As of 4:33 p.m.:

Closing Breadth

 S&P 500 Sector ETFs

% Movers

Nasdaq 100 Heat Map

Equities started the day weighted down by the conflict in the Middle East — but have moved back to neutral this afternoon.

I traded actively in today's regular trading session:

Today's "things": 

 * I moved to a delta neutral position in  (OXY)  (above $54).

* I shorted small  (SPY)  and  (QQQ)  calls with S&P cash +9 handles.

* Added to shorts in  (ARES)  $159.22,  (APO)  $134.41,  (KKR)  $131.62,  (TLT)  $97.81.

* Pressed five homebuilder shorts.

.* Added to longs  (MSOS)  $6.94,  (CURLF)  $2.92,  (GTBIF)  $10.22.

* I sold the oil gap and Energy stock spike early in the morning — reduced my other energy holdings all morning on a scale higher ( (SLB)  $44.02,  (XOM)  $122.55 and  (CVX)  $151.99) to very small.

* I added to  (MCD)  short at $303.

Volume

- NYSE volume 4% above its one-month average;

- NASDAQ volume 14% above its one-month average

Breadth

S&P 500 Sectors

Nasdaq 100 Heat Map

NASD Advance-Decline Ratio Intraday

Crude is now -$2.60/barrel from the morning high and is about to turn negative on the day.

I feel reasonably good about my energy sells.

"Baby steps, it means setting reasonable goals... for instance, when you leave this office don't think about all you have to do to get out of the building, just deal with the room."

- What About Bob Baby Steps (youtube.com)

With S&P cash +9 handles I have re-shorted  (SPY) / (QQQ)  in the money calls for November (monthlies).

I am giving the market a wide berth so my scale on strength will be slow and modest until the market ramps further.

It has been an active morning:

* Added to shorts in  (ARES)  $159.22,  (APO)  $134.41,  (KKR) $131.62,  (TLT)  $97.81.

* Pressing five homebuilder shorts.

* Added to longs  (MSOS)  $6.94,  (CURLF)  $2.92,  (GTBIF)  $10.22.

* Sold down  (OXY)  (as promised in an earlier column, My Occidental Petroleum Problem) above $54 and took in premium as I shorted in the money calls (October weeklies and monthlies) — now delta neutral in the name (after being super sized long only 24 hours ago)!

* I continued to sell the oil gap and the awful Middle East news — reduced my other energy holdings all morning on a scale higher ( (SLB)  $44.02,  (XOM)  $122.55 and  (CVX)  $151.99) to very small.

* I added to small  (MCD)  short at $302.70.

My red tickets are punched to short the Indices on any further strength. (S&P cash now +2 handles) — but no Index positions yet!

Consistent with my  (TLT)  short (click here), homebuilders are downside leaders this morning.

From Peter Boockvar: 

A commodity check/And other interesting things

On the heels of the 50 bps cut from the Fed, the China fiscal and monetary steps and a reminder that war is inflationary, the 2 yr inflation breakeven yesterday was up 5 bps to 1.81% and is now up from a September low of 1.47% and vs 1.68% the day before the Fed meeting. This is still well off its highs this year so nothing really of note yet but we watch to see if the trajectory continues. The 5 yr inflation breakeven closed at a 2 month high at 2.10%.

As we own fertilizer stocks, I watch corn, soybean and wheat prices closely. Corn is now trading at the highest level since late June and is up 5% since the China news. Soybeans has crept up to the highest since July and wheat is at the highest since mid June. Here too, all are well off their highs but we again watch to see if the trajectory has legs. 

On the raw material side, the CRB raw industrials index closed yesterday at the highest since late May and is just 1% from the highest since April 2023. The central bank job from here is not going to be easy as they continue to want to cut rates to cushion a slow global economy. 

The Hang Seng by the way jumped by another 6.2% overnight and is now up 32% ytd. As the market was so damn cheap prior to this rally, after the rally it's only trading at 10x 2024 earnings estimates.

