At 4:23 p.m.:

Closing Breadth

S&P 500 Sectors

Nasdaq 100 Heat Map 

NASD Advance-Decline vs. SPY

* This "condition" might extend for some time...

As I have written in my Diary, most should have larger-than-normal cash reserves today.

However, for those few that are quick and emotional (with strong risk control) the market will be a fertile ground for opportunistic trading in the time that lies ahead.

As for the buy-and-hold crowd, the market may not be so hospitable.

I plan to dispassionately take advantage of a market dominated by machines and algos.

Time to be a trader — on both the long and short side.

I hope you enjoy the show...

Bonds don't want to rally.

End of message.

The intraday volatility is supportive of my view in today's opener, A Thing About Machines — that the dominance of volume/risk controlled products and strategies is the tail that is wagging the market dog.

Only the most facile should apply to trading this market now.

Offering more BA long (+$6.28 to $178.85) — been a very good ride (over a very short period of time).

Ah, love was out to get me

Now, that's the way it seemed

Disappointment haunted all my dreams

Ah, then I saw her face, now I'm a believer

Not a trace of doubt in my mind

I'm in love

Ah, I'm a believer, I couldn't leave her if I tried

- The Monkees, I'm a Believer

JeffI

For at least a year and a half I have disagreed with Dougie’s mantra of slugflation as the economy continued to expand and inflation dropped about 65% from its high- both contrary to such a narrative. The S&P 500 has had a spectacular run over the last two years as slugflation failed to materialize. And yet I am beginning to see a path for Dougie’s view to be accurate.

From today at First Trust Advisors…

“Real GDP growth in Q3 was revised higher to 3.1% from a prior estimate of 2.8%, beating the consensus expected 2.8% annualized rate.

Upward revisions to consumer spending, net exports, business investment, residential investment and government purchases easily offset a downward revision to inventories.

The largest positive contributions to the real GDP growth rate in Q3 were consumer spending and government purchases. The weakest component was net exports.

The GDP price index was unrevised coming in at a 1.9% annual growth rate. Nominal GDP growth – real GDP plus inflation – was revised higher to a 5.0% annualized rate from a prior estimate of 4.7%.“

With Trump as our incoming President the markets have further ballooned on animal spirits and the expectation that his presidency will bring more prosperity.

Oddly, I see it differently. I fear Trump’s stated policy of tariffs and tax reductions as very inflationary. The tariffs are going to be disruptive along with his stated policy changes. Trump uses uncertainty as a weapon- expect it in spades.

Equities hate uncertainty and economics 101 views tariffs as economically destructive. I now find myself siding with my favorite bear once Trump takes the reins. GRRR.

Soon to be a trading sardine market?

TechNova

An Ode to being a WOLF.

Part 1 of 3

I have been meaning to write this missive for a while, inspired by some of the posts I have seen on this blog.

It appears to me that too many folks are trading from a defensive position. They enter a trade, it goes against them, then they stand on their heels in half prayer and half hope, waiting for the market to rescue them. This to me, is trading like a sheep. In all fairy tales, nothing good happens to sheep.

You may notice that I post a lot of jokes. Both when the market rises, and when it falls. It is not because I am insensitive to market moves. It is because I welcome them all as challenges. How do you get in, when the market keeps bulldozing higher every day? When do you trim? What about when the market pukes? Do you cut and run? Every single day is a super fun challenge to try to outfox the FOX, and look at our friend MAX PAIN in the eyes and say: ”alright, alright, alright”.

Earlier this year I wrote a missive on having a positive attitude when trading. I even convinced one of our subs “brokeinvestor” to change his moniker to “bestinvestor”, one of my proudest accomplishments on this Blog. But I realize now, that that missive missed another key component.

BEING AGGRESSIVE.

People seem to follow me into a trade, and regardless of if it goes up or goes down, will promptly follow it up with “What do I do now?”.

You may have noticed how often when I make a Macro Call or Trade I say “I don’t care what happens next, I am well positioned to take advantage of it”. Let me explain where that comes from.

