I am out of my short (SPY) calls for a profit.

I have sold half of the (SPY) I purchased this morning at $395.20. 

Sep 01, 2022 ' 11:00 AM EDT DOUG KASS

SPY Add

I have added to my small (SPY) long at $390.45.

-- And now I'm out of the balance of the SPY long at $395.41.

Bret Jensen

Should be good news for NYC commercial real estate and economic activity.

'Most major Wall Street firms are officially "over" Covid and are setting Labor Day 2022 as the deadline for workers returning to the office. Morgan Stanley has been leading the push this week, with Fox Business' Charlie Gasparino reporting on Tuesday that the company is ending all Covid testing and other monitoring/mitigation requirements by September 5. A company-wide memo recommended that "all employees return to the office, barring certain individual health situations," according to Fox News. It was also reported this week by the NY Post that Goldman Sachs was taking similar measures. Goldman Sachs "told workers it will no longer require vaccines, COVID testing or masks," the Post wrote.'

Of course, with Covid daily deaths and cases in NYC being almost exactly where they were a year ago....nothing really has changed on the ground around the coronavirus, except the perception, the narrative, politics and economics. In any case, this should make mid-town and the financial district more lively and give the businesses that depend on these workers a much needed boost...

I have a research call in about 45 minutes and I will be taking tomorrow off for a golf tournament. 

Some musings: 

* I have been investing and trading for over five decades but I am still amazed how investors are always bullish when stocks are trending higher and always bearish when stocks are trending lower - except perhaps Brian Belski.

* The quality of the commentary and narratives in Fin TV has eroded dramatically - glancing at the rear view mirror provides zero value. And so has the honesty associated with their trades and investments deteriorated. But, hubris and self confidence is at an all time high.

* Market structure risk emerges in months like June and August - as sellers live lower, and buyers live higher, in a world cluttered with passive products and strategies.

* I will discuss how I take advantage of these exaggerated short term moves - produced by risk parity, ETF rebalancing, etc. - on Tuesday morning.

* I will also discuss why I don't worship at the altar of price and price momentum and more on the trading range (and "chop bucket") that I see over the near term.

* I will also discuss why I don't see meaningful risk from current levels - though the upside is also likely capped.

* Finally I will summarize the core principles and tenets regarding how I manage money. 

P.S. - After 24 years you can count on me to be transparent and show my blemishes (which are considerable). I am not selling a service and not seeking your investment business.

From Bespoke, here.

I have a research call between 3-4 pm.

Radio silence during the call.

A few weeks ago, Lee Cooperman said to me that the markets probably won't bottom until ARK Management (ARKK) experienced outflows.  

Well, outflows have appeared - in spades! 

This market continues to frustrate everyone from the cocktail napkin chartists to the scholarly PhDs. The market is clearly oversold although not exceptionally so and the form chart did call for a bit of a rebound here going into next week, but the bulls have not been able to produce anything like it. The economic data has not been a major influence, but has been an influence, however, on bond yields. It is the yield on both the ten-year and the two-year getting attention from their stock trading fellows.

The S&P looks like it may be ready to test the 3900 level, which will be important since the next support below that is all the way down at 3815 (hat tip Katie Stockton). So, the action for the balance of the day will be very interesting.

There is some clear leadership weakness in the semi-conductors and that is because of the ban on selling artificial intelligence chips to China. The net result of which will likely be to sponsor an up move in the chip building industry in China for competitors to some of our existing all stars in the chip industry.

The price data is also interesting. We are seeing commodity prices, particularly from industrial products like copper and nickel, etc. beginning to fall apart. I am personally stunned by how weak oil has been. I know the classic rationale is that we are headed to a global recession and, therefore, the demand will fall through the floor, but there is something called winter coming up. At least I recall it used to regularly come up in a couple of months. I think that will see a change in demand.

As we go to press, they seemed to be observing a rather recent tradition and that is circling the wagons and trimming the losses as our European cousins get ready to close their markets. Let's see if that put some real oomph behind it. It would be a bit impressive if we could get back to plus territory, but let's let the bulls prove this new European close coincidence. It is certainly intriguing.

That having been said, we need to watch the balance of the day very carefully and to do that we probably need to review a couple of the numbers.

A key is the yield on the ten-year, which as we go to press, is approximately 3.26%. The morning high was 3.29%. Should it get back up there again, I presume that will put more pressure on stocks. The VIX is inching up, but I am not sure it is sending a clear signal. Bitcoin breaking $19,000 would appear unlikely at this point, but should it occur it could send a shiver through the equity market.

