Market Internals

* Weak breadth today

• New York Stock Exchange volume was 888 million shares, 100% above its one-month average;
• Nasdaq volume was 5.04 billion shares, 19% above its one-month average
• Volatility Index Index : 12.32 to - 1.28%

NYSE Highs : 45 Lows :6

Nasdaq: Highs : 77 Lows : 54

View Chart »View in New Window »

View Chart »View in New Window »

View Chart »View in New Window »

* Everyone is now in the pool

"Nothing like price to change sentiment."

- The Divine Ms. M.

On occasion a tabulate bullish/bearish sentiment on CNBC.

I did this again, over the last three days.

The Final Count:

* 34 Bulls

* No Bears

The herd has gone very popular and more populated coincident with the rise in share prices.

And Tom Lee (congrats!) is taking bows hourly on Twitter and in the business media.

Enough said.

Thanks for reading my Diary today and week.

Enjoy the weekend.

Be safe.

Coming up... A huge options expiration.

Let's go to the tape. YARN " - I'm in. - Wow. Wow. A lot of action." Rounders (1998) "Video clips by quotes" d1d813f2 ' ¿ (getyarn.io)

I have spoken to eight companies (CEOs and CFOs) since Tuesday:

* Five said business is worsening. (One said much worse - a cyclical business profile)

* Two said business is flat.

* One said business is improving.

I covered my two trading short rentals - (JPM) for a small loss and (AXP) for a small gain.

Scott Galloway's No Mercy/No Malice: "Prof G Person of the Year"

Updated breadth and S&P 500 Sector exchange-traded fund's intraday action:

View Chart »View in New Window »

View Chart »View in New Window »

As I have mentioned earlier this week, today's large expiration should make it "interesting."

I have initiated a small long in Johnson & Johnson (JNJ) .

Investment, not a trade.

More next week.

My pal Peter Boockvar, chief investment officer with Bleakley Advisory Group, notes how the service sector keeps on keeping economic expansion going by offsetting ongoing manufacturing weakness: 

The S&P Global service and manufacturing PMI for December was little changed m/o/m at 51 vs 50.7 in the two prior months, and thus just above the breakeven of 50. Manufacturing remained under 50 again at 48.2 vs 49.4 last month while services rose .5 pt to 51.3.

With respect to services, new orders improved to a 6 month high and "was linked to greater advertising spending, looser financial conditions and upselling of additional service lines to existing clients." The 'looser financial conditions' I'm guessing was a boost to the financial sector in this reference. Export orders were soft as "pressure on disposable incomes in overseas markets had constrained customers' purchasing power." The employment component improved, "though modest overall." On pricing, input prices were higher "for materials and fuel, alongside greater wage bills" but "service sector selling price inflation cooled to the 2nd lowest in 10 months."

On manufacturing, it signaled " a sharper deterioration in operating conditions across the goods producing sector." Lower were new orders, employment and stocks of purchases, alongside an improvement in vendor performance (signaling spare capacity at suppliers). To this last factor, "manufacturers reduced their input buying at the steepest pace since June, with many choosing to cut costs and continue working through stocks to fulfill new order requirements." With jobs, "manufacturing companies registered a 3rd consecutive monthly round of job shedding." Manufacturers experienced similar input price gains seen with service companies but in contrast they "raised their selling prices at the quickest rate since April in a bid to protect margins."

Here was the bottom line from S&P Global: With services, though we saw a slight uptick, "the increased cost of living and cautious approach to spending by households and businesses means the overall rate of service sector growth remains far short of that witnessed during the travel and leisure revival back in the spring and summer."

With manufacturing, it "remains a drag on the economy."

What this all means for GDP in Q4, "Despite the December upturn, the survey therefore signals only weak GDP growth in the fourth quarter." So at least according to S&P Global, manufacturing remains in a recession and the services sector is what is keeping us out of recession, just barely.

S&P Global Services

S&P Global Mfr'g

Bank of America's (BAC) credit charge-off rate climbs to 2.23% in November from 2.05% in October.

Crude reverses from +$0.35 to -$0.35.