I have been into the practice of Martial Arts for decades. Started off in Tae Kwon Do, then switched to Jeet Kune Do, and more specifically Jun Fan Gung Fu, which is based on Yip Man’s teachings of Wing Chun Kung Fu. The essence of Wing Chun (which was created by a woman) is that there are no defenses. Only attacks. If someone strikes at you, you strike back while blocking the attack. This is counter to Karate and Tae Kwon Do that teach you to block, then strike. The idea behind Wing Chun (meant for a smaller practitioner) is that you may not be able to withstand the blow of a larger opponent even if you block, but if you strike that opponent while they strike you, you will nullify the power of the attack.

I have brought that philosophy into my trading for years.

I don’t ever block, then defend. I am always on the attack and defend at the same time.

When I enter the trade, I consider the market maker (a faceless opponent) as my opponent. That person will try to convince my buddy MAX PAIN to extract the most amount of losses from me as he can. When I place the trade, I already have a profit goal in mind. If/When I reach that goal, I exit. Those who follow my trades know that I often sell too soon (STS), but I have come to live with that, and tend to compensate by getting more of those winning trades. The reason I sell too early is that I planned on selling at that target before I got in. I then stick to my plan unless major news changes in the meantime.

But what happens if my opponent strikes and my trade does not go as planned?

Part 2 of 3

I already had a plan for that. I look at downside support, I look at Options selling, I look at my cash levels, and I look at other trades that I initially liked less to have a sense of what my counter attack will be. As soon as RED starts filling the tape, I don’t hope or pray, or wonder, I engage a counter-attack. That could be selling a stock for a loss (I refer to those trades a my “Poop Bin”). It could be adding to the stock because the stock is down in unison with the market and is now on sale. It could be selling the stock and immediately putting that money to work in a better idea. It could be selling Calls (if they are expensive) and buying time for the stock to recover. My point is, you have so many options for when Mr. Market manages to break your defense and get a punch in. You don’t stand and wait to see if he punches you again, you move, and counter strike and you do so with a huge grin on your face while your eyes say “bring it on f$%k face!”.

Let’s talk some concrete examples. I will use Crypto since the sector represents the large majority of my trading starting in 2024.

This past summer we entered the LULL. BTC chopped sideways for months. Many said we would be breaking down to $30K. I went into Auto-Pilot Mode, just constantly buying every dip to the Bottom-of-the-Box. No emotion. Just a grin and a pre-determined plan.

Then the Japan Carry Trade collapses and the market wooshes lower. An unexpected liver shot. BTC dropped over $10,000 in minutes down to $50K. This was clearly not my plan. My plan was to buy the bottom of the box and wait it out. But the Market had struck a blow, and I did not wait to respond. Why? Because I planned for it. My plan was, if the Market strikes and breaks the bottom of the box, and lands on my support line at $50K. I am doubling my bet. This was not a decision I made in the heat of battle. I had already freed up Treasuries for this play, just in case. That morning Douglas C, asked me when it hit $50K “Are you cutting losses?” My answer was immediately “I just bought a very large block at $50K.” I did not block, I just counter-attacked.

At the beginning of this week, I posted a missive called “Of Tops and Bottoms”. Explaining that my price targets for December BTC was $110K, $120K and $150K. With the lower being the most expected, though I started leaning towards the middle. We hit $108K on Monday and I said it was very close to full target number 1, and that we could be on our way now down to $68K, which is currently the rising Median Support Line. JP asked me this morning what defensive action I took based on a 65% chance we have seen the top this year, and 35% chance we had not.

I sold a small amount of my IBIT and BITB (10%) and covered another 20% with Calls dated February. In hindsight, not aggressive enough considering the pullback, but that does not bother me one bit. Why? My plan was to get more aggressive on the selling and covering if we hit $120K this year. We did not do that. What that means, is that there is a greater amount of risk in exiting and covering the trade (getting called away) than there otherwise would be. That is why I kept my planned counter-attack small.

