As mentioned earlier, I am out for the day.

Good luck trading.

Adding to private equity shorts - (KKR) , (APO) and (BX) .

Now medium-sized.

From Peter:

Initial jobless claims totaled 205k, 10k less than expected but up a touch from last week's print of 203k. This brings the 4 week average to 212k from 214k last week. Continuing claims were little changed, down by 1k, to 1.865mm, still near the highest level since November 2021.

The bottom line remains the same, we have a benign pace of firing's but a slowdown in the rate of hiring's.

4 week avg in Initial Claims

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Continuing Claims

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The manufacturing recession carries on in December as after the negative print from the NY manufacturing index seen, the Philly index fell to -10.5 from -5.9 and that was below the estimate of -3.0. New orders collapsed to -25.6 from +1.3 and backlogs remained deeply negative at -7.9. Inventories were below zero as well.

On the jobs front, employment slipped under zero again to -1.7 and the workweek was negative too. Prices paid rebounded by 10 pts to 25.1 and that is the 2nd highest print since February. Prices received fell a touch, by 1.2 pts m/o/m.

There was a rebound in the 6 month business outlook to +12.1 vs -2.1 last month and slightly above the 6 month average of 10.6. Capital spending plans though fell to -7.5 from -1.3 and that is the weakest in years. As for expectations of an inventory restock, the inventory component went to 3.9 from .1 in November and 4.9 in October but followed a string of negative reads.

Bottom line, again, when will the inventory restock begin? As seen in the first two December manufacturing reports, not yet.

Philly Mfr'g

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From Arthur Cashin: 

Wall Street traders suddenly found themselves empathizing with the early workers at Rockefeller Center as several invisible grinches seemed to sweep in and replace the happy ornaments that they developed in the stunning multi-day rally with tin cans and paper cups and the like. The Wall Street media gurus were busy pointing fingers in every direction. Some claiming it was a late last-minute reaction to President Xi's non-specific threat to a reunion with Taiwan, but not only did he not state a month, he also did not state a year. So, I think, that was a reach.

It looked anything like an internal reversal, in which the rally was going and looking to make an extra push, taking the S&P nearer to an all-time high and they, I think, hit some unexpected resistance in the algorithms that are monitored to trade on momentum and once the follow-through started to flag, they then began to pile on and as you know, if you have been doing his for more than a couple of years, a momentum reversal can compound on themselves. So, after a period when we have not seen anything like this early since October or maybe even late September, it got a lot of people's eyes open and we will keep reviewing it with fellow veterans of Wall Street, but for now I am feeling reasonably safe with a momentum reversal as the algorithms came and kicked in.

The market, other than that earlier on had a bit of a shock from FedEx, which had looked like it was going to be not only Santa's carrier, but enjoyed the game as it went along, but the timing of that was certainly not consistent with the timing of the final 90-minute reversal. We will continue our research through the evening (with marinated ice cubes, of course), but for now, I am leaning kind of heavily on the internal momentum reversal and, as we do most mornings as we prepare to go to print, we will review what our foreign cousins were doing both in the action to what they heard and to what developments they saw around their shores.

Overnight, global equity markets are showing strong individuality in the way they seem to be reacting to the very late day selloff in New York. Tokyo closed down the equivalent of about 500 points in the Dow, yet Mainland China is showing only fractional changes. The Hong Kong market also is only fractionally changed as is India. So, Japan basically had the only strong reaction to the reversal selloff in New York. The markets in Europe, who were closed by the time New York saw that selloff, are also not showing a very strong reaction.

As we go to press, London is down about 100 points in the Dow. Frankfurt is off about 140 points in the Dow and Paris is off about 170 points in the Dow. So, they are somewhat all over the place. The U.S. economic calendar for today is also somewhat spotty. At 8:30, we will get a look at the GDP and then it being Thursday, Initial Jobless Claims, the Philadelphia Fed Manufacturing Index, Corporate Profits.

In midmorning, we get Leading Indicators, which will be watched closely to see if they are breaking their declining trend. Also, at midmorning, we will get the Natural Gas Inventories and then the Kansas City Fed Survey. After the close, we get the Fed Balance Sheet, where everyone will go and look to see if there are any significant changes from quantitative tightening. The situation in the Red Sea is still bubbling up.

