials) - are quite similar to some of my worries (but I have many more!):

The S&P 500 (SPX) continues to hold up very well despite some indication below the surface that offense has already started to come off the field. We neutralized our market view and sector positioning Monday (1/20/20) given the extended nature and overbought condition of the market, and more specifically the Information Technology sector. Throughout the week we got further evidence that supports our view for taking a more neutral position until the market works off some excesses:

· Sentiment has become even more bullish. The percentage of Investors Intelligence Newsletter Writers expressing a bullish view rose to 59.4% (Figure 1), while the American Association of Individual Investors bullish percentage rose to 45.6% (Figure 2). Both measures showed the highest level of bulls since the first week of October 2018.

· Individual stock correlation has collapsed. The 3-month correlation of the individual S&P 500 component to the SPX itself has reached the lowest level since the first week of October 2018 (Figure 3). In a new world of passive investing, it means investors are picking stocks rather than just buying broad equity exposure, and the current level represents a level of complacency that only existed late in 2017 and the fall of 2018.

· Poor relative performance of consensus favorites. Over the past few months the combination of a re-steepening of the 2/10-year U.S. Treasury yield curve and increased signs of an inflection in the outlook for global growth have caused investors to emphasize the Financials sector, small-cap stocks, and Emerging Markets. The only problem is that as the Info Tech sector has driven the SPX to record levels, the relative performance of these favorites is approaching the 2019 lows (Figures 4-6). In fact, most would be surprised that the KBW Bank Stock Index (BKX) is at the same price as early November.

Summary - The market and the Info Tech sector need to reset in order to have a sustainable move higher. It seems like there is nothing that can stop the move higher in the major indices and large-cap Info Tech stocks given the improved fundamental outlook, better-than-expected EPS, and solid guidance. While it appears a very bullish formula, it is important to note the Financials (led by the big banks) also have a more favorable fundamental outlook, showed significantly better-than-expected EPS results, and offered solid guidance, but have dramatically underperformed the market and fallen back to the same level as mid-December. In other words, the better outlook in the BKX was already reflected in the gains by mid-December, and additional upside has been given back. The increased optimism, complacent correlations, and relative performance charts reinforce our market- and sector-neutral view with the intent of putting offense back on the field pending a resolution of the extreme overbought level of the major market indices.

* Every company will be a fintech company.
* How private equity wrecked this grocery company.
* Why do we chase performance?

From Peter on the yield curve, PMIs and BOJ (listen to Kuroda and consider the destruction of their banking system):

The yield curve hasn't been mentioned in a while since the Fed took steps to re-steepen it but the 3 month/10 yr spread is quietly at the most narrow since December 3rd at just 18 bps. For reference, it was December 12th when the US and China announced a trade deal in principle that we know was signed on January 15th. Worth watching again.

3 MONTH/10 YEAR YIELD SPREAD

Here are the two quotes of the day, courtesy of BoJ Governor Haruhiko Kuroda. After a 90% decline in the Japanese bank stock index over the past 30 years, he said today in Davos "Certainly a low interest rate situation prevailing for so long a time, including negative interest rates, means that there might be some side effects on the financial system."

In a world of negative rates, something never before seen in 4000 years of financial history, he said "We have been carefully monitoring the financial sector and financial markets. So far we have not seen any kind of financial bubble or financial excess." I recommend he gets glasses.

Kuroda is still shooting for that elusive 2% inflation print. The December CPI ex food and energy rose .9% y/o/y as expected which happens to be the quickest rise since February 2016, helped by the VAT hike in October without which it would have been up .6%. Since inflation is just another form of a tax, they should just keep raising the VAT and maybe the CPI can finally get to 2% as desired by the BoJ.

Japan's economy got better in January according to the Markit PMI data. Manufacturing remained below 50 but rose .9 pts to 49.3 while services led the way with a 2.7 pt m/o/m rise to back above 50 at 52.1. Taking the two together has the composite index at 51.1 from 48.6. This comes after what will likely be a down quarter in Q4. The better number did not move markets much as the 10 yr JGB yield fell slightly, maybe taking the cue from the continued fall in US yields. The Nikkei was up by .1% while the yen is down a hair.

