Volume

- NYSE volume 30% below its one-month average

- NASDAQ volume 23% above its one-month average

- VIX: down 0.29% to 17.35

Breadth

S&P 500 Sectors

Nasdaq 100 Heat Map

NASD Advance-Decline Ratio

SPY

* And those that participate in them...

I will not sugarcoat my year-end observations.

During the day, like all of you, I watch many investment strategists (especially the bullish ones on bubble vision). Half the time they are wrong in the facts that they present and/or wrong in the reasons why the stock market climbed so remarkably this year. I hear a lot of storytelling and BS narratives — from even the most highly regarded pundits.

A friend of mine, currently an ursine observer, related to me that he had a client call him today to say that he no longer derived "enjoyment" out of his daily missives (as he was not positive enough).

It is almost as if rigorous strategists are here to entertain investors and traders!

Indeed, the shallowness and increasing lack of analytical rigour are striking.

I long for the days when the stock market was viewed as an asset class to build long-term wealth, when active fund managers were respected for their skills and when equities were a vehicle to raise capital for capex purposes.

Instead, the market structure's massive move to passive investing has turned investing into lunacy — as traders and investors (alike) worship at the altar of price momentum.

To me, the same logic applies to cryptocurrencies and its brethren. The rising chorus of a $200,000 price target for bitcoin on something that is next to impossible to attach a valuation to — it could be $2,000 as easily as $200,000 — is somewhat laughable. But nobody is laughing.

But, hey... let's get rich quick.

My sense is that 2025 will bring on a much different investing climate, perhaps even resembling a mirror image of recent years.

Caveat emptor.

My speculative cannabis long book (and cost basis): AYRWF $0.408, CURLF $1.49, TSNDF $0.593 and VRNOF $1.173.

On the 17-handle climb off the lows in S&P cash to down only -13 handles I have taken off some of my Index longs to move to delta adjusted small short in the positions in SPY and QQQ.

I sold calls against my long Indices.

With S&P cash -25 handles I bought SPY at $585.21 and QQQ at $512.19 common.

I plan to sell calls against this long on a rally.

Big drop in TLT (and rise in yields from this morning) since our premarket sale (for a profit).

I am considering buying some for the reallocation trade later today.

Will keep you updated!

Wait till the sun shines, Nellie

When the clouds go drifting by

We will be so happy, Nellie

Don't let me hear you sighing

I can't stand to see you crying

Down Lover's Lane we'll wander

Sweetheart, you and I

If you will wait (Wait at the garden gate)

Till the sun shines, Nellie (Ha now, honey, ha don't be late)

By (In the sweet)

By and by

- Wait Till The Sun Shines, Nellie

Art Cashin is going to be honored and remembered on the floor today in the annual singing of "Wait Till The Sun Shines, Nellie." The segment will be aired on CNBC.

Here is a repost of my recent eulogy to Sir Arthur:

By Doug Kass Dec 3, 2024 7:32 AM EST

Sir Arthur 'Held Court' in My Diary on a Daily Basis for Decades

On Sunday morning, at 83 years young, my buddy Arthur Cashin passed away. Art Cashin, New York Stock Exchange fixture for decades, dies at age 83

For thousands of market participants Arthur was our boat's captain — steering the market's sometimes rough seas with agility and poetic grace:

O Captain! my Captain! our fearful trip is done,

The ship has weather’d every rack, the prize we sought is won,

The port is near, the bells I hear, the people all exulting,

While follow eyes the steady keel, the vessel grim and daring;

But O heart! heart! heart!

O the bleeding drops of red,

Where on the deck my Captain lies,

Fallen cold and dead.

- Walt Whitman, Oh Captain! My Captain!

With Arthur Cashin's permission I reposted his daily market thoughts in my Diary for almost 20 years.

Arthur seemed to like me and I revered him — perhaps it was our mutual sense of history of the markets that brought us so closely together.

We both spoke our mind — dull to the consequences of transparency and honesty.

We both enjoyed writing our thoughts down on paper. (He literally used "paper," preferring to write out his notes by hand and delivering them to his assistant and my pal, Judi).

We both "didn't suffer fools" as he and I lacked patience and had little tolerance for the incompetent and foolish.

Arthur was religious and his religious market views were steeped in history and historical perspective. His thoughts and opinions were austere, humble and contemplative as if filled with almost monastic clarity.

Over the past three decades I spent many early evenings marinating the ice cubes with Arthur.

All of us were better off having Arthur in our lives — his pearls of wisdom will reverberate for years to come.

