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DAILY DIARY

Doug Kass

Leaving Early

I have to leave early to prepare for Rosie's podcast. 

Thanks for reading my diary today. 

Enjoy the evening. 

Be safe.

Position: None

Bitcoin Tweet of the Day

Position: None

Bond Market Update

* The yield on the two year Treasury note is +10 bps to 4.666% (scary digits!)

* The yield on the ten year Treasury note is +7 bps to 4.313%.

* The yield on the long bond (30 years) is +4 bps to 4.453%.

Position: None

Cannabis Moves

I am reducing (MSOS) and (GTBIF) on today's move higher in cannabis stocks.

Position: Long MSOS (M), GTBIF (S), Short MSOS calls (S)

From The Street of Dreams (Part Deux)

Wells Fargo names Nike as a Top Pick, raises price target to $125 06:51 NKE, LULU

Wells Fargo raised the firm's price target on Nike (NKE) to $125 from $120 and keeps an Overweight rating on the shares ahead of quarterly results. The firm expects a Q2 beat and a greater emphasis on improving profitability as drivers to the rally. While Wells still views full year revenue guidance as "risky," it simply believes margins greater than revenue today.

The firm has also removed Lululemon (LULU) and replaced it with Nike as one of its Top Picks, which it also named its new Top Defensive Pick. Wells believes the recovery characteristics and self-help story now beginning at Nike make for a more compelling long idea into 2024
.

Position: Long NKE (S)

Machines, Algos, Gold Oh My!

Position: None

Late Morning Musings From Sir Arthur Cashin

Despite Friday's partial breakout of the Russell with new money for the new month and thanks to that presumed buy program, things are re-trenching a bit here.

The esteemed technical strategist, Tom DeMark, reportedly has told clients there is a chance that the rally can stall here, and that the Dow and the tech stocks might put in a short-term top here.

So far, it is possible, and we have to wait for a few things to follow-up.

Also, others have been talking about resistance at 4600 and so far, that seems to be holding up. I think the market will continue to check its own technicals and try to see where they sense the chance for exposure continues.

Some observers think that the yield on the ten-year being back above 4.25% is adding pressure to equities. That might be so, but my slide rule was looking for something up about where we are now - - 4.28%/4.30%.

We will see how the day progresses. The Regional Bank Index seems to be perking up, even though the Russell is not following through on its Friday rally. We need to get out the compass and protractor and start to remeasure, but I will buy into the idea of a yield above 4.27% and we will see where they go from here.

Watch the geopolitical headlines and please stay safe.

Arthur

Position: None

Market Internals

At 10:47 am:

* Huge Nasdaq volume on the downside

- NYSE volume 171M shares, 18% above its one-month average

- Nasdaq volume 2.01B shares, 58% above its one-month average

Breadth

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Biggest Movers

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Heat Map

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Position: None

From 'The Little Chief'

Young Jerry makes the case that, unless the US economy goes into a deep recession, the charts on energy stocks show promise:

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Position: None

Programming Note

I am going to spend the next hour or so outlining my presentation for Rosie's Podcast at 4 pm today. 

Back at around noon.

Position: None

3 Adds

Added to (QQQ) short and to my longs in (JOE) and (OXY) this morning.

Position: Long JOE (M), OXY common (L) calls (M), Short QQQ (VL)

Sir Arthur Holds Court

From Arthur Cashin: 

By Friday's close, the Wall Street bulls felt that they could readily empathize with Mozart, not in his destitute final days, but rather in the middle of his early glory. The Wall Street session did not start out that way, however. It looked a little questionable and it took a while for the bulls to fully get their act together. We covered a good deal of that in this late morning update:

12.01.23 LATE MORNING UPDATE - The equity bulls are trying to circle the wagons after a somewhat shaky opening. The traditional influence of new money for the new month was not very evident at the opening, but a half-hour into trading, the bulls, as we noted, are trying to get their act together. As we noted in the calendar in the pre-opening comments, we will get a double dose of Powell.

In late morning at a fireside and then an hour or two later, he will be back at the same event at Spelman College, which gives him a lot of latitude. But most think, however, he will not allow that latitude to make him sound too dovish, so he maybe the master of the day. Otherwise, the economic data has not been very compelling. So, let's get ready for Powell and see how it's going into the afternoon. The bulls clearly are trying to hold their own and maybe even manage a plus tick or two. So, stay alert, but be sure to stay safe.