We need to stick with the very current drill, which is stay close to the newsticker. Keep your seatbelt fastened. Stay nimble and alert, but with things bubbling the way they are, please try to stay safe.

Editor's Note: Just a reminder, Bob Pisani provided this cost-free access link to the year-end interview we did at Harry's back bar. We hope you find it enjoyable. Many have emailed to say so. 

* Added to (JNJ) at $153.81.

* Shorted (SPY) $472.11

* Shorted (QQQ) $407.12

Today's rebound should embolden bulls... until it doesn't.

From Peter: 

Strictly from a sentiment and technical standpoint gravity always exists when it comes to a market that gets way overbought, way over loved and is retesting the previous highs, in the short term.

With RSI's at the highest level that I saw since September 2020 and January 2018, the CNN Fear Greed index getting to 80 in the 'Extreme Greed' category, the Daily Sentiment Index for S&P and NASDAQ getting above 80, the latest II read showing almost a 40 pt spread between Bulls and Bears with the former now at 56.9 vs 55.6 and Bears further disappearing at 18.1 from 19.4 and AAII reflecting the highest Bull count at 52.9 since April 2021 and Bears just off the lowest since December 2017, a VIX that saw an 11 handle last week and didn't fall further this week and throw in whatever influence zero day options have had and we were due for a reversal day like yesterday.

Further consolidation likely continues from here until we work this euphoria off and then we'll reevaluate. For longer term investors, stick to analyzing the fundamentals.

As a shareholder of FedEx and attempting to figure out all the macro too, I was most interested in trying to see whether their earnings news was something company specific (continued margin degradation in Express for example) or just a casualty of the global manufacturing recession we're still in. Craig Fuller, the CEO of FreightWaves was on CNBC yesterday morning and was asked the question by Frank Holland on what's the influence, is it a read on the global economy or a FedEx problem?

Craig said, "FedEx is a barometer of global activity particularly when you look at the consumer and e-commerce where FedEx really demonstrates what is happening on a global basis but we're seeing a very challenging freight market overall. FedEx is not exclusive to that. We're in a post Covid cycle, there is too much capacity out there and on a global basis the logistics market in terms of goods consumption and shipping has been challenged." I'll add that there will be more capacity that comes out of the industry, via more bankruptcies of trucking companies, that will eventually benefit the legacy players and will firm up prices at some point.

The World Container Index updated its pricing stats and reflecting the Red Sea shipping diversions that could add up to 4 weeks to the travel time when going around the Cape of Good Hope. The WCI composite container freight benchmark rate for a 40 foot box jumped 9.2% over the past week which followed a 4% rise in the week before and an almost 6% increase in the week before that. At $1,661, it's the highest since early September but still dramatically off the panic peak levels of 2021 when it exceeded $10,000 per container.

WCI Composite Container Index

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The Shanghai to LA route of a 40 foot box rate rose 5.8% on the week but just getting to where it was a month ago and still 83% below the panic high.

WCI Shanghai to LA

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I mentioned yesterday the still soft Architectural Billings Index and we also saw the Dodge Construction data for November that saw starts fall 15% y/o/y led by nonresidential like commercial and industrial sites. Healthcare though was a bright spot. Dodge said "Construction starts are deeply feeling the impact of higher rates. While the Federal Reserve seems poised to start cutting rates in the New Year, the impact on starts will lag. as a result, starts are expected to be weak through the mid-point of 2024 before growth resumes."

To the debate over whether there is a shift among the BRICS+ countries to use a transaction currency other than US dollars, it is happening by the way, there was a story from BN yesterday that said Brazil is now the number one global exporter of corn to China, passing the US. Whether this sustains itself or not many times depends on the quality of harvest and price but assume many of these corn bushels were paid with renminbi that Brazil is now happy to accept.

They are happy because it both diversifies their currency reserves but it also provides them with renminbi to in turn buy stuff from China as after all, China still makes most of the world's stuff. De-dollarization, however it plays out from here in terms of timeline and extent of usage, is for real.