Art appeared frequently on CNBC — I especially remembered this interview as he reminisced about 9/11 20 years after that tragedy... UBS's Art Cashin remembers working on Wall Street on 9/11

And here was what I believe to have been his last (or one of his last) interviews that Art had on CNBC about 11 months ago with his dear friend CNBC's Bob Pisani. UBS' Art Cashin: Election year tends to be 'good' for the market

To honor my friend, here is the last "Sir Arthur Holds Court" in my Diary in early 2024 — right before his health began to fail:

Sir Arthur Holds Court

From Arthur Cashin:

The main influence on Wall Street during the second trading session of the year was not Spartacus or Hitler or any other notable celebrities. Rather, it was a somewhat rotund red cheeked fellow named Santa Claus and what was happening to the supposed Santa Claus rally, which seemed to be disappearing rapidly before the eyes of Wall Street traders. After a setback on the first trading day of the year, things began to look a little difficult for the Wall Street bulls as we were headed for a negative session in the second trading day of the year.

As you probably recall from the writings of Yale Hirsch, who developed the now proverbial Santa Claus rally, it is the last five trading days of the outgoing year and the first two of this year. The first trading day was a lousy session to begin with and traders became more concerned as they moved into the second session, and it did not seem to hold many promises. In fact, as they struggled through the morning, that became the topic among traders, and we touched on a good deal of that in this late morning update: The Wall Street bulls are beginning to worry that a rebellious elf has pushed Santa out of the sleigh.



This is the final day of the so-called Santa Claus rally and the last couple of days it has swung into negative territory. This is not a very good sign for the seasonal success marker. My friend, Jeff Hirsch, editor of the invaluable Stock Trader's Almanac reminds that when the Santa Claus rally fails, it puts in jeopardy or at least puts on the alert signal from a variety of other early seasonal indicators, making it a bit of an uphill fight for the bulls.

The process so far has not been at all helpful to the bulls and the lingering weakness in Apple continues to provide a slight negative tone to the market overall.

Unless the bulls can get the Cavalry out and promote a rescue rally for the afternoon, the old rule of thumb will be getting talked about and that is - if Santa comes to Broad and Wall, the bears may return to make the call. The yields are not providing much influence either way and does seem to look like the markets moving pretty much on its own internals.

Let's see if the newsticker can provide some help because the algorithms are not finding much hope in the internals. If nothing else, a negative close today may, at the very least, slowdown the insertion of funds for the New Year as money managers start to look for sectors that are showing any real promise. Remain alert. Certainly, remain wary, but please stay safe.

Shortly after the update went out, it was convenient that my pal, Josh Brown, partnered with another of my Wall Street trading friends, Barry Ritholz, was on the screen and in Josh's own plain-speaking way nailed down what may be the causation of the Santa Claus rally disappearing and it had little to do with chart angles and moving averages and the like. It had more to do with capital gains and taxes as Josh aptly pointed out. A lot of people with that super late rally in 2023 were thinking about taking some profits and shifting sectors and not making a major decision, but basically repositioning themselves and their portfolios.



As Josh succinctly pointed out, one of things they normally would have to think about was their financial officers looking over their shoulder and saying - if you trim your position or shift your position here in the closing days of 2023, you are going to have to declare it on the taxes of this year that is now ending or if you wait and change those positions and make those decisions in the opening days of the new year 2024, you had the luxurious latitude of waiting days, weeks or even months before you had to declare for taxation purposes the day of that trade and make payments on the capital gains you might or might not owe.

What prompted this selling in the first two trading of this month - shooting Santa Claus in the foot - in all likelihood was something that had technically nothing to do with the stock market but more to do with tax positions of the entity who is doing the trading. Simply succinct and right on the mark as usual and once again, Josh laid it out to all of us that the answer was something you did not need a slide rule, calculator or a computer to determine.

Just tax timing. Pretty simple. Well, simple it may have been, but it did cause them to shoot the Santa Claus rally in its foot, perhaps even in both feet as it raised questions about the indications of the first few trading days toward the overall trading for the year 2024 and that will cause us and many others over the next several days to try and compute - are we seeing a true indication of what the balance of the years trading may look like or are we just stubbing our toe on an axiom of tax declarations. Nonetheless, the guidelines of an indicator are certainly the guidelines of the indicator. We were going to review those rather rare occurrences when the Santa Claus rally does not kick in, but overnight, our friend Jeff has magnanimously dipped into his prodigious files, and this is what he wrote:

On the heels of last year's momentous rally, the market is showing some signs of weakness causing the Santa Claus Rally to fail to materialize. Profit taking in January has become more commonplace in the last 25 years or so and January is notably softer in election years like 2024. Some profit taking is understandable following the massive rally from the end of October ranging from just over 16% for DJIA and S&P 500 to 19.9% for NASDAQ and 26.2% for Russell 2000 at their respective recent highs just before yearend. But the selling over the past few days is notable and a warning sign. Defined in the Stock Trader's Almanac, the Santa Claus Rally (SCR) is the propensity for the S&P 500 to rally the last five trading days of December and the first two of January with an average gain of 1.3% since 1950.