Military events are heating up near Gaza again, stay safe. P.S. - Keep an eye on the 10-year yields. Below 4.30%, may bring mild equity bids and above 4.35%, may drive those bids away. As the update went out, a couple of things were happening. The action hinted that there might be some kind of a buy program in the Russell and, while the Dow and the S&P were showing some signs of strength, the Russell continued to march forward steadily as is often the case if there is a dedicated buy program in one of the indices. That continued to build some strength in the market and actually took the Russell out into the lead of what was going on and, by the end of the day, it wound up with a percentage change far surpassed with what the other indices were doing.

By very late morning, Powell had begun to speak in the first of his sessions at Spelman College and his prepared text sounded a bit hawkish to folks because the reaction was to see yields inch up a little bit higher and that took some of the bids out from under the equity portion. Interestingly enough, the Russell seemed to hang on as though that assumed buy program was reasonably solid. About an hour and a half to two hours later, when Powell returned to the microphone, a good portion of it was question and answer period and, by this time, the hawkishness seemed to dissipate a little bit and buyers showed up in bonds. Yields went down and that put bids under stocks. That was occurring just as we were putting out this early afternoon recap:

12.01.23 EARLY AFTERNOON RECAP - The Wall Street traders apparently read the late morning update like a script. The bulls continued to circle the wagons and then the rally kicked into higher gear, aided by more bids coming in as the yield on the 10- year dropped below 4.30%, as I had suggested in the update. So, I think the next goal is for them to try to maintain where we stand here. The new money for the new month apparently got motivated by the drop in yields and by the fact that the market was demonstrating some strength and it built on itself. Now they need to hold on and consolidate these gains, then maybe some mild difficulties later this afternoon. Stay safe.

We did not mention the buy program in the Russell nor the flipflop in bonds, since the latter was occurring just as the afternoon missive was going out, but they did hold together. I was told later by some friends that the Russell, whether with a buy program or not, managed to punch through some chart resistance and that may have caused a little short covering as those who follow the chart patterns sensed that the rally and the Russell might be broader than we thought.

Overall, it was a terrific session for the bulls as we said, not unlike Mozart's glorious early career. Another thing that the possible buy program in the Russell did was to broaden the market breadth since the Russell is composed of a great many smaller stocks and a buy program in that index would get more stocks ticking higher. So, we wound up with the market maintaining pretty much a five week up move in most of the indices, getting a little bit of a chart breakout in the Russell and a seeming confirmation for the bulls in the breadth of the market expanding.

There are not many other bullish signs you would expect the market to take in one day, so it was, as I say, a rather triumphant day for the bulls and they did maintain the solid advances rather than letting them all dissipate in the afternoon. Yet, another good sign. Let's see if they can maintain that as we go further into the new month and let's keep a close eye on that Russell and see if that is going to take this rally away from the Magnificent Seven that everyone has been obsessing on and make it a broad rally, hopefully, showing a general strengthening in the economy, but for now, as we usually do at this time, we should pause and take a look and see what our cousins offshore were doing in reaction to the rather impressive move that occurred here in New York. Overnight, global equity markets have a general lean to the downside with only a few exceptions.

In Asia, Japan was down about 200 points in the Dow. Hong Kong was off a bit more - down about 360 points in the Dow. Mainland China, however, was a bit more quiet - off only about 100 points in the Dow. India was odd man out, closing up nearly 700 Dow points. There was a slight lean to the downside in Europe. As we go to press, London is down about 120 Dow points. Paris is off about 80 Dow points and Frankfurt is off about 75 Dow points.

The U.S. economic calendar is almost non-existent. At midday morning, we get Factory Orders and at midday, we get the Investor Movement Index. The Fed is on its silent cycle. There look to be few stimulants if any. So, the market will be focusing on its own internals, and we will wait to see how the movement into the small to medium caps manages today. Will they be able to pick up on it again or will it look like that program with a single day phenomenon.

The last 48-hours would appear to make it rather important to stay close to the newsticker. Iranian surrogates have been flying drones at tankers and commercial tankers in the Red Sea area and may have been countered by U.S. Navy ships in the area and some folks are worried that could expand the Mid-East fractiousness even further.

Also, of concern, a Chinese official spokesman apparently charged that U.S. Navy ships have been illegally "violating" Chinese territorial waters and that is another thing that will bear watching. So, while the U.S. calendar is rather skimpy, it would appear that the geopolitical atmosphere is heating up a little bit again. Therefore, you know the drill. Stay close to the newsticker.