2 yr Inflation Breakeven

5 yr Inflation Breakeven 

corn

soybeans

wheat

CRB Raw Industrials index

Auto sales in September totaled 15.77mm at a seasonally adjusted annualized rate, just above the estimate of 15.7mm and which compares to 15.67mm in September 2023 and 17.19mm in September 2019. Wards Automotive said, "Sales over the past six months have been mostly in negative territory even though inventory continued to rise. Affordability and a slowdown in fleet orders have been the bane to growth. September saw the continuation of gains in the most affordable segments, but it was more than offset by weakness among higher priced vehicles - a theme of the past two quarters." They said Hurricane Helene "slightly dampened deliveries in September."

Still waiting for a notable response to lower mortgage rates on the purchase side but not really getting it yet. The MBA said purchases were up just .7% w/o/w with mortgage rates holding steady for a 3rd week at 6.14%. Refi's had spiked in the prior two weeks and softened a bit by 2.9% w/o/w. They are still up 186% y/o/y off depressed levels.

The initial reaction when the new Japanese Prime Minister position was awarded to Shigeru Ishiba was the assumption that he wanted the BoJ to further raise interest rates. But not so soon according to a new cabinet member of his, Ryosei Akazawa, the new minister for economic revitalization who said today "It's not necessarily accurate to say PM Ishiba is pro rate hikes. There are various conditions that need to be met for a hike. The top priority is overcoming deflation." The yen is selling off in response but he followed this up by saying "Looking at it from a global perspective, the BoJ no longer has negative rates but the .25% level isn't normal. If conditions allow, normalization should happen."

Intraday Yen move

Ahead of the ADP report today and payrolls Friday, this was from Paychex yesterday:

"Small and mid-sized businesses remain resilient as the US labor market gradually returns to its pre-pandemic level. While growth and hiring has moderated, hiring within our client base during the first quarter was positive and better than expected across our HCM and HR outsourcing businesses."

More on the macro outlook with the labor market, "What we're seeing pretty consistently across the board is we continue to see moderate growth, both in the small and the mid-market. I would say, from a demand perspective, certainly what we're seeing across the board is a lot more demand for driving efficiency or HR outsourcing. I think the pure tech play, particularly up in the mid-market to enterprise, I see a little bit slower decision making going on there. But we're not seeing that in the upper end of our HR outsourcing market. So I think right now what I see across the board are businesses are trying to drive efficiency and are looking for opportunities to reduce costs in their business."

From Nike:

"While Q1 revenue was largely in line with our plan 90 days ago, we delivered lower unit sales than we expected, partially offset by a higher ASP (average selling price). Traffic declines across Nike Direct were more significant than we anticipated. We saw particular softness in traffic on Nike Digital, as well as in our partner stores in Greater China. As a result, retail sales underperformed our plan, including our wholesale partners, with slightly elevated marketplace inventories, requiring higher levels of promotional activity in Q1 to drive conversion. This included the back-to-school period as our results underperformed the market. We saw store traffic improve in August, and growth in factory stores in Q1, but the overall period fell short of our expectations."

While they are not giving full year guidance for the following fiscal year 3 quarters that are left, "our revenue expectations have moderated since the start of the year, given traffic trends on Nike Digital, retail sales trends across the marketplace, and final order books for Spring."

Some more on the macro, "As it relates to our performance in the quarter and the unit misses, I would start by saying that in Greater China, we did see performance in the quarter underperform our plan. And so, that was one factor that impacted our unit decline. What I would say more broadly than that is just general macro across the different geographies. We just saw more softness for another season."

From McCormick, the spice/flavor maket:

"Overall, consumers are resilient but remain challenged. They are exhibiting value seeking behavior, making more frequent trips to the grocery store with smaller baskets and shopping just for what they need. They are also focused on reducing waste and stretching their budgets."