So, watch that 3900 level in the S&P. It could be a critical retest.

Stay safe.

Arthur

Added to banks on the whoosh lower.

I have added to my small (SPY) long at $390.45.

I have been buying (GOOGL) this week.

I added again today.

Upside

- (FMTX) +47% (to be acquired by Novo Nordisk at $20/shr in $1.1B all-cash deal)
- (NTNX) +15% (earnings, guidance)
- (PSTG) +6.8% (earnings, guidance)
- (ARCT) +5.3% (receives $63.2M award from the US Government to support development of self-amplifying mRNA vaccine for rapid pandemic influenza response)
- (VXRT) +5.2% (Phase II clinical study met primary safety and secondary immunogenicity endpoints, demonstrating safety and immunogenicity of Wuhan S-Only COVID-19 pill vaccine candidate)
- (FIVE) +3.6% (earnings, guidance)
- (S) +3.6% (earnings, guidance)
- (GMS) +1.7% (earnings)

Downside

- (DLTH) -22% (earnings, guidance)
- (MDB) -17% (earnings, guidance)
- (OKTA) -16% (earnings, guidance)
- (ANAB) -15% (HARP Phase 2 top-line data of imsidolimab in moderate-to-severe hidradenitis suppurativa did not demonstrate improvement over placebo in primary endpoint and key secondary endpoints)
- (SMTC) -15% (earnings, guidance)
- (AI) -14% (earnings, guidance)
- (VEEV) -13% (earnings, guidance)
- (BBW) -12% (earnings, guidance)
- (CIEN) -9.5% (earnings)
- (LE) -8.8% (earnings, guidance)
- (FNCH) -7.9% (earnings, guidance)
- (OLLI) -7.8% (earnings, guidance)
- (HRL) -5.9% (earnings, guidance)
- (FLWS) -4.4% (earnings, guidance)
- (NVDA) -4.3% (US govt imposes a new license requirement, effective immediately, for any future export to China and Russia of A100 and H11 integrated circuits; discloses US authorization allowing the Company to perform exports needed to provide support for US customers of A100 through Mar 1, 2023)
- (SCWX) -4.1% (earnings, guidance)
- (PSNY) -3.8% (earnings, guidance)
- (CPB) -2.7% (earnings, guidance)
- (QTNT) -2.1% (Holders file to sell 8.5M ordinary shares)
- (NIO) -1.8% (reports Aug vehicle deliveries)
- (LI) -1.7% (reports Aug vehicle deliveries)

I have an errand to run at the opening. 

With S&P cash at about 3935 - adjusted for the futures - I continue to add to stocks, incrementally and slowly, as we move towards the lower end of my projected trading range in the S&P Index of between 3825-4225. 

I will have a longer and more comprehensive market update on Tuesday as I am out tomorrow.

Wall Street saw neither earthquakes nor blazing street fires, but surely the Wall Street equity bulls were nearly as uncomfortable as the poor citizens of Tokyo were on that fateful day. The media in the morning had offered some hope that we might have been able to turn up after exhaustion. We were uncertain of that and had pointed to the fact that our good friend, Jonathan Stephens, looked to be in excellent shape having said that any one of first the three days of the week - Monday, Tuesday or Wednesday might see the market move to an interim low. Certainly, there was no significant bounce-back rally.

There was no significant recovery and reversal after Friday's disastrous selloff on the Powell comments. So, Jonathan is in good shape, but, as usual with the market, only time will tell. We will see what happens in the next couple of days and weeks, but even if it does not turn out to be a perfect call, there is clearly no damage. It will save your money and wait and hope that was a good strategy. At any rate, they seemed to perplex the media pundits and we got into a little bit of that in this late morning update:

Late Morning Update 08.31.22 - U.S. equity stocks stumble about trying to test and see if yesterday's mild bounce off the lows will hold. It will be interesting to see. Today is the last of Jonathan Stephens potentially interim low days. His original target had been Tuesday, but the work is plus or minus one day, so that made the whole target area Monday, Tuesday and Wednesday.

The market will continue to look at its own internals. If you are looking for a milepost, look at yesterday's intraday lows in the S&P, which was 3965 or in the Dow at 31647 The bulls need to try to hold that level and see if they can build on anything, breaking that level would again raise questions and, as you recall, the 50 percent retracement level, one of the three potential support levels from yesterday, which was broken, is 3981 so, that will also be important. The yields on the ten-year are high enough to be a bit of a bother to the high cap techs, but they are not reacting to it directly so far. We will try to talk in tomorrow's Comments about Friday's payroll data, which will be watched carefully.