Keep your seatbelt fastened. Stay nimble and alert and especially in these fractious times, stay safe. As I previously said, we will see if they come back and show signs again in the Russell and what will that do and we are back to watching the yields. If they begin to tick up, we will watch the area around 4.30% in the ten-year, which might bring a little pressure on the equity markets, but most of all, as I just cautioned, please stay safe. 

Position: None

Funniest Tweet of the Day

Position: None

The Book of Boockvar

From Peter: 

I don't believe Jay Powell when he woke up Friday morning was expecting or wanting the reaction in the markets we saw to his speech that he gave that day. This is a committee where many members just a month ago talked about the markets further tightening for them when we saw the 10 yr yield go from about 3.75% in July, when they last hiked rates, to a short term peak of 5%. While that 10 yr yield is still 50 bps higher, the 2 yr yield is about 40 bps lower.

We are seeing writ large again how the Greenspan incorporation of 'financial conditions' into monetary policy can influence and cloud that policy. Who pushes who around? The markets or the Fed? Sometimes it's the latter but now it seems to be the former.

And what a round trip in financial conditions as measured here by the Goldman Sachs index. The lower it goes, the easier they get and vice versa. As for this writing, when I look at the fed funds futures, by May the market has priced in a 100% chance of a 25 bps cut and a 38% chance of a 2nd one by then. In March, the rate cut odds are at 68%.

Keep in mind here with the 'odds' calculation, there are a few different techniques and not just one when figuring it out so would explain why sometimes you hear different answers. I specifically use the fed funds futures market and I use the 'effective fed funds rate' which is currently 5.33% when doing the math.

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And that move in gold last night was wild, spiking to a record high and then backing off to little changed. Now gold is not coming out of nowhere here. Over the last two years it has traded amazingly resilient in the face of the dramatic rise in real rates, about 400 bps in 5 yr TIPS, and the rise in the US dollar. So once we got relief on both, gold was just a coiled spring. And much of that resiliency has been the buying on the part of central banks.

According to the World Gold Council, in Q3 central banks bought 337 tons, almost double the pace of Q2 and that is the 3rd highest quarter on record. The record was in Q4 2022 and almost exceeded in Q1 2023. The acceleration in buying was certainly in part triggered by the US and EU confiscation of about half of Russia's central bank reserves. Who after all wouldn't then want more gold in their reserves that they can store themselves? We remain bullish and long gold and silver, I'll say again for the umpteenth time.

Just for reference, if you inflation adjust gold for the 1980 peak then of $850, today it would be around $3,200. If you price gold off the dramatic expansion in central bank balance sheets over the past 15 years relative to historical relationships, you get a price much higher.

Bitcoin is of course also seeing another move here higher but central banks are certainly not storing it as a reserve and I still don't know what Bitcoin wants to be when it grows up.

Intraday Gold Move

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There was a big rebound of $21.7b of C&I loans outstanding for the week ended 11/22 but because it was Thanksgiving week, and much earlier than usual, it's likely that this influenced the figure so we'll wait until next week to see to what extent.

The November auto sales figure seen late Friday totaled 15.32mm at a seasonally adjusted annualized rate (SAAR). That was below the estimate of 15.5mm but up from 14.14mm in November 2022 and that's because of more inventory on lots that has created more customer options. However, because of the record average price on top of high borrowing costs, it still remains well below the November 2019 pace of 17.09mm.

The Swiss National Bank is likely going to also sit on its hands at their next meeting as the Swiss reported November CPI that was also below expectations at 1.6% vs the estimate of 1.9% and vs 2% in October. The moderation was driven by energy, food and travel related products like hotels. The core rate was higher by 1.4%.

Position: None

Recent Tech Shorts

Just to remind all: 

* Google (GOOGL)

* Salesforce (CRM)

* Snowflake (SNOW)

* Apple (AAPL)

I am planning to short more on any strength.