Also, "Food service traffic remains soft across most restaurant types, particularly in QSRs. These trends are starting to benefit growth in food at home, and this shift is driven by older generations as well as lower income households. Consumers overall continue to cook at home, and they are increasingly shopping the perimeter for protein and produce."

From Peter Boockvar:

ADP jobs report

ADP said a net 143k private sector jobs were added in September, above the estimate of 125k and up from 103k in August (revised up by 4k). Again, most of the job growth is coming from medium and large companies as small businesses, defined as having less than 50 employees, continued to shed jobs on balance for 3 straight months.

Services contributed 101k jobs led by leisure/hospitality, education/health and professional/business services. Information remains a drag, losing 10k. Construction jobs drove the upside on the goods producing side with a gain of 26k, many of which are building semi and EV battery facilities. Manufacturing added 2k.

On the pay side, wages for ‘job stayers’ grew by 4.7% y/o/y, similar to the pace seen in August of 4.8%. For ‘job changers’, income rose by 6.6%, still robust but a slowdown from the 7.3% increase y/o/y in August. All of these figures too are off big comps last year.

Smoothing out the monthly ups and downs puts the 3 month private sector job gain average at 119k vs the 6 month average of 143k and vs the 12 month average of 144k. The 2023 monthly job gain average was 209k. I’ll take what Paychex said yesterday for a bottom line, we’re now seeing more moderate growth in the pace of job gains.

(*) I am selling common over $54 in premarket

* And I am planning to write calls (and take in premium) against my OXY common holding when the regular session commences

“When the facts change, I change my mind. What do you do, sir?”

- John Maynard Keynes

As subscribers are aware, up until recently, I have successfully traded the shares of  (OXY)  over the past two years - buying in the range of $56-$60 and selling on every amended 13G (in which Berkshire added consistently to their near 30% current holding in the petroleum company).

Treating OXY as a "trading sardine" I did this 7-8 times over the last 24 months for an accumulated gain of about $20/share.

Though some disagreed with my strategy I repeatedly sold the upside gaps (upon each 13G filing as a catalyst) because on each incremental purchase Berkshire didn't change its investment intention - which was to accumulate up to 50%- but expressed no intention or desire in taking control of the company.

When the shares recently broke $55-$56 I aggressively built up an outsized position (in common and calls) based on the notion that if Warren liked OXY at $61, it would love OXY in the low-50s.

As the shares receded, I patiently waited for an additional Berkshire add (and revised filing) thinking I had a "Berkshire Put" and was protected on the downside. Indeed the well above average daily trading activity over the last four days led me to believe (or hope (!)) that Buffett was adding.

That was wrong.

With yesterday's resumption of violence in the Mid East the price of oil has climbed by over $4/barrel and OXY's shares have risen from a low of about $49.60 to over $54 in just a few trading sessions.

I continue to take Buffett on his word that he has no intention of acquiring Occidental Petroleum. But I don't understand (and I am quite disappointed) that Warren Buffett has not opportunistically added to Berkshire's Holdings of Occidental Petroleum at such apparently low prices of its common.

Yesterday, as noted in my Diary I began to reduce my OXY holdings:

Reducing OXY on Today's Spike Higher

Occidental Petroleum (OXY) has traded +$3/share from Friday's lows.

Yesterday I observed the unusual volume in the shares and speculated that Berkshire (BRK.A) BRK.B might be filing tonite:

Dusty Springfield Meets The Beach Boys

* "Wishin' And Hopin'"

* "Wouldn't It Be Nice?"

* If Berkshire was the buyer of Occidental today...

Wishin' and hopin' and thinkin' and prayin'
Plannin' and dreamin' each night of his charms
That won't get you into his arms
So if you're lookin' to find love you can share
All you gotta do is hold him, and kiss him and love him
And show him that you care

- Dusty Springfield, Just Wishin' and Hopin'

Between 11 a.m. and 11:30 a.m. Occidental Petroleum (OXY) traded a large amount of volume (over 5 million shares), taking the shares from about $52 to $50.65. See below!