After mentioning in their prepared remarks yesterday from General Mills about a still careful and "stressed" consumer, they said this on the inflation situation in their earnings call:

"In terms of the pricing environment itself, I'm not really going to get into specifics of future pricing. What we do see is that, I think, importantly we seen an inflationary environment ahead of us. I know there's been talk of deflation in some cases, and that may be true for things like commodities like milk and eggs, but it's certainly not true for restaurants. Their inflation is actually outpacing ours, and we see inflation in the low single digits. You look at the category pricing and it's somewhere in the 2% to 3% range. So, we see continued inflation even at a lower level. And, usually pricing tends to follow inflation, because that's the basis on which we increase prices if we see an inflationary environment."

As for the possibility of an inventory restock on the part of retailers? "I don't see a rebound in inventory levels, especially as some of our retailers specifically look to manage their working capital."

Here were some notables from the CarMax earnings release where they saw total retail used car unit sales fall by 2.9% y/o/y and comps lower by 4.1% y/o/y. Revenues themselves, which includes price, fell 7.2% y/o/y where the average selling price was down 4.6% y/o/y.

"We believe vehicle affordability challenges continued to impact our 3rd quarter unit sales performance, with ongoing headwinds due to widespread inflationary pressures, higher interest rates, tightened lending standards and low consumer confidence."

They saw a lower loan loss provision which "primarily reflected the effect of the previously disclosed tightening of CarMax Auto Finance underwriting standards." And what interest rate are buyers paying to borrow money to buy a used car? "CAF's weighted average contract rate was 11.3% in the quarter, up from 9.8% in the third quarter last year."

We got some good export data out of South Korea, the chip and auto manufacturing powerhouse. For the first 20 days of December, exports were up by 13% y/o/y led by consumer appliances, chips (mostly Samsung and who competes with Micron) and autos. Trade to China though remains weak. The KOSPI this year is higher by 16.3%.

After some slippage was seen in German business confidence this week, December French business confidence rose .6 pts m/o/m off the lowest level since April 2021. There were slight gains in manufacturing, services, retail and employment and some softness in construction likely due to higher interest rates.

For Europe, at best they are seeing no economic growth and most likely experiencing a modest recession.

French Business Confidence

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Upside

- (HOOK) +70% (announces $21.25M equity investment from Gilead Sciences, which holds 19.4% of HOOKIPA's outstanding shares of common stock)
- (ANNX) +49% (reports Phase 1 results for ANX1502, its Oral Small Molecule Inhibitor of the Classical Complement Pathway; prices $125M underwritten public offering of common stock)
-DMK +25% (regains full rights to commercialize ZIMHI)
- (FORD) +19% (earnings; to pursue suitable acquisition/venture opportunities)
- (CALT) +13% (announces full FDA approval of TARPEYO (budesonide) delayed release capsules to reduce the loss of kidney function in adults with primary immunoglobulin A nephropathy (IgAN) at risk for disease progression)
- (MIGI) +12% (reports Nov operational update)
- (IMVT) +11% (reports initial Phase 2 Results for Batoclimab in Graves' Disease)
- (ISSC) +11% (earnings)
- (SLS) +9.0% (receives FDA Orphan Drug Designation for SLS009 for treatment of Peripheral T-cell Lymphomas)
- (ATRA) +8.8% (closes expanded Global Tab-cel Partnership with Pierre Fabre Laboratories and will receive ~$27M in cash upfront)
- (EH) +8.3% (EH216-S passenger-carrying UAV system obtains Standard Airworthiness Certificate from CAAC)
- (STTK) +7.3% (files to sell 4.65M shares and 3.10M pre-funded warrants at $6.45/shr)
- (KMX) +7.1% (earnings; resumed share repurchases)
- (MU) +6.3% (earnings, guidance)
- (ROIV) +5.5% (reports initial Phase 2 Results for Batoclimab in Graves' Disease)
- (CPTN) +5.3% (Koito Manufacturing Co disclosed amended 30.3% stake)
- (MLKN) +5.1% (earnings, guidance)
- (MAXN) +4.0% (expands patent dispute against Aiko in the Hague District Court, Netherlands)
- (SPCE) +3.8% (momentum)
- (FROG) +3.7% (Morgan Stanley Raised FROG to Overweight from Equal Weight, price target: $42)
- (CAVA) +3.4% (Wedbush, Inc. Raised CAVA to Outperform from Neutral)
- (TGI) +3.1% (sells product support business to AAR Corp for $725M)
- (CAKE) +2.8% (Wedbush, Inc. Raised CAKE to Outperform from Neutral)
- (SPOT) +2.2% (Pivotal Research Group Raised SPOT to Buy from Hold, price target: $265)
- (CRM) +2.0% (Morgan Stanley Raised CRM to Overweight from Equal Weight, price target: $350)