Australia's economy weakened in January with its composite index falling 1 pt m/o/m to 48.6 and thus remaining in contraction with both manufacturing and services lower vs December. The PMI said "There is some fundamental weakness in the Australian economy associated with consumer constraint, the residential construction downturn and the reluctance of business to invest. But the PMI results are also being influenced by the terrible bushfires around Sydney and elsewhere. At this stage the impact seems to be mainly through disruption to supply chains." For this reason we must give this number a pass and hope for the best from here as the fires get under control.

Shifting to the PMI's out of Europe saw the Eurozone composite index unchanged in January from December at 50.9 but that was a touch below the estimate of 51.2. Manufacturing, while still below 50, improved to 47.8 from 46.3 but was offset by a decline m/o/m in services to 52.2 from 52.8. Germany saw a gain in both components while the French composite index softened because of a drop in services offsetting a lift in manufacturing. Outside of Germany and France, "weakness was evident...with new orders unchanged and growth and business activity slowing to near stagnation." Markit also said "While the year may have changed, the performance of the eurozone economy was a familiar one in January. Output growth was unchanged from the modest pace seen in December, signaling that the economy failed again to record a pick up in growth momentum." There is hope though, maybe driven by the US/China detente as "business confidence across the single currency area jumped to a 16 month high." Again, these hopes there and everywhere better be realized in 2020. On the slight headline miss, the euro is down a touch but stocks are higher, playing catch up to the US after the WHO comments yesterday and in turn yields are also up.

Giving another reason why the BoE should not be cutting interest rates next week, the UK January manufacturing and services index rose to 52.4 from 49.3 and that was better than the estimate of 50.7 with both components rising. "Intensifying political and economic uncertainty ahead of the general election has started to ease, encouraging more spending and helping push business expectations of future growth to its highest since mid 2015." Notwithstanding this, the pound is down but rate cut odds have fallen below 50% to 48% from 60% yesterday. The BoE should just sit there and do nothing.

Here are some more lingering risks of an economic slowdown from Danielle DiMartino Booth.
Please consider her mention of auto production and remember one of my 15 Surprises for 2020:

Surprise #4 Watch Out Below!Automobile Industry Sales Plummet and Threaten the Domestic and Global Economies... Ford Is Bailed Out

"Peak Autos" remains in place and the problems facing the industry reverberate in 2020.

At every level there is a ton of automobile loan and securitized debt leverage. A record share of trade-ins last year were upside down on their loans - representing a mirror image of mortgages that existed in 2007.

Retail sales of new vehicles were down by -7% in December, 2019, leading to a retail SAAR of only 14.3 million cars (down from 15 million a year ago and from November, 2019's 14.8 million rate).

The auto industry falls into a tailspin in 2020 - fueled by burgeoning inventories, record cars going off lease (and entering the used car market), record new car prices (according to J.D. Power and LMC Automotive, the average new care price is now over $35,000), a decline in used car prices, growing and record purchase incentives (of nearly $4,600/unit, a +12% increase from last year), and rising auto loan delinquencies (which hit an all-time high in 3Q2019) causes a substantial amount of damage to the sub-prime auto asset backed securities market in 2020).

The automobile's sizable role in the domestic economy causes collateral damage to U.S. consumer confidence and spending.

Late in the year, Ford Motor (F) company teeters operationally and financially and the shares fall to under $5/share. The loss-ridden manufacturer is acquired by Volkswagen (VLKAF) .