I'm bidding small for Exxon Mobil (XOM) and Occidental Petroleum (OXY) -- but under the market.

* As of 10;30 a.m....

- NYSE volume 523M shares, 51% above its one-month average; 

- Nasdaq volume 2.04B shares, 38% above its one-month average;

- VIX index -1.92% at 12.24

- NYSE Highs: 58 Lows: 3

- Nasdaq Highs: 90 Lows: 32

Advancing/declining issues and volume

View Chart »View in New Window »

Biggest percentage winners and losers

View Chart »View in New Window »

Heat map

View Chart »View in New Window »

At $285.84 I just took a small loss in my McDonald's (MCD) short.

Though the shares are down almost $10 in a straight line my entry point was poor.

I added to my American Express (AXP) trading short rental at $180.15.

From Peter Boockvar:

Cleanup on Aisle Five

It's clear in an interview with Steve Liesman on CNBC that NY Fed president is trying to clean up and clarify the Powell pivot party. It begs the question as to why Powell was not assertive enough to do it himself at his presser so as not have this seemingly orchestrated commentary from John Williams today.

Anyway, paraphrasing and this was his very first comment, and I'm sure very planned, 'We aren't really talking about rate cuts now.' He also added, 'we need to be ready to tighten further.' To the question about maybe cutting rates next year, he implied that it would only be natural to consider it. Also, QT will continue on he said as there remains a still 'very abundant level of reserves. As for the markets response on Wednesday, 'The market responded very strongly, maybe more strongly than what we were showing in terms of our projections.'

I don't believe these comments were necessarily meant to change what the Fed ends up doing next year but an attempt to get back in control of events here. It's not a good look for the Fed if the market starts running them over and again dictating what they should do. Powell got ran over on Wednesday and apparently after today, it doesn't seem like he wanted that to happen.

The 2 yr yield is up 6 bps in response and the 10 yr yield is higher by 4 bps.

Ahead of the first look at the US manufacturing and services PMI at 9:45am, the NY manufacturing index for December fell back into contraction at -14.5 from +9.1 and well worse than the estimate of +2. New orders and backlogs were deeply negative as well and employment softened further to -8.4. Inventories fell back below zero. Prices paid fell again but those received were little changed.

After falling by 24 pts in November, the 6 month business outlook rose by 13 pts to the 2nd lowest level since May. Capital spending plans rebounded after the November weakness.

Bottom line, expect December to see another month in the manufacturing recession.

I covered trading short rental in Costco (COST) at $647 for a small loss.

I am taking a trading short rental in American Express (AXP) at $179.41.

* Some of my names...

Chewy price target raised by $5 at Needham, here's why 08:12 CHWY Needham analyst Anna Andreeva raised the firm's price target on Chewy to $25 from $20 and keeps a Buy rating on the shares. The company's Analyst Day presentation indicated that while FY24 sales could be less than the high-single-digit growth algo, the management still expects margin expansion next year, macro nothwithstanding, the analyst tells investors in a research note. The firm adds that the launch of Chewy Vet Care opens up $25B in Vet services that the company currently doesn't play in and should drive wallet share capture.

Nike price target raised to $130 from $110 at BofA 07:22 NKE BofA analyst Lorraine Hutchinson raised the firm's price target on Nike to $130 from $110 and keeps a Neutral rating on the shares ahead of the company's fiscal Q2 report. The firm expects Nike to hit or beat consensus EPS, but models a sales miss compared to consensus in both Q2 and Q3, the analyst tells investors in an earnings preview note. The firm thinks improving datapoints on China, a better narrative on the promotional environment and more details about product innovation are needed to spark multiple expansion, the analyst added.

Elanco just upgraded at Morgan Stanley, here's why 05:14 ELAN Morgan Stanley upgraded Elanco to Overweight from Equal Weight with an unchanged price target of $16. The promise in the company's "robust innovation pipeline is more tangible" entering 2024, with three new product approvals slated for the first half of the year and anticipated to bring meaningful sales contributions while stemming share loss across key categories, the analyst tells investors in a research note. The firm says that with or without its potential blockbusters, management expects to achieve positive constant currency sales growth in 2024. This is an "encouraging point" as Elanco returned to positive topline growth in Q3, says Morgan Stanley.