Wouldn't it be nice if the buyer was Berkshire Hathaway (BRK.A) (BRK.B) ?

Wouldn't it be nice if we were older?
Then we wouldn't have to wait so long
And wouldn't it be nice to live together
In the kind of world where we belong?

You know it's gonna make it that much better
When we can say goodnight and stay together

- The Beach Boys, Wouldn't It Be Nice Wouldn't It Be Nice (Remastered 1999) (youtube.com)

That said, as discretion is the better part of valor, I have just taken down my outsized OXY position at $53.30 (+$1.75 today) in order to take advantage of the crude oil inspired run today.

Position: Long OXY common (M) and calls (S)

By Doug KassOct 1, 2024 11:48 AM EDT

***

This morning in premarket trading (with the shares responding positively again to higher crude prices) I am continuing to sell down my OXY long.

Should the shares remain elevated in today's trading session I plan to further reduce my OXY position by selling short calls against my common holdings and further reducing or even eliminating my call position.

Occidental Petroleum reports EPS on November 12th Occidental to Announce Third Quarter Results Tuesday, November 12, 2024; Hold Conference Call Wednesday, November 13, 2024 (yahoo.com). I am looking for weak EPS relative to a year ago ($1.18A) that may disappoint relative to consensus expectations.

Today Goldman Sachs reinstated OXY with a neutral rating (and $55 price target):

We update our estimates for OXY to reflect increased company’s production guidance and to reflect the CrownRock transaction. At our base case $80/bbl Brent outlook, we see 2024/2025/2026E FCF yield of 6%/8%/10% vs. peers at 9%/12%/12%, and we believe leverage in the medium- to longer-term is likely to remain elevated vs peers following OXY’s issuance of ~$9.7 bn in gross debt as a result of the now-closed CrownRock transaction.

We reinstate OXY at Neutral and see 3% upside to our 12-month $55 target price...

The company remains highly focused on asset sales to improve the

balance sheet.

While OXY’s leverage before CrownRock remained elevated relative to peers, the

company had made significant progress towards deleveraging and corporate

simplification through preferred redemptions. Concurrent with the close of the

CrownRock acquisition, OXY issued $9.7 bn in principal debt. With the transaction

announcement, the company laid out a plan to reduce debt by $4.5 bn within 12 months

of closing, which management has noted it’s on track to achieve 85% of the target by

the end of 3Q through organic FCF, sale of Barilla Draw assets, and sale of some limited

partner units in Western Midstream Partners (WES).

However, we still see leverage remaining elevated, and therefore expect the company’s near-to-medium term focus will be on debt reduction over capital returns.

Longer-term, OXY management has guided to a long-term $15 bn debt target, after which the company’s focus will return to growing capital returns, which can enable corporate simplification through preferred

redemptions.

We believe the focus for investors and the company in the near-term will

be on debt reduction, and while shares trade at a discount to peers, we see a less clear

path for the shares to re-rate higher pending further progress towards debt reduction

and a shift from debt reduction to capital returns (which can support corporate

simplification through preferred redemption). We expect OXY to begin preferred

redemptions at the end of 2026, when we forecast its debt level will reach its $15 bn

target....

Charts from 8:24 a.m.:

Chart from 8:44 a.m.

Upside:

-BNZI +12% (files to withdraw registration statement)

-JD +9.6% (strength following China government and central bank stimulus)

-ENVX +4.2% (begins shipping EX-1M battery cell samples from its new Agility Line in Malaysia last week; on track to commence high-volume production in 2025)

-ATHE +4.0% (expects to present ATH434-201 topline data in January 2025 and 12-month data from ATH434-202 later in year)

-CVS +4.0% (reportedly Glenview Capital not pushing for a breakup of CVS Health)

-YUMC +3.5% (momentum, hearing of broker upgrade)

-FRO +3.3% (strength from Middle East tension)

-VRCA +2.9% (cutting jobs as part of restructuring)