There were tons of surprises in the last payroll data, which was up significantly higher than was expected, but if you actually took out the seasonal adjustment, there was no increase. The household survey was vastly different than the other surveys and, even the indicated increases in payrolls tended to cluster in part-time second jobs, which hinted that households may be feeling the strain of holding up with the push in inflation.

The Democrats are crossing their fingers that the weak trend in oil continues at least until the mid-term election in November. Okay, let's look at some of the numbers. First, we will keep an eye on the yield on the ten-year, which topped out this morning at 3.11% and is now trading at 3.01%, which has given some relief to the techs. We will continue to watch yesterday's intraday lows, which we mentioned above, which are being tested. It is rather fascinating that for the third day in a row, the bulls are circling the wagons and we are testing the lows just as our European cousins are closing their market.

So, we will see, as they did in the two preceding days, holding till after European markets close and give us a modest all clear. It is critical to watch the level of yesterday's lows. Stay safe.

As you can see in the update, we cautioned you to watch a couple of things. One was the yield on the ten-year, which, in fact, turned out to be the dominant factor of the afternoon and we cautioned you to look at the intraday lows of Tuesday, which were an occasional battleground several times during the day, but the bears won out and we made lower lows, which would certainly fit in with Jonathan's template. It was a very interesting day in that if you looked at several of the subsets at what went on, we were lucky enough to color within the lines of the late morning update.

We admit to, but did not get into, the possibility of some end of month rebalancing - where the bond guys sell stocks, and will the stocks cut back by selling some of the bonds for possible inclusion? We forgot to put it in, but did not hurt at all because there was, in fact, little to no end of month rebalancing, which added to the puzzlement of how much of the trading was going by algorithms and how much, in fact, is coming in from some other technically derived movement.

Again, as we noted, they circled the wagons as Europe was closing and they tried to build a little rebound out of that, but in the final two hours, as the yield on the ten-year went higher, they rolled over, and they violated yesterday's intraday lows that we had pointed out in the late morning update. So, as the old saying at the carnival went - close but no cigar. We touched on everything that was there. We got it pretty right, but the market did not provide an opportunity to win that cigar.

We will begin the review, including the foreign markets, but note that it is a new month although it is not a very pleasant month historically, but it is a new month and that means new money for the new month and that should give our friend, Jonathan Stephens, a little bit of a leg up and possibly walking out of a low base or a potential short-term interim bottom. Time only will tell and these days it is going to be interesting and, in making lower lows, the S&P basically tested the 3950 area with a 3954 tick, I think and that, you may recall, was part of the potential support from the countdown from the break of the head and shoulders neckline. It was 3950 and then 3900. So, we will see which way we go.

Before we note the foreign markets, let's note that the new money for the new month seems to be having little to any effect. U.S. futures look lower because the yields have moved higher again - up above that 3.11% level. They seem to be putting pressure on the stock market, particularly the high cap techs. There is supposed resistance at 3.25% and certainly then again as you near 3.4% to 3.5%, but let's not get ahead of ourselves.

Meanwhile, overnight foreign markets are shaky to say the least. Asian markets are getting banged around. Some of it in catch-up to the U.S., but a lot of it has to do with the new Covid crackdown in China. A city of over 21 million people may be shutdown solidly and that city contains more than a few factories that produces goods for the Western world. In Europe, markets are also weaker as people are trying to figure out what the rates/yield picture is over there as inflation continues to break out and the energy crisis does nothing but worsen.

The look of the markets is not a ready first day bounce and may put Jonathan's call for an analogues interim bottom at the beginning of the week in trouble and, not to get ahead of ourselves, let's not forget a three-day weekend coming up and a Friday before a three-day weekend has a bias to the upside so none of those things appear to be working at this time. The U.S. economic calendar is not particularly heavy. We will get, as usual, the jobless claims in the morning along with productivity and unit labor costs, the PMI manufacturing, and the ISM manufacturing.

A bit later in the morning construction spending and natural gas inventories. We have a couple of Fed speakers, but it looks like Powell has finally gotten everybody on board so, I am not expecting any surprises or deviations for the "higher for longer". A message they have been sending out.