I have taken a trading short in JPMorgan Chase (JPM) at $163.96.

* The VIX is at 12 (bottom historical 10%) as price earnings ratios exceed 20x.

* CNN Fear/Greed is at 70 up from 65 last week and 50 a month ago.

* S&P Short Range Oscillator at 6.95% -- way overbought.

* Despite the drop in rates, the equity risk premium is paper thin.

* "Investors Intelligence" bulls are at 55.6% and bears at 19.4%.

* AAII bulls are at 51.3% (highest since April 2021) and bears at 19.3% (lowest since January 2018).

* The 14-day RSI is most overbought in three years.

* Analysts chasing to upgrade.

* Money managers chasing for year-end performance.

* $3.1 trillion of options expiring today.

Upside:

- (COST) +1.5% earnings, special div
- (PFE) +1% raised div
- (TIGO) +6% raised outlook, buyback announcement
- (ELAN) +2% Ancora said to push for change
- (INTC) +2% upgrade
- (AYX) +1% upgrade
- (FSLR) +3% initiated with buy rating
- (ENPH) +4% initiated with buy rating
- (MRNA) +2% Phase 3 RSV data
- (STTK) +7% momentum
- (ACIU) +1% Alzheimers data/secondary

Downside:

- (LEN) -3% Q4 beats; uides Q1 new orders 17.5-18K, deliveries 16.5-17K, avg sales price '$420K', gross margin on home sales 21-21.25%
- (NX) -7% Q4 $0.95 v $0.75 y/y, Rev $295.5M v $307.5M y/y
- (SCHL) -12% earnings
- (AADI) -50% Recision1 data
- (EOSE) -20% secondary
- (SGRY) -4% secondary
- (SNDX) -4% secondary
- (ROKU) -3% downgraded
- (DRI) -1% earnings and guidance
- (HRTG) -7% secondary
- (BLBD) -4% secondary

View Chart »View in New Window »

The headline of the CNBC interview with New York Fed Head Williams will be that the Federal Reserve is not yet talking about rate cuts.

Under normal circumstances -- particularly after the magnitude of the market rise in the last six weeks -- markets would correct hard.

But this is not a normal market my friends.

From JPMorgan on Nike (NKE) :

NIKE, Inc. (NKE, OW - $121.02, PT $139.00) (Matthew R. Boss, CPA)

2Q Preview: Recent Fieldwork = 2H Inflection On Track; Remain Overweight w/ $139 PT

Ahead of Nike's 2Q24 (Sept - Nov) print - we thought value-add to lay out takes from our recent fieldwork, global laterals, and intra-quarter management access.

Model Implications: We raise our 2Q EPS to $0.86 (above the Street at $0.84) based on +0.7% revenue growth (in-line w Street and holding 1Q's underlying mid- single-digit "retail sales" trend) and above-plan gross margin (44.2% > 43.9% guide) driven by healthier YOY promotions by our tracker on controlled inventory levels.

From Gary "U.S. Bonds"

Mentions (CIVI) :

123gary:

There's Been a Gusher of Oil Deals. These 3 Stocks Could Be the Next Targets. -- Barrons.com

Deal making is all the rage in the oil patch -- and there should be more deals to come in 2024.

Merger mania started in the fourth quarter when Exxon Mobil acquired Pioneer Natural Resources for $60 billion. That deal was soon followed by Chevron scooping up Hess for a measly $53 billion. Perhaps not wanting to be left out, Occidental Petroleum this past week said it would buy West Texas producer CrownRock in an $11 billion deal.

Three, as they say, is a trend, and Wall Street doesn't expect this one to end anytime soon. "One big deal happens and guess what, everybody feels like they have to do one," Kevin Costantino, co-head of investment bank Greenhill, said on a panel Thursday. "The fear of missing out is a real thing."

That FOMO-factor has drillers eyeing up the Permian Basin, an oil-rich swath of land spread between West Texas and southeastern New Mexico as buyers try to make up for declining inventories. Other prime assets are located in Texas' Eagle Ford Shale as well as the Bakken formation shared between Montana, North Dakota, and parts of Canada.