As I look at the landscape, I ask myself this question. Do I feel better being fully invested in BTC, or would I feel better as a no-coiner? The minute I ponder the second I get chills up my spine. Imagine having no coins with BTC over $100K and the entire world pondering acquiring one of only 21M coins? Thailand, Brazil, Argentina… these are real countries about to custody Coins, and we are entering the PIVOT, where BTC and Crypto rails will be central to everything. There has never been a more de-risked time in the history of BTC, and I have been in it since 2014, with all the battle scars to show for it. Down 80%-90% was simply called a Tuesday back then.

Part 3 of 3.

In short, there is a bigger risk of trying to maximize your profits, and getting locked out of major gains by trying to counter react to everything, than there is to simply stick with your plan, and raise your gloves up, and move straight into your opponent with confidence. This was my plan if we did not make it to $120K, and that is how I had pre-determined to execute it if the market decided to strike.

MSTR/MSTX is another beast entirely. This is a SUPER VOL product on a SUPER VOL product. Not for the faint of heart. For me, the appeal was scalping Gamma weekly off this monkey. I went in week after week, scalping huge gains. When I went in, I knew there was a risk the market (which was over-heated, would turn). This is why when asked which PUTS I was selling, I kept mentioning the total cost of ownership of the shares. Meaning, I was only selling Calls against underlying common, and I was only selling PUTS at a large premium, such that I would want to own more common if assigned. More common, would then give me more Calls Selling ability. That was the trade from the beginning. It has not changed. The Market swerved, and decided to sink everything yesterday, on no new news. An expected rate cut, an expected aggressive Dot Plot. OK. Sure. Why not? MAX PAIN was delighted. I don’t really care. All I care is that the market dropped, and I have to counter-attack.

I feel rather confident (or I would not have bought the Common) that this stock will double from here in 2025. Just imagine this. BTC goes to $68K, Michael Saylor adds a huge block. Then later this summer 2025, BTC hits $200K. This would take MSTR to a valuation of $1 Trillion when it is finally added to the S&P500. Does MSTR really just trade at $400? Really? Not in my math book, even with the stock at a discount to NAV BTC in treasury. This is what makes me want to get assigned, and then sell expensive Calls while I wait for the boom to take place.

That said, if BTC goes down to $68K, one should expect MSTR to trade down and even trade at a deep discount to NAV, which would mean a HEAVY drop in price such that selling Calls would get tricky trying to maximize revenues and at the same time avoid getting called away. Then again, if it goes down to $68K can you imagine the amount of offsides people that will pile in and want to buy? A tough call.

As you can see lots to consider, and that is what I am doing today and tomorrow. Not hoping, not praying, not looking to the stars. But counter attacking. I will be looking at charts, and trying to see if this is really it. If this weakness is meant to last, or if this is a setup to an amazing Santa Rally next week. I will land on decision and strike. Once I do, I will not second guess that move, instead, I will wait for Mr. Market to parry and hit me back to see if I made the right move, or if I need to counterstrike again. Either way, I will be skipping rope, doing push ups, and yelling “Giddy Up!” as things get moving.

Trade like a Wolf, not a sheep. Bad things happen to sheep.

From Charlie!

The Week in Charts (12/19/24) - Charlie Bilello's Blog

* The continued climb in rates is precarious and concerning.

I have been writing about rising interest rates/inflation and the bond market headwind for several weeks.

In our Comments Section a few days ago, a subscriber suggested I shouldn't be concerned.

This comment shocked me.

I disagreed then and disagree now  as interest rates are the foundation of every discounted cash flow and dividend model.

The risk free rate of return is integral to valuations — we have not likely entered a new paradigm of valuation where price-earnings multiples are not impacted by higher interest rates.

I will continue to be concerned.

And I am as well today, given the further rise in yields (TLT is -$1.25 to under $89):

* The yield on the 5-year Treasury note is +2 basis points to 4.30%.

* The yield on the 10-year Treasury note is+6 basis points to 4.56%.

* The yield on the 30-year Treasury bond is +9 basis points to 4.75%.

I shorted more Apple AAPL at $251.77.

I added to my Elanco Animal Health ELAN long at $11.75.

Yet...