Again, with geopolitics lurking right beyond the footlights, you have got to stay close to the newsticker, remain nimble, alert and above all try to stay safe. Ultimately, the geopolitical analogies to 1962 remains almost evident. The two most powerful nations on the face of the earth on the verge of going nose to nose over activity on a large island just off the shore of one of the key nations. You cannot make this stuff up.

Again, stay safe!

FreightWaves had a piece yesterday titled "'Race to the bottom' in truckload contract rates sets in" that revealed more evidence of economic slowing both in terms of volumes and price. "Pressure is being let out of global freight markets as demand falls and lower volumes in a variety of modes are more easily handled by the capacity and infrastructure built up during the last two years of Covid. Transportation rates in several modes, including truckload and ocean container, are falling as demand deteriorates and capacity loosens."

Their Outbound Tender Rejection Index, "which measures the percentage of truckload shipments rejected by carriers, fell Tuesday to a new cycle low of 5.43%." More on this, "When carriers feel that they have few attractive options in the freight market, they take the loads they can get, rejecting fewer shipments and accepting more from their contracted customers. Low tender rejections indicate a lack of carrier pricing power; low rejections will also push spot rates lower until they become so attractive to shippers that contract rates too come down."

Bottom line, just another anecdote on the economic environment that should be heeded.

The lockdown of the 21mm person Chinese city of Chengdu has industrial metals and oil prices down again. While this of course continues on with the now archaic approach to Covid, there was some good news, if followed thru, with China's Covid stance. Hong Kong said they are hoping to end its 3 day hotel quarantine policy in November. Also, they are working with Guangdong province to have people, until then, to first quarantine in Hong Kong and then enter the mainland quarantine free. For the sake of the global economy, let's hope that after the Party Congress, China decides to ease up on Covid.

China also reported that the Caixin private sector manufacturing PMI fell to 49.5 from 50.4. Power rationing, Covid, a general economic slowdown, distress with homebuilders and weakness in export orders all combine for the below 50 print.

Here are the other PMI's out of the region today: Taiwan weakened all the way down to 42.7 from 44.6. South Korea's fell to 47.6 from 49.8. Japan's declined to 51.5 from 52.1 and Australia's to 53.8 from 55.7. Malaysia slipped a touch to 50.3 from 50.6 as did India's to 56.2 from 56.4. We saw a gain in Thailand to 53.7 from 52.4, Indonesia to 51.7 from 51.3, the Philippines to 51.2 from 50.8.

With Taiwan specifically, S&P Global said "firms commented on weaker demand conditions both at home and abroad. Reduced intakes of new work led to the steepest drop in backlogs since January 2009 and weighed on hiring activity. Confidence regarding the 12 month outlook also turned increasingly negative, which drove firms to cut further back on purchasing activity and inventories." Prices paid and received both fell.

On South Korea, "Contractions in both output and new orders accelerated on the month and were the fastest recorded since June 2020, pushing the headline index to the lowest level for 25 months. Firms often commented on concerns that the economy would continue to perform poorly amid weak demand and challenging global economic conditions." Price pressures eased here too. South Korea and Taiwan are now key cogs in the global industrial story.

The Eurozone August manufacturing PMI was tweaked lower in its revision to 49.6 from 49.7 initially and vs 49.8 in July. S&P Global said "Weak demand conditions were a major drag on goods producers in August, reflecting deteriorating purchasing power across Europe amid high inflation. Manufacturers subsequently cut their buying activity back further in response to the darkening economic outlook, although the reduced need for inputs helped lower the strain on suppliers." You could have also just said, 'skyrocketing energy prices.'

The UK manufacturing PMI was revised up to a still weak 47.3 from 46 preliminarily, from 52.1 in July. "There were reports of clients postponing, rescheduling or canceling agreements due to increased economic uncertainties, recession warnings, rising prices and component shortages, while port congestion and Brexit complications constrained export opportunities."

On the growing possibility of a 75 bps rate hike from the ECB next Thursday, European bonds are selling off again but bonds too were lower in Asia. The UK 10 yr gilt is now up 80 bps over the past 3 weeks. The German 10 yr yield is up 62 bps over the same time frame. After 4 days of declines, the TTF natural gas price is higher but German power prices fortunately are down 6% to a 2 week low and this giving back last week's parabolic spike of 70%. We'll see if an aggressive rate hike takes place and if energy prices have peaked in Europe (big IF), maybe, the euro will bottom too.

