DAILY DIARY
Shhh ... Volume Is Lower
Let's look at the market internals:
New York Stock Exchange volume is 413 million shares, 7% below its one-month average;
Nasdaq volume 4.81 billion shares, 1% below its one-month average;
New York Stock Exchange Highs: 14 Lows: 2
Nasdaq Highs: 49 Lows: 39
View Chart »View in New Window »
View Chart »View in New Window »
View Chart »View in New Window »
Clear as Day on Apple
Our channel checks over the last month regarding Apple's (AAPL) sell through has revealed weakness (relative to individual store expectations).
This is in opposition to my friend Dan Ives' research.
Admittedly our sampling in South Florida was narrow but the conclusions were clear - with the exception of a few days before Christmas, business was quite weak.
Market Internals
As of 3:00 pm:
Breadth
View Chart »View in New Window »
S&P Sector Performance
View Chart »View in New Window »
Heat Map
View Chart »View in New Window »
Oil Vey!
Today the price of crude oil has been on a volatile trajectory.
First flat, then up and now down.
From high to low, Brent crude is -$3/share.
What I Got Wrong Over The Last 2 Months
* At times discipline trumps conviction
Over the last two months I operated in a net short position - reflecting my multiple market concerns.
However, it is important to note, as mentioned in my Bloomberg interview this morning, that I did not lose money despite being wrong footed tactically.
As Warren Buffett has said:
"The first rule of an investment is don't lose (money). And the second rule of an investment is don't forget the first rule. And that's all the rules there are."
I principally side-stepped losses by trading around my shorts - and, in most cases, having the discipline to take a lot of small losses.
Here is what I missed:
- I underestimated the animal spirts and price momentum that accumulated during November and December.
- I underestimated the power of the herd - as the pressure to the upside intensified, so did FOMO (the fear of missing out).
- I underestimated the contribution that market structure would have in terms of intensifying the upside to equities - specifically, quant strategies that worship at the altar of price momentum catalyzed the market advance. Active managers came along for the ride. In essence, we live in a world where buyers live higher... and sellers live lower.
- The same applies to interest rates, as the momentum of yields to the downside accelerated, there was more and more buying - and lower yields - on fixed income products.
- I thought interest rates would decline but I underestimated the valuation reset higher in equities even in the face of weakening high frequency economic data.
- I overestimated the concerns that would accompany lower interest rates and did not anticipate the possibility that price earnings multiples would expand to the degree they did.
I Am Often Wrong and Always in Doubt
* Hubris permeates the business media...
In watching FIN TV - as the year commences - I remain astonished how disingenuous the comments are, all too often, from contributors and panelists.
It is almost as if no one ever made or admits to investment mistakes. (2023 has been quickly forgotten, as were predictions of a strong follow thru in the markets at the get go of the New Year).
Perhaps they think this fugazzi-like behavior will result in more viewers or they are selling a service - money management, charting, investment strategy, etc.
But they are kidding no one.
I can guarantee to you one thing in MyDiary - I will take ownership for all of my foolish trades and investments.
And, hopefully, I, and all of you, will learn from each and every one of those mistakes.
Subscriber Comment of the Day
Randy
Occidental Petroleum call volume above normal and directionally bullish
Bullish option flow detected in Occidental Petroleum(OXY) with 19,594 calls trading, 1.2x expected, and implied vol increasing almost 2 points to 24.64%. 1/12 weekly 60 calls and 1/5 weekly 61 calls are the most active options, with total volume in those strikes near 7,200 contracts. The Put/Call Ratio is 0.51. Earnings are expected on February 26th.
My Bloomberg Interview
Here is this morning's Bloomberg Interview at the 30 minute, 51 seconds mark!
Market Internals
At 10:35 am:
* Not too bad in the face of the size of the decline in the Indexes
- NYSE volume 145M shares, 8% below its one-month average
- Nasdaq volume 1.98B shares, 13% above its one-month average
- VIX index +12.37% at 13.99
Breadth
View Chart »View in New Window »
Biggest Movers
View Chart »View in New Window »
Heat Map
View Chart »View in New Window »
S&P Sector Snapshot
View Chart »View in New Window »
Index Puts Move
In the whoosh lower this morning, I have sold my Index puts, purchased last week, for a profit.
