Feb 10, 2023
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“Losing a Super Bowl destroys all the good things that happened to get you there.” – Don Shula
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Just like one bad trade can ruin a trader’s year, one loss can ruin an entire season. Don’t take our word for it, just ask any of the players on the rosters or the fans of the 56 prior teams who have come up on the losing end. The 2007 Patriots are considered one of the best teams in NFL history, but given how that season ended, you’d have a hard time finding anyone on that roster who would call the season a success. Whatever you do, don’t ask Rodney Harrison.
On what has been the quietest week in terms of economic data all year, it’s been a disappointing one for equities. Futures are indicated to open moderately lower, putting the S&P 500 on pace to trade down on four of five days this week. Weakness today coincided with the European open as stocks on the continent have been trending lower all morning. The Nasdaq has been even weaker. Over the last five trading days, the Nasdaq has been down over 0.99% (not quite 1%) four times, and today, it’s on pace for another 1% decline.
Through Thursday, there have only been 27 trading days this year, and yet 16 have been moves of 1% or more. Since 1972, this is the tenth year where there have been 15 or more 1% daily moves, and last year there were actually 17 at this point. What’s unique about this year, though, is how strong stocks have been during this period of heightened volatility.
Volatility is usually a characteristic of a weak stock market rather than a strong one. Of the nine prior years where the Nasdaq had at least fifteen 1% daily moves in the first 27 trading days of the year, it was down YTD six times, and the largest YTD rally was 7.2% in 2000 (21 1% daily moves). This year, the Nasdaq is up over 12%! The other years were 1999 (19) and 2001 (16), and in those years it was up 5.3% and 3.7% YTD, respectively.
Our Morning Lineup keeps readers on top of earnings data, economic news, global headlines, and market internals. We’re biased (of course!), but we think it’s the best and most helpful pre-market report in existence!
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Feb 9, 2023
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“I am a warrior, so that my son may be a merchant, so that his son may be a poet.” – John Quincy Adams
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After a weak showing yesterday, bulls are attempting to rebound this morning as S&P 500 futures are up over 0.50%, and the Nasdaq is priced to open up by 1%. It’s been an extremely quiet week for economic data, but we just got two reports this morning with initial and continuing jobless claims coming out at 8:30. Both reports came in slightly higher than expected with initial claims exceeding forecasts by 6K and continuing claims topping forecasts by 28K.
Not only are US futures rising this morning, but stocks in Europe have also been marching higher. In fact, Germany’s DAX is up over 1% and is actually trading at a 52-week high. Bear what?
Today’s 52-week high for the DAX broke a streak of 314 trading days that the index has gone without trading at a 52-week high. As shown in the chart below, the streak that just ended was hardly extreme as there have been nine other periods where the index went longer without a 52-week high, including an 883 trading day stretch that ended in September 2003.
The DAX may be trading at a 52-week high from the perspective of a German investor, but for US investors, there’s still some climbing out of the hole left to go. On a dollar-adjusted basis, the DAX remains just over 6% below its 52-week high. In order to reach a new high, the dollar-adjusted DAX can get there one of two ways. It can either rally from here, or it can merely trade sideways and as the 52-week window continues to drop higher prices from last February, the bar will get increasingly set lower.
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Feb 8, 2023
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“I have civilized my own subjects; I have conquered other nations; yet I have not been able to civilize or to conquer myself” – Peter the Great
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They say that you should never short a dull market, but that’s what seems to be the case this morning as futures are trading modestly lower despite a very quiet macro backdrop both here and abroad. Earnings season remains in full swing and a number of stocks are seeing big moves, but none of them are impacting much more than their respective shares let alone the broader market.
It’s hard to call the day-to-day performance of the equity market this year anything but impressive. Despite last Friday’s strong employment report and a continued hawkish (although no longer hawkish with a capital H) rhetoric from FOMC officials, the S&P 500 has managed to keep its rally intact. Just yesterday, it closed right near its YTD high from last Thursday. At the index level, every major US index ETF is currently at ‘overbought’ levels (greater than one standard deviation above its 50-day moving average) and all of them are in the green YTD with all but one (Dow Jones-DIA) up at least 8%.
Where things stand this year is a far cry from a year ago. At this point last year, all but one index ETF (DIA) was trading at oversold levels, they were all down YTD, and all but one (DIA) was down over 5% YTD.
Comparing the performance of these index ETFs this year versus last year provides an even clearer picture of the complete reversal. Indices that were down the most last year at this point like the Nasdaq 100 and the Russell 2000 are among this year’s biggest winners. Meanwhile, indices that experienced the least ‘damage’ at this point in 2022, like the Dow, have lagged so far this year. Another example? Of the 14 index ETFs we track in our Trend Analyzer, the seven ETFs that were down less than 7% YTD in 2022 are the only ones up less than 10% YTD in 2023.
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Feb 7, 2023
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“As long as we enjoy it, we’ll do it. ‘Cause we enjoyed it before we made any money.” – George Harrison, 2/7/1964
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Much like Chat GPT has rocked the way people gather and consume information, 59 years ago today, the music scene in the United States was changed forever as John, Paul, George, and Ringo touched down at Kennedy airport for the first time. The rest is history. When the Beatles appeared on the Ed Sullivan Show less than two weeks later, around 40% of the US population watched. Everywhere the band went they were swarmed by screaming (nearly all female teens) fans. For the imprint the Beatles made on both the music industry and pop culture, it’s hard to believe that within six years of first setting foot on US soil the band was no more. The Beatles’ candle may not have burned for long, but the movement they sparked still shines today.