From Danielle:

• Top 10 Oil & Gas intensity states' continuing claims, specific to mining, have nearly quadrupled to 13,890 from the trough in October 2018; with oil stubbornly below $60 a barrel, expect claims to continue rising as the last peak was over two times the current level
• Shale operations have placed a ceiling on WTI crude prices; analysts anticipate an intensification of energy company write-downs of reserves and equipment suppliers recording impairments in the current reporting season similar to Chevron (CVX) and Halliburton (HAL)
• Truck sales growth has decelerated from 10% YoY in May to December's 0.9% rate with delinquencies at an eight-year high; December's LEI year-over-year print turning negative for the first time in over decade flags lingering risks of an economic slowdown

Let the 23-week countdown begin. And then we can be reunited. You, us, Maverick and Iceman though rumor has it that the funeral in the trailer is for Iceman (bummer). Ok - we'll own up to our demographic. Top Gun left an indelible mark on our childhood. The (not) aged Maverick has rebuffed promotion to skirt being grounded. His mission (not) impossible - train a fresh group of pilots for a dangerous assignment. The ladies will be pleased to learn there will be a beach volleyball sequel within the sequel. And Kenny Loggins is even expected to record a new version of his iconic "Danger Zone." But most of all, for the adrenaline junkies in us, there will be a veritable feast of dogfights and (nearly) impossible flying sequences.

The oil patch has always had its rival to aces in the sky - the wildcatter, another species who lives and breathes risk. There's something refreshing and downright patriotic about a fifth-grade dropout whose study of creek beds led to the amassing of a nine-figure fortune. But that was Roy Cullen, who in the mid-20th century made his name among oil field giants. Today's shale patch remains a promise land of wealth for those who can't frame a college degree. Rig workers start around $75,000 while supervisors collect close to $100,000.

Our close geographic ties to Texas and the oil patch have thus had us cheering the boon brought on by the shale revolution in recent years. As recently as October 2018, the number of mining employees collecting unemployment insurance, a.k.a. continuing claims, in the Top 10 Oil & Gas Intensity States was a barely discernible 3,790. THAT'S an oil boom. Is it coincidence that the very next month the U.S. exported more oil and fuel than it imported?

That's the good news. But it's not all liquid gold and roses. Shale has also introduced a ceiling of sorts as it pertains to the price of oil, so easy is it to dial the production knob because of the miracle of fracking. Add to this the deluge of private equity money that flooded the sector after oil prices crashed. For context, that same mining continuing claims cohort just referenced peaked at 38,120 in March 2016, the month after West Texas Intermediate (WTI) troughed at $26 a barrel.

On that price note, we bring you to the point of today's Feather, that of falling thresholds. Since they bottomed, mining continuing claims in the Top 10 have nearly quadrupled to 13,890. We expect this number to continue rising despite WTI being at roughly $55 a barrel.

Parallel our thinking using the yield on the benchmark 10-year Treasury. Recall that a year ago, the pain threshold was 3%; that was when the world would end. Today, that level is 2%. We are that much more susceptible to a financial market event given growth has slowed to the extent it has.

In case you missed it yesterday, December's Leading Economic Indicator Index report revealed the first negative year-on-year print since 2009. The last time we were 'here' was August 2006, 16 months outside of recession.

In other words, we theoretically have time. But that's not the viewpoint of shale producers. In December, Chevron wrote off $10 billion to accommodate for costs that are far out of line with natural gas prices plumbing quarter-century lows. Last week, Spain's Repsol took a $5.3 billion charge associated with its North American assets. And on Tuesday, Halliburton disclosed a $2.2 billion charge tied to continued weakening in its shale operations. These companies are not alone.

Commenting to CNBC on the quickening trend, Edward Jones' Jennifer Rowland warned, "The pricing companies have to use for reporting their proved reserves are on pace to be around 15% lower than last year, so I'd expect reserve write-downs to be prolific."

It would be bad enough if the carnage was contained to the mining sector, one of the current cycle's biggest generators of job creation. But it goes beyond that. Ping us to send you the map if you like or take our word that the bulk of full-size pickup truck sales are concentrated straight up the nation's heartland, shale country central. Shale patch workers love their pickup trucks, one in the same with the Big 3's biggest profit producers.

The persistent weakness in oil prices, Mid East tensions and all, are manifest in truck sales sliding from May's 10% rate over the prior 12 months to December's 0.9% rate. Is it any wonder dealer-financed auto delinquencies are at an eight-year high? By the by, the current cycle's other engine of job growth in the industrial sector is auto production. The feedback mechanism between the two sectors threatens to put the economy into a flat spin Maverick himself could not escape.