Selected Premarket Movers
Upside
- (LBPH) +190% (announces positive topline data from PACIFIC study, a Phase 1b/2a Clinical Trial, for Bexicaserin (LP352) in participants with developmental and Epileptic Encephalopathies (DEEs))
- (VYGR) +27% (enters Capsid License Agreement and strategic collaboration with Novartis to advance Novel Gene Therapies)
- (NGM) +26% (confirmed that it has received a non-binding expression of interest dated December 28, 2023 from The Column Group, LP)
- (UGRO) +23% (secures design-build contract valued at ~ $20M)
- (MARA) +12% (BTC strength)
- (ZIM) +5.8% (Maersk will delay transits in the Red Sea)
- (BIOR) +4.4% (progresses research collaboration for the BioJet Systemic Oral Delivery Platform)
- (INMB) +4.4% (first patient dosed in Phase 1/2 study of INKmune in atients with Metastatic Castration-Resistant Prostate Cancer)
- (MNKD) +3.0% (enters into Royalty Purchase Agreement with Sagard Healthcare for up to $200M)
- (AKTX) +2.8% (closes $2M private placement financing for 948K ADSs at $2.11/ADS)
- (COIN) +2.1% (BTC strength)
Downside
- (AVXL) -37% (provides update on Rett Syndrome Program; Co-primary endpoint not met)
- (CORT) -33% (loses claim after court finds Corcept Therapeutics' patents not infringed)
- (YY) -11% (Baidu terminates previously proposed $3.6B deal to acquire Joyy)
- (PNM) -9.6% (Avangrid terminates merger agreement; Affirms long-term 5% earnings growth target)
- (LI) -4.9% (updates roll-out plan of high-tech flagship family MPV; Expects to officially launch Li MEGA on Mar 1st and commence deliveries in early Mar)
- (U) -4.4% (Piper/Sandler Cuts U to Underweight from Neutral, price target: $35)
- (NIO) -2.4% (Dec deliveries)
- (AAPL) -2.1% (Barclays Cuts AAPL to Underweight from Equal Weight, price target: $160)
- (BIDU) -2.1% (Baidu terminates previously proposed $3.6B deal to acquire Joyy)
The Book of Boockvar
From Peter:
"We always did feel the same. We just saw it from a different point of view. Tangled up in blue" sang Bob Dylan in the very last verse of this classic song. We can apply analysis to the same set of facts we all look at every day, both at the micro and macro level but have different approaches and many times come to different conclusions about what it means and where it maybe will eventual lead to.
I see the set up for 2024 as having a lot of potential big time trade offs. Nothing ever is smooth and I lay out here some of those possible puts and takes.
1) The Fed is going to cut overnight interest rates in 2024 but it's possible that long term rates rise in response as markets would see the Fed pulling back from the inflation fight. The battle against inflation is being won with the rate of change slowing but there is no victory yet in the war as we need a sustainable drop in inflation, not a cyclical one. Also, the dollar should weaken further on rate cuts that then raises inflationary risks and could lead to a rise in commodity prices, particularly oil. And if the Fed is cutting because growth is faltering, the budget deficit blows out further, Treasury supply spikes, a problem in 2023 that is only going to get worse in 2024, and long rates jump. Also impacting long term rates is the BoJ finally getting out of NIRP which could lead to more bond market volatility on the long end.
2) Moderating inflation is obviously very positive for the consumer, especially as wage growth is still pretty good at around 4-5% but consumers live on the level of inflation, not its rate of change.
3) Also with receding inflation, on the corporate side revenue growth is going to slow as price increases become more difficult. Can double digit expected earnings growth estimates for 2024 can really be met as nominal GDP slows?
4) Lower interest rates is a definite pain reliever for those with debt but we still have about $750b of corporate debt needing to be refinanced in 2024, mostly investment grade, according to Goldman Sachs and $500b of commercial real estate debt according to Trepp. The new interest rates paid on these new loans will be notably higher than on the rates on the loans maturing. The trade off is that many small and medium sized businesses that have floating rate debt have already experienced the acute phase of higher interest rates over the past 18 months and should see at least some relief as the Fed cuts assuming SOFR follows.
5) If the Fed cuts 3 times as the dots say, it would be a modest reset in response to falling inflation but markets might be disappointed as that is not what is now priced in. If the Fed cuts 6 times as the market is pricing in, it's because the unemployment rate is 4.5% or more which would most likely mean an economic recession and faltering earnings. Also, a REAL rate of about 250 bps used to be normal once upon a time.