Downside

- (CLNN) -25% (FDA determines initial findings on biomarker NfL reduction from Phase 2 programs were insufficient to support accelerated approval at this time)
- (LGVN) -11% (announces $2.4M registered direct offering; to sell 1.4M common shares for $1.62/shr)
- (BB) -4.4% (earnings, guidance)

At 8:26 am:

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The climb in bullish investor sentiment is something I highlighted yesterday: 

The RSI Is Elevated

* What does spell for the future?

As well, the S&P Short Range Oscillator has risen from 4.51% to a deeply overbought 7.04% in one day.

On top of this Investors Intelligence bulls rose to 56.9 from 55.6 and bears are down to just 18.1 from 19.4. We are nearing a 40 point spread between bulls and bears which is extreme.

Position: None

BY DOUG KASSDEC 20, 2023 12:15 PM EST

This morning, a similar narrative from The Divine Ms M:

It is no wonder -- with relatively high mortgage rates and elevated home prices:

"If Santa Claus should fail to call, bears may come to Broad and Wall."
- Yale Hirsch

Every bear on Twitter at the close yesterday:

Bonus; Top Links

*Removed NDX Stocks

* Stock Market Video Analysis

* Perfectly Narrow 

* Sour Consumers, But...

* Four More Bullish Reasons

Morgan Stanley (MS) upgrades Salesforce (CRM) and raises price target to $350.

* Wednesday's decline was the first since my Bar Mitzvah... The culprit, ODTE?

* Investor sentiment remains bullish -- the S&P Short-Range Oscillator is still overbought (at 5.61%)

* This morning there is a modest decline in crude oil and some weakness in Treasuries (higher yields)

* Yesterday I wrote that it felt like nearly everyone is in the pool now:

"Up, up and away
In my beautiful, my beautiful balloon
Balloon
Up, up, and away"

-- The Fifth Dimension, "Up, Up and Away" 

"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 rebounded throughout most of the overnight session. S&P futures peaked at +28 and bottomed at +2. Nasdaq futures peaked at +123 and bottomed at +22. At 5:55 a.m. ET, S&P futures were +21 and Nasdaq futures were +101.

And...

* Commodities are broadly lower. Brent crude down $0.15 to $77.55.

* The S&P Short-Range Oscillator remains overbought at 5.61% vs. 7.04%

* The VIX remains under 13 at 12.50 (-0.06).

* The U.S. dollar is weaker against the yen, sterling and euro.

* Treasury yields are higher overnight -- as mentioned, we may be at the point that lower rates will hurt equities (we will see)! The 2-Year Treasury yield is +1 basis point at 4.377% and the 10-Year is also +1 basis point at 3.888%. Over there, the yield on the 10-Year U.K. Gilt bond is +3 basis points (after last week large global yield decline).

* Overnight, the inversion of the 2s/10s Treasuries curve is slightly lower at -51. Real rates remain quite elevated; the 10-year is still about 1.7 (again in real terms).

* Gold is -$2 at $2,045 after the recent spate of volatility.

* Bitcoin is +$500 to $44k.

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 'Money on the Sidelines' Argument Is Severely Flawed

Bernstein on the 'Money on the Sidelines' Argument

Extreme Greed (elevated RSI and more)

A Day Early! (with my Ludacris Forecast) 

Federal Cannabis Legislation Gets Pushed Out Further?

Fed Double Speak

Here were Wednesday's trades:

* Added to private equity shorts (Apollo Global Management (APO) , Blackstone (BX) , KKR (KKR) )

* Reduced longs in St. Joe Company (JOE) and Nike (NKE)

I will be out of the office most of the afternoon to spend time with my family.

* I believe so...

Did an oversold and market structure (0DTE options) kill the market yesterday?

Bloomberg thinks so...

A "flash crash" was incorporated as Surprise #14 in my Surprises for 2024:

- Kass Diary, Surprises for 2024

"Surprise #14. 0DTE options (zero days to expiration) cause a 3% to 5% flash crash on a day's-end expiration during the summer."