Charts from 10:57 a.m. ET:

From Peter Boockvar:

Q3 GDP revised up/Claims less than expected/Philly mfr'g weak

Q3 GDP was revised up to 3.1% from 2.8% and vs the estimate of no change. Old news though.

After the surprising pop higher last week in initial jobless claims to 242k, they fell back to 220k this week, 10k less than expected. Smoothing this out puts the 4 week average to 226k from 224k. Continuing claims was 1.874mm, little changed with the week before but below the estimate of 1.892mm.

Bottom line, as measured here, the story remains the same in that the rate of firing’s (yes, last week’s jump was not expected) is still relatively muted though the pace of hiring’s is slowing with continuing claims near the highest in 3 years.

4 Week Avg Initial Claims

Continuing Claims

The December Philly manufacturing index remained weak, falling to -16.4 from -5.5 and vs an expected rise to +2.4. New orders fell to -4.3 vs the 6 month average of +8.8. Backlogs though jumped to 18.9 from 6.8 and well above the 6 month average of 5. Not sure if this is pre tariff influence but could be. Inventories went negative again. Employment was positive for a 2nd month at 6.6 but around the half yr average. The workweek though went negative. Prices paid rose but fell for those received.

After the post election spike in the 6 month outlook in November to 56.6 from 36.7 in October, it fell back to 30.7 which is about the 6 month average. Capital spending plans moderated.

This was of note, and maybe over worries about tariffs, “the share of firms expecting supply chain impacts to worsen (17%) was higher than when this question was asked in September (9%).

Bottom line, the US manufacturing recession is continuing on in December at least as seen with data so far. It though is a global phenomenon.

Philly Mfr’g

From Peter Boockvar:

Powell's hall of mirrors and 'If you give a mouse a cookie'/Other notables

With all due respect to Jay Powell, he seemed in the press conference to be wandering around in a hall of mirrors, trying to find his way in reconciling all the puts and takes, reading from prepared answers to expected questions and rationalizing the Fed's policy moves. On the path to a 'neutral rate' he admitted again that 'we don't know exactly where it is,' I paraphrase. On the VERY easy financial conditions we've had, he was dismissive again of them essentially saying inflation and the labor market are their main focus. Of course on the flip side as seen over the past few decades, they did everything they could to ease financial conditions when they tightened up.

The markets response reminded me of the children's book "If You Give a Mouse a Cookie" which I'm sure you read to your kid or grand kid or niece/nephew as I did to my son. If you aren't familiar, a boy gives a mouse a cookie. The mouse then wants milk with the cookie and the boy gives it the milk. The mouse then wants a straw to drink the milk and gets it from the boy. The mouse then asks for a napkin and you get the point. The Fed gives the market some guidance on rates and the market then goes too far with pricing it. After the 50 bps rate cut in September, the fed funds futures market then went on to price a December 2025 rate of about 2.80% and it was within a day of that meeting that a Fed member had to reign in the market. That rate today stands at 3.97%.

Going into yesterday's Fed announcement and dot plot, the December 2025 contract was pricing in EXACTLY 50 bps of cuts next year, thus 2 more of 25 bps. And the dot plot went to EXACTLY that. Instead of accepting that the Fed is now more in-line with the market pricing, market pricing took it even further and now there is just a 44% chance of a 2nd cut by year end 2025. The first cut for next year is now fully priced in by July.

So, yesterday's bond and stock market move was not on some shock thing by the Fed, as again, the Fed just shifted to what the bond market had ALREADY priced in, but maybe a reversal of a market that got way too giddy over the past month, that got way too frothy in certain parts of the market and priced itself for no room for error.

That said, at least still, higher for longer interest rates is a real thing.

By the way, on food inflation, the CRB food index closed yesterday just 2 pts from the highest level since October 2023.

CRB Food Stuff Index

On shipping costs ahead of the holidays and likely tariffs, they broke its downtrend with the Shanghai to LA route jumping by almost $1,000 w/o/w to $4,499. The trip to NY rose $875 w/o/w to $6,074.