6) If the economy doesn't land and continues with decent growth, the Fed will barely cut rates, if at all, which is quite different than what the market is pricing in as stated and seen. Then, higher for longer will remain, which could eventually negatively impact the 'decent growth.'
7) Can lower rates save us all? Maybe, but it didn't save us in 2001-2002 nor in 2007-2009. And even 150 bps of cuts will still mean a 4% fed funds which is a far cry from zero.
8) QT continues on which is a good thing long term but by late Q1/early Q2 the Fed's RRP could be empty which means the liquidity drag will really start to pick up.
9) A P/E market multiple of 21x 2024 eps estimates is VERY expensive with rates at current levels but there are many other parts of the market, such as small and medium sized stocks that are much cheaper as are many international markets. This for sure has been the case for some time but maybe that creates more bifurcation in 2024 in reverse and opportunities outside of the beloved stocks we all know too well.
10) The ECB, BoE and other foreign central banks will likely cut in 2024 but in response to both lower inflation and an economic recession.
Here are two other potential trade offs:
11) Service inflation continues to slow as the rent growth moderation shows up in the inflation stats but goods price inflation picks up again as goods inventories finally start getting rebuilt.
12) US oil production growth slows, after reaching record highs due to impressive efficiency gains, as the drop in the rig count eventually begins to matter. We're still long energy stocks so I'm talking my book here.
US oil production in orange/US oil rig count in white
View Chart »View in New Window »
Here's a quick rundown on all the December PMI's out today where most were below 50 in manufacturing:
China's state weighted manufacturing PMI fell to 49 from 49.4. The non-manufacturing PMI (which includes construction) rose to 50.4 from 50.2. The estimates were 49.6 and 50.5 respectively.
The private sector Caixin China manufacturing PMI was little changed at 50.8 vs 50.7 but just above the estimate of 50.3. Caixin said "Firms signaled stronger increases in output and new orders amid reports of firmer market demand. At the same time, new export business fell at the softest rate in six months. However, business confidence regarding the year ahead remained historically subdued and firms maintained a cautious approach to employment, as staffing levels fell for the 4th straight month." Cost pressures eased again.
Taiwan 47.1 vs 48.3, South Korea 49.9 vs 50.0, Thailand 45.1 vs 47.6, Vietnam 48.9 vs 47.3, Malaysia 47.9 vs 47.9, Philippines 51.5 vs 52.7, Indonesia 52.2 vs 51.7.
Specifically with Taiwan, "firms registered quicker falls in production, new orders and input buying amid reports of sluggish demand both at home and overseas. As a result, destocking activities picked up speed, as firms looked to streamline inventories and contain costs. There were also signs of price pressures easing in December, with input costs and selling prices both rising at softer rates. While business confidence regarding output over the next year remained positive, optimism was mild overall amid concerns over future customer demand."
With South Korea's manufacturing index about at the flat line, "The outlook for 2024 is positive but fairly muted, with the Future Output Index still running below its long run trend. But with purchases of inputs rising slightly and employment growing at a faster rate in December, firms are apparently gearing up for higher workloads in the coming months."
The December Eurozone manufacturing PMI was revised to a still very weak 44.4 from 44.2 initially and hasn't been above 50 since June 2022. The UK manufacturing index was 46.2 vs 46.4 in the first December print but down 1 pt m/o/m and was last above 50 in July 2022.
Again with global manufacturing, the destocking seems to have mostly run its course but there are no signs yet that a restocking phase is soon to begin. It will though at some point.
My Tweet of the Day (Part Deux)
Wonderful Graphics From Larry
Charlie on the S&P
From Charlie Bilello:
More Night Moves: A Detailed Look at Overnight Futures and Why/What Markets Are Moving
*I will be on Bloomberg Radio this morning at 9:30 ET, talking about my market outlook
* On Thursday I wrote that among the many risks that are currently being ignored is the supply of crude oil; over the weekend this risk has been underscored
* Investor sentiment grows more stretched to the optimistic side (in the surveys and elsewhere) -- the S&P Short-Range Oscillator remains overbought (at 3.55%) as favorable economic and market outcomes remain the consensus view.
*This morning yields and crude oil prices are higher.