-FANG +2.6% (raises guidance to include Endeavor Energy Resource acquisition)

-APA +2.4% (momentum)

-OPTT +2.1% (announces $1.1M preliminary award from the New Jersey Economic Development Authority (NJEDA) Technology Business Tax Certificate Transfer Program)

-RPM +2.0% (earnings, guidance)

Downside:

-HUM -21% (discloses now more risk in its ability to fully achieve its individual MA margin target of ‘at least 3%’ by 2027, as based on prelim 2025 Medicare Advantage (MA) Star Ratings data provided by the Centers for Medicare and Medicaid Services (CMS))

-NKE -7.9% (earnings, guidance)

-LW -5.2% (earnings, guidance)

-GRTS -3.8% (hearing of Boutique Firm broker downgrade)

-ZIM -3.7% (Jefferies Cuts ZIM to Hold from Buy, price target: $25)

-CAG -3.3% (earnings, guidance)

-RGP -3.3% (earnings, guidance)

-LPLA -3.0% (announces termination of President and CEO Dan H. Arnold)

-PVH -2.8% (Tier1 firm Cuts PVH to Neutral from Buy, price target: $107 from $130)

* And a new short...  (TLT)  ($97.82)

and...

On Greg's second tweet, with "slugflation" my base case (see Peter Boockvar's comments about the re-acceleration in commodities inflation this morning, also look at recent labor contract agreements/escalation in wages) likely to prevail when coupled with my continuing concern about the lack of fiscal discipline (on both sides of the political pew) - I have taken a new short in bonds (TLT - cost $97.82).

From Knowledge@Wharton Is AI Making You Spend More Money?

Top Congressional Democrats Push DEA To 'Swiftly' Reschedule Marijuana And 'Continue To Assess' Full Legalization - Marijuana Moment

* The investment mosaic is far more complex than you might presume by listening and watching the "popular" business media.

* Memorized sound bites without an investment process and without modeling is laughable, unreliable and insulting to the audience — it is a marketing ploy designed to gather assets or sell a service.

* By contrast and over the last decade I have grown to respect Sarge's intelligence, process, honesty and candidness.

I think Sarge wrote this in partial response to my tweet (very) early this morning:

"October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February.” 

- Mark Twain

Bonus — Here are some great links:

Dividend Stocks With Strong Q4 Seasonality

October Volatility From Jazzy Jeff Hirsch

Bloomberg's Intelligence

Technical Tuesday

Mag7 vs. Tech Bubble 

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

Wolf Street howls about the epic glut of office buildings.

From JPMorgan:

US: Futs are weaker with RTY underperforming; pre-mkt Mag7 names are all lower ex-META. TSLA reports sales numbers today. Bond yields are higher, aiding the USD in its rally. Cmdtys are bid across all three complexes with crude the unsurprising standout as Israel focuses on delivering a ‘significant retaliation’. ADP, 3x Fedspeakers, and geopolitics are in focus. Vance appears to have won last night’s VP Debate, but it is unclear if this will move the polls.

and...

EQUITY AND MACRO NARRATIVE: As investors digest the latest spike in geopolitical tensions, we have some views from both JPM Research and Trading Desks. The key is whether oil production facilities are targeted as part of an escalation and/or whether additional countries are brought into the conflict. The best case is an avoidance of a broadening of the conflict with oil supply unchanged. As we await those answers, the US macro picture remains intact with today’s ADP print the next release though the print has not always been predictive of NFP in the post-COVID era.

Here is how I started yesterday's commentary (and I see no reason to change my near-term outlook):

An Overbought and Greedy Market

* As Chair Powell downgrades a more aggressive easing of monetary policy (that was an incorrect and growing consensus)...

The Short Range S&P Oscillator continues in overbought — at 3.41% vs. 4.26%.

And greed prevails:

I am growing more negative on the near-term prospects for the U.S. stock market.

Stay tuned.

By Doug Kass Oct 1, 2024 5:52 AM EDT