[Chart courtesy of MarketWatch.com]

1. Moving the markets 

The S&P 500 had a roller-coaster ride on Wednesday, as it barely kept its winning streak alive for the eighth day in a row. That’s the longest run since 2021. But Small Caps got hammered again, as they lagged the big boys.

It seems that traders are betting on the Fed to take a break from hiking rates and hoping for a smooth landing. Stocks have been beaten down for too long, and they’re finally bouncing back a bit.

Of course, the fate of the market depends on how inflation and the economy behave. The data so far suggests that things are cooling off, but not crashing. That is, unless the numbers are wrong and get revised later.

The earnings season is almost over. Most companies in the S&P 500 have reported their results, and most of them have beaten the profit estimates. But the revenue picture is not so rosy, as only a little over half of them have exceeded the sales expectations. That could spell trouble for the future direction of stocks.

Wall Street is also eagerly waiting for what the Fed Chair Jerome Powell has to say. His words, along with the earnings picture and the inflation report next week, could either boost or bust the market.

Meanwhile, regional banks kept sliding, bond yields moved in different directions, the dollar stayed flat, gold lost some shine, and crude oil plunged to its lowest level since July.

And the US Treasury market saw its worst liquidity since 2010. Is that why Warren Buffett is sitting on a mountain of cash? Or is he just scared of his own indicator, which shows that stocks are as pricey as they were during the dotcom bubble in 2000?

Hmm…

[Chart courtesy of MarketWatch.com]

1. Moving the markets  

Stocks were snoozing early on, as traders took a nap after a wild rally on Wall Street to kick off November, but a sudden burst of energy pushed the major indexes back into the green.

Tech stocks rose as yields retreated, with the yield on the 10-year Treasury note dropping about 7.5 basis points to 4.575%. Some notable winners included Microsoft, Amazon, and Advanced Micro Devices.

Traders wondered if last week’s rally was a fluke or a trend after all three indices had their best week in 2023. However, some feared that a fierce rally like this one was too good to last.

The November surge was a sharp contrast to a dismal October in which the S&P 500 dipped into correction territory. Wall Street cheered up after the Federal Reserve kept interest rates steady following their meeting last week.

Treasury yields slid and stocks climbed. Sure, lower yields gave a boost to the growth sectors of the market, but falling oil prices also helped ease inflation worries, as drivers enjoyed some relief at the pump.

Wolfe Research looked at the technical side of the market and predicted that the early November rally could soon fizzle out, if history repeats itself:

“Each rally since the July peak has fizzled out before making a fresh 1-month high, before tumbling to a new 1-month low…the definition of a downtrend.”

As ZeroHedge noted, another quiet macro day had no major catalysts – even with a bunch of Fed Speakers – since they all sang the same song – data-dependent, job not done, inflation still too high, rates high(er) for long(er), no cuts on the agenda.

As a result, the Nasdaq zoomed from open to close, The Dow and S&P barely budged, while Small Caps ended in the red. Regional banks struggled and faced some new rules to reign in their risky lending.

Bond yields pulled back, the dollar gained, while gold drifted lower and crude oil tanked, closing at its lowest level since July.

Looking at the big picture, you can see that global central banks are still in tightening mode and are sucking out the excess liquidity from financial markets, causing this gap.

Hmm…Which way will this crocodile mouth snap shut?

[Chart courtesy of MarketWatch.com]

1. Moving the markets  

The S&P 500 wandered around like a lost sheep on Monday, as Wall Street tried to keep up the good vibes from last week’s stellar performance. In the end, after a tiny surge, nothing much changed.

Just to refresh your memory, all the major indexes had their best week of the year, starting November with a bang. The Dow soared by 5.1% last week, its biggest jump since October 2022. The S&P climbed 5.9% in the same period, and the Nasdaq rocketed 6.6%.

It was the best week for both indexes since November 2022. Weak jobs data also pushed bond yields lower, which helped stocks.

As I wrote before, this was just a nice bounce back from a bear market, and it only erased the losses that the buy-and-hold folks suffered since 9/22/23, when we issued our last domestic “Sell” signal.

The big question is whether this bounce can turn into a new bull market, as earnings season is almost over. JP Morgan thinks this rally will fizzle out soon:

We think that stocks will go back to being a bad deal as the Fed is going to keep rates high for longer, stocks are overpriced, earnings forecasts are too rosy, companies are losing their edge, profit margins are shrinking, and sales growth is slowing down.

I agree, this rally could collapse like a house of cards. But we don’t need to speculate, we will just follow the direction of our Trend Tracking Indexes.

A lot depends on what Fed chair Powell says in the next few days. He is scheduled to speak twice, and traders will be listening closely to see if he is more hawkish or dovish.

Most shorted stocks got hammered today, as there was no sign of a short squeeze. Regional banks gave up half of Friday’s gains, Bond yields went up with the 10-year undoing Friday’s drop.

The dollar stayed the same, gold slipped lower and fell below $2k. Financial conditions have eased, and we’ll see how Fed head Powell reacts, after he was happy that they had tightened.

Will he talk them up again on Thursday? Or will he change his tune and sing a different song?