* With stock futures much lower, it seems to be just another manic Monday today:
"It's just another manic Monday (Woah, woah)
I wish it was Sunday (Woah, woah)
'Cause that's my fun day (Woah, woah, woah, woah)
My I don't have to run day (Woah, woah)
It's just another manic Monday"
- The Bangles, "Manic Monday"
"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 rebounded throughout most of the overnight session with Nasdaq far stronger than the S&P, but began a steady drop at around 4 a.m. ET today. S&P futures peaked at +9 and bottomed at -26. Nasdaq futures peaked at +17 and bottomed at -145. At 6:29 a.m. ET, S&P futures were -25 and Nasdaq futures were -143.
And...
* Commodities are higher. Brent crude is up $1.70 to $78.77.
* The S&P Short-Range Oscillator remains largely overbought (but less so) at 3.55% vs. 6.16%
* The VIX is up appreciably (+1.33).
* The U.S. dollar is much stronger against the yen, sterling and euro.
* Treasury yields are higher overnight; as I've mentioned, we may be at the point that lower rates will hurt equities. The 2-Year Treasury yield is +5 basis points at 4.301% and the 10-Year is +9 basis points at 3.944%. Over there, the yield on the 10-Year U.K. Gilt bond is up an outsize +13 basis points.
And over there...
* Overnight, the inversion of the 2s/10s Treasuries curve is down to -36. Real rates remain quite elevated; the 10-year is still about 1.5 (again in real terms).
* Gold is up by +$13.10 at $2,084 after the recent spate of volatility.
And...
* Bitcoin is +$1,700 and at the door of $45.5k.
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:
Here were last Friday's trades (I was active on the last trading session of the year):
* I day traded iShares Russell 2000 ETF (IWM) for a good profit.
* Added to private equity shorts and energy longs.
* Added to Capital One (COF) and American Express (AXP) shorts.
Positions: Long OXY common VL and calls XOM L CVX L; Short OXY calls S SPY calls M QQQ calls VL COF S AXP S KKR S APO S BX S
Programming Note
I will be on Bloomberg Radio at 9:30 a.m. this morning.
My Tweet of the Day
Oil Vey
* Energy remains my favorite sector for this year.
Apropos to the escalation in the Red Sea, which has resulted in a near $2/barrel rise in the price of crude oil, this is from this weekend on Real Money Pro:
Doug Kass: My Pick for 2024 Is a Contrarian Selection From an Out-of-Favor Group
* This basket of stocks fits right in with one of my 10 biggest surprises for next year.
Several months ago I was asked what stock was my "Best Pick for Q4 2023."
I didn't choose a stock, rather I selected an ETF -- specifically the largest bond ETF, the iShares 20+ Year Treasury Bond ETF (TLT) .
It was a contrarian choice as the 10-year yield had climbed over 5% and pessimism with regard to fixed income was rampant. Nonetheless, that pick did extraordinarily well (and the 10-year yield is around 3.80%!), so let's see if I can continue my skein!
My Pick for 2024 is, again, not an individual equity, but a basket of three oil stocks -- Occidental Petroleum (OXY) , Chevron (CVX) and Exxon Mobil (XOM) . This is another contrarian pick .
My rationale is clearly contained in my 10 Surprises List for 2024. Specifically, this surprise:
2. In part due to fear that Democrats will continue to hold on to the Presidency, foreign powers step up military confrontations. The West continues to lose patience with how the war is going with Ukraine as the U.S. backs off of its support. Negotiations on a territorial split begin and Ukraine is forced to give up the East of the country to Russia.
North Korea, with support from Russia, undertakes skirmishes in the Demilitarized Zone and makes threats to invade South Korea. Iran completes its nuclear buildup, which provokes a direct attack from Israel. Though China doesn't invade Taiwan, it continues with aggressive war game tactics in the South China Sea.
The global economy is more susceptible to supply shocks than is generally believed. With Russia and Saudi Arabia conspiring on production cuts, the price of oil exceeds $110/barrel and the price of a gallon of gasoline in the U.S. approaches $6. Shares of Exxon Mobil (XOM) , Occidental Petroleum (OXY) , and Chevron (CVX) each rise by over one-third next year.
I am long all three stocks.
'Inverted Priorities'
Doomberg on "renewables and the unspoken risk of total grid failure."