But it's not just the explorers -- known as upstream companies in industry jargon -- that are likely to merge. Once consolidation happens at the top, so-called midstream players -- those that transport oil -- and downstream refiners will also join up. "With all those big deals that happen at the top, that all cycles through the entire system from midstream on down," Costantino said. "When you see big guys consolidate, that means they're going to squeeze their suppliers, which means they need to consolidate,"

As for the explorers, they're trying to maintain their dominance as inventories are expected to be under pressure, says Neal Dingmann, an analyst at Truist Securities. The expected mismatch between supply and demand means larger players with the ability to buy inventory can target smaller drillers that lack the scale to be productive when they're only operating one or two rigs.

Among the potential acquirers, Dingmann cites Devon Energy, Diamondback Energy, and Marathon Oil -- all of which he rates Buy. He also sees ample targets still in play, even if they're not quite the megadeals announced earlier this year. Buy-rated Permian Resources, Southwestern Energy, and Civitas Resources all make his list of potential acquirees and have market caps well below $10 billion.

"There are just so many years left to produce, and there is a rush to be in control of the best quality of that resource," says Matt Bernstein, a senior analyst at Rystad Energy. "Fundamentally, everyone needs a piece of the pie."

And unlike previous eras of consolidation in the industry, explorers are showing some discipline in their acquisitions. Exxon and Chevron plan to complete their buys in all-stock transactions, avoiding the need to tap debt markets. High debt burdens from previous consolidation eras led to a wave of bankruptcies in 2016 -- companies want to avoid that this time around.

* We are all living in Tom Lee's world now...

* Buying of equities has become indiscriminate

* Investor sentiment, as Divine exclaims, follows price, as the S&P Short-Range Oscillator is growing more overbought at 6.95% v 5.99% (but sentiment has not proven to have been a good timing tool!)

* This morning the price of crude is slightly higher and bond yields modestly lower

* Repeating from last week:

Everything is beautiful in its own way
Like a starry summer night
On a snow covered winter's day
And everybody's beautiful in their own way
Under God's heaven
The world's gonna find the way

-- Ray Stevens, Everything is Beautiful

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

- Wally Deemer

* Gold is +$11.70 at $2,056.

"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 traded in a wide range last night and are now near the high of that range. S&P futures peaked at +15 and bottomed at -9. Nasdaq futures peaked at +61 and bottomed at -22. At 6:39 a.m. ET, S&P futures were +12 and Nasdaq futures were +55.

and...

* The S&P Short-Range Oscillator is increasingly overbought at 6.95% vs. 5.99%.

* The VIX is approaching 12 and is now at 12.09 (-0.39).

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

* Treasury yields are little changed this morning. The 2-Year Treasury yield is -1 bp at 4.386% and the 10-Year is also -1 basis point at 3.918%. Over there, the yield on the 10-Year U.K. Gilt bond is -2 basis points (after this week's large decline).

* Overnight, the inversion of the 2s/10s Treasuries curve is slightly higher at -55. Real rates are under 2.0.

* Commodities are mostly higher. Brent crude is +$0.28 to $76.85.

* The bull move in Bitcoin remains intact, -$100 to $42.8k.

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:

The Heart of the Matter

The Fed and Rate Cuts

Berkshire Hathaway Adds Another 10 Million Shares of OXY

More Pearls From Charlie Munger

Charting the Technicals

Looking Back at the Dots

The Question of the Day

Hedge Fund Carnage 

Here were Thursday's trades:

* Took a trading short rental in Costco after the close

* Reduced (CVX)

Bonus: Some Good Links

* The ATH in The Dow

* Bulls Take The Majority

* Semis Bullish Cup and Handle

* Tis The Season For Dollar Weakness

* Gold's Move Higher

Needham raises Chewy's (CHWY) price target from $20 to $25.

I forgot to mention that on Wednesday I purchased Johnson & Johnson (JNJ) calls.

Wolf Street howls about Canada's housing market.