A single event watched simultaneously on TV by 40% of the US population will never be duplicated again, but the stampede of Chat GPT into the mainstream is an event unrivaled by any other product in history. According to a study by UBS, Chat GPT reached 100 million monthly active users in the span of two months putting it years ahead of Google Translate (78 months), Uber (70 months), Spotify (55 months), and Instagram (30 months). Even TikTok took nine months to reach that milestone! Chat GPT is to consumer tech what the Beatles were to music. It will leave a permanent impact on society in terms of how people gather, produce, and consume information and who knows what else. The only question is whether it will be the AI tool we’re still talking about years from now, or will it burn out and allow others to fill the void? Just yesterday, Google launched its own AI technology called Bard to public testing, and according to Bloomberg, Baidu (BIDU) will launch its own service similar to Chat GPT by March.
These Chat tools may be the next big thing, but the stocks of the three companies launching them haven’t been particularly impressive. Shares of BIDU may be trading right near six-month highs, but the stock is still down over the last year and is trading for less than half of what it traded for at its peak in early 2021. Last week, it closed above its 200-day moving average for the first time in more than 200 trading days ending its second-longest streak of trading below that level in its history as a public company. Its time above the 200-DMA didn’t last long, though, as it closed back below that level the following day and is down over 15% in the last six months. Finally, Microsoft (MSFT) has the most direct exposure to OpenAI’s Chat GPT tool, but it too has been sucking wind. Like GOOGL, it only just recently traded above its 200-DMA and is still down more than 10% in the last six months.
Chat AI tools may be changing the world and there will be big winners, but the ones with the most immediate and direct exposure haven’t seen a big change in their fortunes. Maybe the fact that ‘everyone’ seems to be launching their own versions of these tools suggests that they don’t have a lot of scarcity value after all.
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Feb 6, 2023
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“The greatest leader is not necessarily the one who does the greatest things. He is the one that gets the people to do the greatest things.” – Ronald Reagan
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There’s very little data to speak of this morning, or for that matter, the entire week, so investors will have to focus primarily on earnings and Fed Chair Powell’s speech at noon tomorrow. Last week was the peak for earnings season in terms of the market cap of companies reporting, but in terms of quantity, it will be just as busy this week. Markets are starting off on a negative footing as US Treasury yields continue their climb following last Friday’s jobs report. After touching its 200-day moving average on Thursday at 3.29%, the 10-year yield is more than 30 bps higher this morning at 3.60%. Even after the volatility of the last year, that’s quite a big move in a short period of time. Crude oil and natural gas, meanwhile, are both trading up over 1%.
Last week’s market word of the week was dispersion. As shown in the snapshot from our Trend Analyzer, performance was all over the map with Communication Services leading the way higher with a gain of over 5% while Energy trailed falling nearly 6%. As a result of the moves, we finished off the week with two sectors at ‘extreme’ overbought levels (Communication Services and Technology) while Utilities, with its 1.4% decline, finished the week at ‘extreme’ oversold levels.
Energy and Utilities were the only two sectors down over 1% last week, and both of their price charts have been showing signs of deterioration. After stalling out at a lower high earlier this year, Energy stocks have been under pretty significant pressure as both crude oil and especially natural gas have been weak. If the declines continue this week, chart watchers will be focusing on support at the lows from late 2022 which also corresponds to highs from late in the Summer. The picture for Utilities has been even weaker. That sector is now in a well-defined downtrend and last week’s decline resulted in a potential breakdown below support.
It seems strange to say after a year like 2022 but a number of sectors have also been breaking out to six-month highs. Last week, Financials, Industrials, and Materials all managed to trade above multi-month resistance levels and trade to six-month highs.
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Feb 3, 2023
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“The key to a 3-peat is change. You can’t ‘repeat’ the formula. Your opponent has already figured it out.” – Phil Jackson
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Heading into this morning’s jobs report, market enthusiasm has waned following some lackluster reports from Alphabet (GOOGL), Amazon.com (AMZN), and Apple (AAPL), but it certainly could be worse. Treasury yields are lower while crude oil is basically flat.
This week was billed as the most consequential week of earnings season, and through Thursday at least, the bulls have delivered. After both the S&P 500 and the Nasdaq kicked off the week with declines of more than 1%, they have bounced back over the last three days with gains of over 1% for three straight days. Since the inception of the Nasdaq 100 tracking ETF (QQQ) in March 2009, the current run is only the 12th time that both QQQ and the S&P 500 tracking ETF (SPY) have each been up 1%+ for three straight days. Below we show a price chart of SPY since 1999 indicating each time when both ETFs experienced back to back to back 1%+ daily gains. In today’s Morning Lineup, we took a more detailed look at performance following these prior three peats. To see that analysis, sign up for a trial today!
Our Morning Lineup keeps readers on top of earnings data, economic news, global headlines, and market internals. We’re biased (of course!), but we think it’s the best and most helpful pre-market report in existence!
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