German 1 yr forward Power Price in megawatts

More from Liz Ann:

As noted in my "Futures" column I am back long (SPY) : 

Early (5AM) I bought (SPY) at $392.07.

P.S. - I failed to mention that I shorted some SPY calls near yesterday's close, and during my Board meeting. Mea culpa.

From my pal George (I will be on his podcast in the next few months):

View Chart »View in New Window »

Keep in mind Jeremy is a Perma Bear:

Doomberg on The Dead of Winter.

Keith on European energy prices:

From Liz Ann on rental prices:

From my friends at Miller Tabak:

We were surprised by markets' intense negative reaction to Chairman Powell's Jackson Hole speech. As we expected, his remarks were just a more forceful repetition of what the Fed has already been signaling for months. We also are unconcerned by this week's FOMC member comments, which many analysts have wrongly interpreted as hawkish.

New York Fed President John Williams's comments that the Fed will have to go above 350 bps and stay there until 2024 is close to a best case scenario while Cleveland Fed President Loretta Mester's forecast that the Fed will reach and stay "somewhat above 4%" through next year is more realistic. We still think that a 450-475 bps peak with rate cuts waiting until late 2024 or early 2025 is most likely.



We have become slightly more optimistic about inflation. Last week's PCE report confirmed that the improved July inflation data are more than just a decline in energy prices. Trimmed-mean PCE inflation, which removes the most extreme price changes, is an excellent gauge of underlying inflation. In July, it fell to 3.4% (m/m, annualized), close to its 3.3% average between February and April. The share of prices rising by at least 5% (annualized) also fell from 61.9% to 45.3%, its lowest level since March.

The most plausible explanation is that the May-June inflation surge subsided faster than expected and that the inflation outlook is back to its early 2022 levels.

The key question is how much better inflation data is needed for the Fed, and us, to significantly alter our forecasts. The Cleveland Fed provides a simple forecast for August inflation (its core-inflation forecast only relies on previous PCE and CPI data) and predicts that August core-CPI to be 5.9% and core-PCE to be 4.5% (both m/m, annualized). Two more months of inflation data at least 1% below these levels might induce the Fed to become more dovish, possibly by raising rates only to 300-325 through December instead of the 325-350 level that the Fed has signaled.

Our expectation, however, is for core-PCE inflation to remain slightly above 4% and for core-CPI inflation to remain around 5.5% for the rest of the year. If so, expect the Fed to follow through with 100 bps of rate hikes over its next three meetings.

* The market (and money) never sleeps -- and neither do I, it appears!

* Stock futures were much lower last night - following thru with the recent weakness. (After the close NVDA lowered guidance).

* Brent crude is down again, -$1.62 finally to $94.02.

* Gold just cant get out of its way - down by another $11.50. I still can't work it up to buy.

* Soft commodities are down, again, for the second day in a row.

* Bond yields are broadly higher after barreling ahead in recent days. The yield on the 10-Year is +6.8 basis points to 3.20%. I added to Treasuries on yield strength all week.

* The S&P oscillator remains in an oversold, at -6.98% . The oscillator has been a good short-term trading tool over the last few months!

"Workin' on our night moves
Trying to lose the awkward teenage blues
Workin' on our night moves
In the summertime
And oh the wonder
Felt the lightning
And we waited on the thunder
Waited on the thunder."

- Bob Seger, "Night Moves"

I described the importance that overnight futures trading holds for me here. It is a guidepost to my strategy in the regular trading session.

Moreover, the overnight/early morning futures hold opportunities as they are (1) inefficient, though liquid, and (2) it seems fear and greed is often exaggerated outside the regular trading session.

Stock futures are lower.

Brent is -$162/barrel - down for the third day in a row.

Soft commodities are lower.

The 10-Year U.S. Note yield is +7 basis points at 3.2%. I continue to buy Treasuries.

S&P futures peaked at +4 and bottomed at -36. At 5:24 a.m. ET futures were -31 handles.

Nasdaq futures peaked at +3 and bottomed at - 168 At 5:26 a.m. ET futures were -147 handles.

Here is a synopsis - and link - of some of my columns I believe were important. The intent is to review the logic of my market moves and other factors.

Goodbye TINA , Hello TATA.

S and P Dividend Yield. 

We are in the Chop Bucket. 

Here are my trades from Wednesday:

* I sold more (SPY) puts

* I added to banks

* I day traded (MSFT) for a profit

* I added to (GOOGL)

Early (5AM) I bought (SPY) at $392.07.