Position: Short GOOGL (S), CRM (S), SNOW (S), AAPL (S)

CNBC Tweet of the Day

Position: None

More Night Moves: A Detailed Look at Overnight Futures and Why/What Markets Are Moving

* Both crude prices and bond prices are slightly lower in the early going Monday morning

* Bullish investor sentiment is moving to an extreme - the S&P Short-Range Oscillator rose from 4.93% to 7.33%

* Downside risk likely dwarfs upside reward

* Bah-da bah-da-da-da

Every other day, every other day
Every other day of the week is fine, yeah
But whenever Monday comes, but whenever Monday comes
A-you can find me cryin' all of the time

- The Mamas and the Papas, Monday Morning


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"The stock market will do whatever it has to do to embarrass the greatest people to the greatest extent possible." - Wally Deemer

"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"

This daily Futures feature is like inside baseball. I try to show you and write about what I believe thoughtful hedge fund managers are looking at when they awake -- let's call it our normal routine -- setting the stage for their strategy for the day. The market is a complicated mosaic and the more info you have, the better trader and investor you will be!

The market (and money) never sleeps -- and neither do I, it appears! I have previously described the importance that overnight futures trading hold 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 are often exaggerated outside the regular trading session. I frequently try to capture those efficiencies by trading actively both in the pre- and after-market sessions.

Here are brief observations I wanted to highlight and provide a summary of overnight price movements in various asset classes:

* Stock futures were modestly lower in the overnight session. S&P futures peaked at +3 and bottomed at -16. Nasdaq futures peaked at +16 and bottomed at -80. At 6:33 a.m. ET, S&P futures were -12 and Nasdaq futures were -61.

and...

* The S&P Short-Range Oscillator moved further overbought to 7.33% from 4.93%.

* The VIX is now at 13.24, a gain of +0.61.

* The U.S. dollar is modestly lower against the yen but slightly higher vs. euro and sterling.

* Treasury yields are a bit higher this morning. The 2-Year Treasury yield is +3 1/2 basis points at 4.602% and the 10-Year is +2 basis points at 4.245%. Over there, the yield on the 10-Year U.K. Gilt bond is +4 basis points.


* Overnight, the inversion of the 2s/10s Treasuries curve is unchanged at -34 basis points. Real rates remain quite elevated - the 10-year is over 2.18 in real terms.

* Commodities are mostly lower. Brent crude is -$0.83 to $78.02.

and...


* Gold is -$1.10 at $2,088.

and...


Here is a synopsis of some of my columns I believe were important, or in the event you were out for the day and/or did not read my Diary. The principal intent is to review the logic of my market moves and other factors:

Tesla Talk

Why Buy The Cow When You Can Get Paramount Streaming For Free?

Minding Mr. Market (And The Rotation)

Here were Friday's trades:

* Early Trades

Added to (SPY) short at $456.12.

Added to (QQQ) short at $387.85.

Added to (OXY) at $58,91.

Shorted more (GOOGL) at $132.

* I took a loss in my small (IOT) short

* Shorted (PARA) and covered some, then reshorted.

Position: Long OXY common (L) calls (M), Short PARA (VS), SPY common (M) calls (M), QQQ (VL), GOOGL (S)

Is The Fed Thrilled With This?

Probably not:

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Position: None

Tweet of the Day (Part Deux)

Position: None

Trade of the Week - Short QQQ ($388.61)

With the "S&P Short Range Oscillator" surging to 7.33% at Friday's close from 4.93% - the overbought is now getting extreme. 

The weakness we began to see late last week in mega cap technology stocks is likely to accelerate into the next few weeks of December and early January with large tech holders in the "Magnificent Seven" leaking out positions to be followed by a lot of selling at the beginning of 2024 by taxable participants (pushing gains forward). 

Moreover, this chart shows an unprecedented divergence between the Nasdaq and Central Bank balance sheets which could mean regress:

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Position: Short QQQ (VL)

Themes and Sectors

This table is a valuable resource for momentum-based short term traders:

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Position: None

From the Street of Dreams

From JPMorgan:

US: Futs are weaker following 5 consecutive weeks of gains and higher bond yields. Small-caps outperformance has accelerated over the last 2 weeks and may see further outperformance today. Keep an eye on retail flows to see if they can aid a year-end rally or perhaps inject volatility. USD is stronger and cmdtys are weaker. With the Fed in its blackout window, the macro data releases will be the key focus; no treasury auctions this week. Today, that focus is on factory orders and durable/cap goods.

and...