Shanghai to LA

Shanghai to NY

The Bank of Japan sat on its hands again as expected but it does sound like they will hike in January. The yen though is not waiting around as it is selling off almost 1% vs the US dollar in response to a committee that I keep saying is still afraid of its own shadow. Here were some comments from Governor Ueda which point to a January hike:

"We are mindful that when we are late in raising interest rates, it would mean the pace of future rate hikes could quicken if we want to eventually push up rates near neutral. We are, of course, mindful of this when making policy decisions. Having said that, underlying inflation is heightening but at a moderate pace. That is allowing us to go slow in raising rates." I'll add, they've redefined the word 'slow' with an overnight rate of just .25%.

Also, "It's true uncertainty will never disappear. But as time passes, we will have more information that we can incorporate in producing our forecasts...There's a risk we could be behind the curve by waiting too long. That's something we will also take into account in setting monetary policy."

Finally of note, "Real interest rates remain very low. If the economy and prices move in line with our forecast, we will continue to raise our policy rate. As for the timing of adjusting the degree of monetary support, we need to scrutinize various data carefully in reaching a decision."

Call what they did a hawkish pause I guess. While the yen is lower as said, JGB yields were little changed and the Nikkei fell by .7%.

As expected the Bank of England held its base rate at 4.75% with a 6-3 vote. Those 3 wanted to cut rates by 25 bps. In the statement they laid out the stagflationary situation they have. Inflation has rebounded, "services consumer price inflation has remained elevated" and "Most indicators of UK near-term activity have declined."

Their bottom line on the rate path from here, "A gradual approach to removing monetary policy restraint remains appropriate. Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further."

Not much of a market response as the BoE did as expected.

The Swedish Riksbank followed the ECB and cut rates by 25 bps to 2.50% as expected. Norway though held its deposit rate at 4.50% also as forecasted. The Riksbank said they could be coming to the end of the cuts. "The interest rate has been reduced rapidly and monetary policy affects the economy with a lag. This argues for a more tentative approach when monetary policy is formulated going forward...If the outlook remains unchanged, the policy rate may be cut once again during the first half of 2025" and said, "Despite some signs that economy activity is on its way to recovery, it remains weak."

With the Norges bank, "activity in the Norwegian economy appears to be holding up better than previously projected." That said, "On the other hand, inflation has moved closer to target, and inflation pressures appear to have been slightly more subdued than previously assumed."

From General Mills:

"I think we've learned a couple of things and so we'll start with the consumer. I mean it's clear that from the beginning of the year to now, we've seen more prolonged value seeking behavior than we anticipated back in June and that manifests itself in a couple of ways. One is that the consumer is eating more at home, which is good. So you see our categories are growing...And that's because eating away from home is about 4 times more expensive than eating at home. So we've seen this increased value behavior."

From Lennar's earnings release:

"In the course of our fourth quarter, the housing market that appeared to be improving as the Fed cut short term interest rates, proved to be far more challenging as mortgage rates rose almost 100 bps through the quarter. Even while demand remained strong, and the chronic supply shortage continued to drive the market, our results were driven by affordability limitations from higher interest rates."

"Accordingly, in our fourth quarter, sales lagged expectations as interest rates climbed and our new orders fell short of expectations to 16,895 homes vs the low end of our guidance of 19,000 homes. Consistent with our strategy of matching sales pace with production, we adjusted sales price, incentives, and margin in order to re-ignite sales and actively manage inventory levels."

Jabil was the standout stock yesterday to the upside and as a contract manufacturer of so many things is an important company.

They saw "continued weakness in our renewable energy and EV markets."

Their 'Intelligent Infrastructure' segment saw 5% y/o/y growth "primarily driven by strong demand in our AI related cloud, data center infrastructure and capital equipment markets."

They saw a lift in revenue in their "digital commerce and warehouse automation markets" but weakness in "consumer oriented devices."

Back to Europe, with the recent round of political drama, French business confidence in December fell 2 pts to 94, matching the lowest since February 2021.

* Today's risk parity is yesterday's portfolio insurance.

