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“Always buy your straw hats in the Winter” – Benjamin Graham
There’s a lot of ‘straw hats’ on sale in the market lately, but the question is how far they are from their ‘final markdowns’. Futures were much higher overnight, but have been drifting lower ever since Europe opened for trading. Amazon.com (AMZN) is still up over 10% following its earnings report after the close yesterday, and that’s helping to keep Nasdaq futures marginally higher this morning while the S&P 500 is flat and Dow futures are down. One asset not on the sale rack is crude oil as WTI is firmly above $90 and looks headed to triple-digits.
The big market event of the morning was the January Non-Farm Payrolls report, and after two months where economists were expecting a strong report and received much weaker than expected news, today they were expecting a weak report due to Omicron, but as luck would have it, the results came in much stronger than expected. The initial reaction in the markets was for higher rates and lower equities, so it looks like bulls may be heading into the weekend disappointed.
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The market couldn’t keep bouncing forever, but even after the rally off of last week’s lows, yesterday’s decline was a tough one for bulls to stomach. As shown in the chart below, while the bounce brought the S&P 500 back above the 200-DMA – a level it still trades above now – it stalled out just below the 50-DMA, and yesterday’s sell-off brought it back below the highs from late last summer. How the S&P 500 trades today following AMZN’s strong report will likely say a lot in whether yesterday’s weakness is the beginning of another leg lower.
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