EQUITY AND MACRO NARRATIVE: SPX added 8.9% in November, the best performing month since July 2022. November's rally was broad-based with NDX and RTY adding 10.7% and 8.8%, respectively. In the SPX, only Energy was down on the month with Real Estate, Tech, and Cyclicals outperforming. Some notable movements in D1 baskets including Highly Short Interest (JPTASHTE) +14.7%, Squeeze Reversal (JP9NSTR) +12.8% and Cyclicals (JPAMCYCL) +16.5%. Breadth improved, proxied by the percentage of SPX stocks above their 200dma, from 26.5% to 67.1%. 452 stocks within the SPX produced a positive gain, with 63 adding at least 20%. These moves do not tell the full story of turmoil below the index and behavioral shifts during the course of the rally, e.g., SPY, QQQ, and IWM are up 9.8%, 11.1%, and 12.4%, respectively; but, since Thanksgiving SPY is +83bps, QQQ +11bps, and IWM +311bps. This has led many clients to question whether YTD laggards are the best plays moving forward; a question we attempt to answer below.

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SPX BREADTH vs. SPX

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The rally was launched by lower bond yields which was initiated by a lower than expected Treasury refunding announcement and a more dovish Fed. The bond market went from pricing 66bps of cuts in 2024 to 134bps of cuts, from Oct 31 to Dec 1. Bond yields fell have move significantly lower over the month; 2Y down 54.9bps, 5Y down 73.1 bps, 10Y down 73.5bps, and 30Y down 70.4bps.

US YIELD CURVE: DEC 1 vs. NOV 1 vs. JULY 31

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Source: Bloomberg; data as of Dec 2, 2023

As we enter the last month of the year, the key focus will be (i) whether this current rally is sustainable into year-end, and if so, does it continue into 2024; (ii) what is the economic outlook from here; (iii) will we see bond yields spike again.

  • RALLY SUSTAINABILITY - There does appear to be more left in this rally. Our Positioning Intelligence team tell us that positioning is not yet a headwind to this rally (full post in the next section). Some keys to watch are ISM-Srvcs on Dec 5 (needs to stay above 50), NFP on Dec 8 (think anything above 75k is a positive especially if wage disinflation continues), CPI on Dec 12 (think the recent EU print will fuel expectations for a dovish print), the Fed on Dec 13 (focus on the dot plot), and Retail Sales on Dec 14 (anything positive on a MoM basis is supportive).
  • FED - While it is consensus that the Fed has concluded its hiking cycle, less certain is the timing of the easing, the threshold for easing, and whether easing is done as a reaction to solving inflation or in response to a recession. We are unlikely to get answers to these questions at the December meeting but keep an eye on the dot plot. The current, median dot implies a 5.125% Fed Funds; but if we see that materially decline then we may see rate cut expectations pulled forward and in larger magnitude. If nothing changes, we could see this bond rally reverse pushing yields higher. Higher yields are not necessarily a negative for stocks though bond vol has tended to be a headwind for stocks. Jay Barry'srecent daily note has positioning metrics that you may find useful, full note is here. More immediately, is the loosening of financial conditions likely to drive more hawkish Fedspeak and does the market care? Friday's price action would suggest Yes on Fedspeak and No on whether the market cares. Thought differently, the Fed missed inflation on the way up and they may be missing it on the way down; disinflationary trends seem to be irreversible especially considering declining wage inflation. One source of that wage disinflation is the increase in the labor force, most of it coming from immigration. If inflation is solved, then Fed will cut rates to get back to R-star, historically thought to be ~2.5% but may be higher in a post-COVID world. Thinking about the original question, can yields go higher? Yes, but a run back to 5% appears unlikely.
Position: None

An Important Correlation Breakdown

Position: None

Chart of the Day

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Position: None

Looking at Previous Rate Cuts

* And how Mr. Market reacts... 

Position: None

Nifty Fifty (Part Deux)?

Position: None

Oil Vey!

Position: None

My Tweet of the Day

Position: None

The Past Week in Charts

From Charlie, here.

Position: None

Tweet of the Day

A look at the oscillator:

Position: None
Doug Kass - Watchlist (Longs)
ContributorSymbolInitial DateReturn
Doug KassVKTX4/2/24-31.72%
Doug KassOXY12/6/23-14.53%
Doug KassCVX12/6/23+10.81%
Doug KassXOM12/6/23+13.02%
Doug KassMSOS11/1/23-22.80%
Doug KassJOE9/19/23-14.64%
Doug KassOXY9/19/23-25.97%
Doug KassELAN3/22/23+37.02%
Doug KassVTV10/20/20+64.63%
Doug KassVBR10/20/20+77.10%