* Like in Episode 40 of The Twilight Zone ("A Thing About Machines"), it may finally be the time to fear the machines and algos that "govern" today's dominant investment products and strategies...

This is Mr. Bartlett Finchley, age forty-eight, a practicing sophisticate who writes very special and very precious things for gourmet magazines and the like. He's a bachelor and a recluse with few friends, only devotees and adherents to the cause of tart sophistry. He has no interests save whatever current annoyances he can put his mind to. He has no purpose to his life except the formulation of day-to-day opportunities to vent his wrath on mechanical contrivances of an age he abhors. In short, Mr. Bartlett Finchley is a malcontent, born either too late or too early in the century, and who, in just a moment, will enter a realm where muscles and the will to fight back are not limited to human beings. Next stop for Mr. Bartlett Finchley - The Twilight Zone.

- Opening Narration, Twilight Zone (Episode 40, "A Thing About Machines")

Episode 40 of The Twilight Zone, "A Thing About Machines," is narrated by Stacy Keach. It is my favorite episode ever of Rod Serling's brilliant TV series.

Bartlett Finchley, a lonely and bad tempered food magazine critic, berates a repairman after he fixes his television. The repairman tells him to stop abusing his appliances over mild inconveniences. Believing the machines are conspiring against him he doesn't let up on and his secretary quits. Following this, Finchley's typewriter types out the message "Get out of here Finchley" repeatedly on its own. Then the television displays a program with a woman saying the same message. Finally, his electric shaver lunges at him.

Finchley hears a siren outside and goes to investigate, finding that his car rolled down the driveway and nearly hit a child. After rudely dismissing the attending police officer and neighbors, Finchley returns to his house, drinks, and passes out. When he awakens, the machines repeatedly tell him to leave while his razor slithers downstairs after him. He runs outside, only to be chased by his car until he ends up drowning in the pool and sinking to the bottom.

Yesterday we had a debate (with Cjsolus, Robbo, TechNova, et al) about the influence of market structure in our Comments Section.

There I made the strong case that market structure (read: 0DTE options, risk parity and other volume controlled and risk-based strategies) represented a bonafide risk to equities.

It is my view that (especially) rules-based products and strategies (more or less tied to levels of volatility) have a greater overall market influence than many recognize.

As an example, volume control strategies sold an estimated $37.5 billion to $40 billion in equities as the VIX rose by over 11 handles. In turn, CTA funds, who primarily worship at the altar of price momentum, were forced to sell another $10 billion of stocks. (source: Keith McCullough/Hedgeye)

As I have previously written, history may not repeat itself but it rhymes.

Today's risk parity trade is yesterday's portfolio insurance trade.

It may be time for investors to fear market structure and the machines before ending up like Finchley.

Here is the full episode (audio) Twilight Zone (Radio) A Thing About Machines

Yes, it could just be. It could just be that Mr. Bartlett Finchley succumbed from a heart attack and a set of delusions. It could just be that he was tormented by an imagination as sharp as his wit and as pointed as his dislikes. But as perceived by those attending, this is one explanation that has left the premises with the deceased. Look for it filed under 'M' for Machines - in The Twilight Zone.

- Closing Narration, Twilight Zone (Episode 40, "A Thing About Machines")

Charts from 8:19 a.m. ET:

Upside:

-SHCO +46% (earnings, guidance; discloses offer from earlier this week from a third-party consortium to acquire the Company at $9.00/shr; Board of Directors has formed an independent Special Committee of the Board to evaluate the offer)

-VRAR +23% (subsidiary Brightline Interactive entered an initial six figure dollar contract with US Navy for Immersive Simulator, to be delivered in H1 2025)

-TRIP +11% (Tripadvisor and Liberty TripAdvisor announce planned merger)

-DRI +9.3% (earnings, guidance)

-KMX +6.8% (earnings)

-ACN +6.7% (earnings, guidance)

-OKLO +6.5% (Wedbush, Inc. Initiates OKLO with Outperform, price target: $26)

-KBR +6.2% (Irenic Capital has built stake in KBR; Plans to push KBR for separation of unit serving private sector)

-FCEL +5.9% (earnings)