This indicator was discovered and first published by Yale Hirsch in the 1973 edition of the Almanac. The lack of a rally can be a preliminary indicator of tough times to come. This was certainly the case in 2008 and 2000. A 4.0% decline in 2000 foreshadowed the bursting of the tech bubble and a 2.5% loss in 2008 preceded the second worst bear market in history. Down SCRs were followed by flat years in 1994, 2005 and 2015, and a mild bear that ended in February 2016. Of the 15 down SCRs since 1950, 10 years have been up and 5 down, but the average gain is a measly 5.0%. As Yale Hirsch's now famous line states, "If Santa Claus should fail to call, bears may come to Broad and Wall."



With the Santa Claus Rally a no show we will be watching for a positive First Five Days (FFD) and January Barometer (JB), the second and third legs of our January Indicator Trifecta. Since 1950 there have been only three occurrences when SCR was down and both the FFD and JB were positive. Two out of three of those years were up over 20% and 1994 was a flat -1.5% with a 14.8% average gain on all three. Since there are only three down SCR years with up FFDs and JBs we present to you the other years with one of the Trifecta components down and the other two up. Of these 18 years 14 years were up and 4 were down with an average gain of 7.9%. So, as we said 2 out of 3 ain't bad when it comes to our January Indicator Trifecta.

Remember: if these seasonal indicators are negative and the market does not rally as it normally does during this time, we will likely shift to a less bullish posture - if not outright bearish. Thank you, Jeffrey, for that thorough review of some past occurrences.

Okay, now back to this morning. Overnight, global equity markets are once again showing signs of individuality. Japan closed down the equivalent of 180 Dow points. Hong Kong was flat. Mainland China was off about 130 Dow points and India was a bit of an odd man out, closing up the equivalent of about 250 Dow points. As we go to press, Europe is marginally optimistic. London is fractionally higher, but Paris and Frankfurt are up about the equivalent of 100 Dow points.



The calendar is not overly busy, but we begin with some job type information. Early on, we get the Challenger Layoff Report and at 8:15, we get the ADP Payroll Estimate and then at 8:30, of course, the Initial Jobless Claims and right after the opening, we get the PMI Composite. In midmorning, we get Natural Gas Inventories and, a little bit later, we get the Oil Inventories because of the New Year holiday earlier in the week.

After the close, traders will go to the newsticker to see what the Fed Balance Sheet looks like and if quantitative tightening continues and to what degree. A lot of finger pointing in the Middle East and some speculation that a further crackdown with the Houthi rebels may be in order, but no official confirmation one way or another.

Given the fact that geopolitics is bubbling up again, best stick to the current drill and that is stay very close to the newsticker. Keep your seatbelt fastened.

Stay nimble and alert and given these fractious times, please stay safe.

By Doug Kass Jan 4, 2024 9:35 AM EST

The Fear and Greed Index:

Fear and Greed Index - Investor Sentiment | CNN

In addition to being long MSOS, I am now long some speculative individual cannabis names.

Praetorian Capital's Kuppy on "The Wheels Fall Off..."

Bidding for more JOE and ELAN.

Shame on Ackman ...

Starbucks in Barrons: "Starbucks Stock Got a Boost From Its New CEO. Why Investors Are Still Jittery."

As previously noted, I am down to tagends of this SBUX short.

Charts from 8:24 a.m. ET:

Chart from 8:43 a.m. ET:

As noted in my Diary, I covered many of my shorts (and pretty good prices) at or near the depth of yesterday's market decline.

I am starting the New Year with a relatively bare canvas!

And that is intentional.

Upside:

-VSTM +37% FDA accepts for Priority Review NDA for Avutometinib in Combination with Defactinib

-ACAD +8% to replace Independent Bank Group in S&P smallcap 600, effective Jan 3rd

-IRD +7% receives FDA agreement under special protocol assessment for phase 3 trial of APX3330 in Diabetic Retinopathy

-CMPO +3% 9lan to Spin-Off Resolute Holdings Management, Inc. to Form a Differentiated Alternative Asset Management Platform and Accelerate Value Enhancing Acquisitions

Downside:

-SGMO -52% Pfizer to cease development of Giroctocogene Fitelparvovec

-RR -13% delays annual report

-DAVE +6% FTC Refers Misleading Marketing Case to Department of Justice

-WATT -43% secondary

-LB -2% secondary

* And "talking my book"...

TLT was a trading long rental that I took a very large position (at lower prices) last week.

I previously expected a reallocation trade out of equities and into bonds at year's end, which is today. I did so because of the massive underperfromance of fixed income to stocks over the last month, several months and full year.

However, since then, stocks have corrected and, over the last two days, the yield on the 10-Year U.S. Treasury note has dropped by 10 basis points.

Though I might be early...accordingly, I am taking off the balance of my longs in premarket trading at $88.33.

The S&P Short Range Oscillator stands at -4.88% vs. -4.97%.

Bonus — Here are some great charts:

The Most Important Chart for 2025

The Last Day of the Year Lacks Holiday Cheer

Israel Beats U.S. in 2024

Concentration

As I have posted, listening to Mike Saylor on CNBC would make you think MicroStrategy MSTR was "crushing it" — it was not (though we recently covered out short):