-AAOI +5.0% (exchanged $76.7M of 2026 Notes for $125M of 2030 Notes, 1.49M shares, and $89.6K cash)

-JWN +4.3% (Nordstrom family and El Puerto close to acquire the company)

-ARMP +4.1% (announces Encouraging Results from the Phase 2 Tailwind Study of Inhaled AP-PA02 in Non-Cystic Fibrosis Bronchiectasis Subjects with Chronic Pulmonary Pseudomonas aeruginosa Infection)

-SYF +3.0% (Morgan Stanley Raised SYF to Overweight from Underweight, price target: $82)

-MNMD +2.7% (to be added to the NASDAQ Biotech Index)

-HPE +2.3% (Deutsche Bank Raised HPE to Buy from Hold, price target: $25)

-AFRM +2.1% (Jefferies Raised AFRM to Buy from Hold, price target: $82)

-ZM +2.1% (Jefferies Raised ZM to Buy from Hold, price target: $100)

Downside:

-LW -21% (earnings, guidance; appoints new CEO)

-MU -12% (earnings, guidance)

-VRTX -12% (announces Results From Phase 2 Study of Suzetrigine for the Treatment of Painful Lumbosacral Radiculopathy)

-LEN -9.0% (earnings, guidance)

-WS -5.9% (earnings)

-ADAP -3.9% (Co-Founder and Chief Business & Strategy Officer along with CFO to step down)

-AI -2.8% (Keybanc/Pacific Crest Cuts AI to Underweight from Sector Weight, price target: $29)

Chart from 8:21 a.m. ET:

* But the "writing" was on the market's wall...

You're a foul one, Mr. Grinch.

You're a nasty wasty skunk!

Your heart is full of unwashed socks,

Your soul is full of gunk, Mr. Grinch.

While the Chairman of the Federal Reserve stole Christmas from the markets, the setup of deteriorating breadth/market narrowing and rising interest rates and risks were as clear as day:

The S&P Index declined by the largest amount since early August 2024 and it was the second biggest decline since September 2022 — possibly dropping out of a clear "up channel" in the SPX chart: 

The deterioration (see Diary columns below) began about 10 days ago:

Here are the series of recent columns in which we warned of growing market risks (relative to rewards):

* Gwen and The Two Face Market

* Worth The Price of Admission

* Where's The Beef?

* Today's Market Structure Invites Excesses

* Be Careful of the Unexpected and Leveraged Corners of Speculation

* Bob Farrell's Rule #3

* A Gravity Defying Market

* A Gravity Defying Market (Part Deux)

And these columns were just some of a few from the last week!

I have a board meeting from 9 a.m. to noon today.

Radio silence.

Bonus — Here are some great links:

The Bears Come Out of Their Cave 

The Big Diversion of Bullish Percents

Today's Number Is 37.3 Is Greater Than 34.3 

Fed as Grinch

The S&P Short Range Oscillator has moved more deeply into oversold at -7.86% vs. -5.28%.

I'm Henry the eighth, I am

Henry the eighth, I am, I am

I got married to the widow next door

She's been married seven times before

And every one was an Henry (Henry)

She wouldn't have a Willy or a Sam (no Sam)

I'm her eighth old man, I'm Henry

Henry the eighth, I am

Second verse, same as the first

- Herman's Hermits, Henry the VIII, I Am

Let's start the day with the way I ended yesterday:

Worth the Price of Admission!

This brief post (from Tuesday), alone, was worth the price of admission (!):

The Smartest Investor in the World Turns Defensive

The smartest investor in the world (based on an analysis of his returns over the last few decades) turned defensive yesterday.

I can't disclose his identify as I don't have his permission, but he communicated his changed view in an email to me.

His timing might have been impeccable.

Frankly, his timing is often impeccable.

By Doug Kass Dec 18, 2024 4:59 PM EST

I'm her eighth old man, I'm Henry

Henry the eighth, I am

H-E-N-R-Y

Henry (Henry) Henry (Henry)

Henry the eighth, I am, I am

Henry the eighth, I am, yeah