1. Moving the markets

After several breakout attempts over the past two trading sessions, the market finally found some footing that served as a base for today’s last hour lift-a-thon and pushed the major higher without a late-day sell-off ruining another effort.

For a change, the rally was broad and led by the Nasdaq with the Dow in hot pursuit. Today’s driver turned out to be corporate earnings with Harley-Davidson reporting a surprise for the fourth quarter. Traders focused on value in the tech sector and the financials, the latter of which have greatly benefited by a steady rise in bond yields.

Despite today’s advance, equities will likely remain in a holding pattern prior to Thursday’s CPI release. Added MarketWatch:

Wall Street is on edge watching how the Federal Reserve will react to the intensifying price pressures, with many investors eyeing Thursday’s consumer price index data release as a key event for markets this week. The inflation data is expected to show that prices rose 0.4% in January, for a 7.2% gain from one year ago, which would be the highest in almost 40 years.

10-year bond yields spiked above the crucial 1.95% level to end then session at 1.96% with the psychologically important 2% level in danger to be broken. All other maturities were higher across the board as well.

The US Dollar chopped around and closed marginally higher, while gold disregarded bond yields and a rising dollar and added 0.29% to solidify its position above the $1,800 level.

Most of today’s activity will not matter until the CPI is released on Thursday, the outcome of which will likely be determining future market direction. A better-than-expected reading will give the bulls more ammunition to ramp higher due to the then increasing likelihood of the Fed taking a more dovish stance towards future rate hikes. But the opposite will hold true as well.

1. Moving the markets

In an almost identical performance to Friday, the major indexes hugged their respective unchanged lines, before a mid-day breakout catapulted all 3 of them out of the red and into green.

Unfortunately, that bullish move did not hold, and we gagged into the close thus giving the bears the upper hand—again. The sell-off was fast and furious with the major indexes closing just about at the lows of the session, with only the Dow recovering to its unchanged line.

The tug-of-war between bulls and bears continued with traders being on edge about the latest earnings reports, as well as crucial US inflation data, with the January CPI due out on Thursday. Anxiety looms as to whether the December print will have worsened. Expectations are for a showing of 7.2% which, if true, would be the fastest gain since February 1982.

This week, we will be watching the latest report cards from about 70 S&P 500 companies. So far, we’ve seen a few earnings beats but also disappointing results from some of the heavyweights like Meta, PayPal and Netflix.

Bond yields went sideways and ended just about unchanged, while the US Dollar broke down and gave back all of Friday’s advance. That helped gold to continue its recent upswing with the precious metal gaining +0.80% for the day.

1. Moving the markets

Another hard-fought battle for superiority at the unchanged line was won by the bulls today. After spending the first half of the session aimlessly meandering, the major indexes found some footing, and up we went. The gains were modest, but broad, nonetheless.

As I posted yesterday, “bad news is good news,” which was confirmed today when ADP signaled the biggest monthly job loss, since the 2020 Covid lockdowns, as ZH described like this:

So, after December’s big surprise surge in employment (+807k) led by a jump in Services jobs (which was very much absent in the payrolls data for that month), expectations were for ADP to print a considerably lower +180k for January… but as we suspected it was a huge miss with ADP printing a terrible 301k drop in jobs…

For sure, this bodes poorly for Friday’s jobs report, but that may just be what bullish traders are counting on, namely bad news that would keep the Fed from executing their tightening policy, therefore keeping the easy money flowing and supporting the markets.

Two stocks with opposing results dominated the news. First, we saw Google’s Alphabet surge higher by +10% on blowout earnings, while PayPal gagged and lost an astonishing -25%, which was its worst day on record.  

Bond yields chopped around, with the 30-year closing just about unchanged. The US Dollar continued its losing streak for the third day and hovers at the unchanged level for the year.

Given current economic uncertainties, odds of a 0.5% interest rate hike in March are fading fast, as ZH pointed out. However, this has been the main driver to provide the bulls with the necessary ammunition for this most recent comeback.  

1. Moving the markets

The major indexes meandered for most of the day looking for direction and found it during the last hour, as the attempt to climb back from January’s sell-off continued. Traders’ focus seemed to have suddenly changed from the Fed towards the earnings season and those companies’ beating expectations while issuing improved forward guidance.

At least that was the meme for the day, which may last only until that moment in time when the Fed steps up to the plate and reconfirms its readiness to tighten monetary policy.

For sure, it was a session that lacked positives, as we learned that US Manufacturing weakened even more in January, which was followed by “Labor Insanity,” as ZH called it, which means that there are now a record 4.6 million more job openings than unemployed workers. Then investment powerhouse Goldman Sachs slashed its 2022 GDP forecast again, while warning of a “sharp deceleration in growth.”

The most shorted stocks were squeezed again for the third day in a row and contributed to the rebound. The US Dollar continued its puke-a-thon and slipped off its January 28^th highs, while Gold pumped and dumped but not only closed up but also reached its $1,800 level again.

And just maybe, we are seeing a repeat of the same old theme that says, ‘bad news is good news.’ In context to the above, it simply means that worsening economic data may sway the Fed from following through with their interest rate hiking agenda, thereby keeping their loose monetary policy intact.  

That’s the hope on Wall Street.

1. Moving the markets

It seemed like traders and computer algos alike tried to mitigate the poor results of a dismal month by pumping the major indexes during the last two sessions with support from month-end rebalancing.

For sure, some losses were cut, but the major indexes still suffered a beating with the Dow faring the best by only surrendering -3.3% as opposed to the S&P 500’s -5.3% and the Nasdaq’s -8.9%, its worst month since March 2020.

The Nasdaq is still in correction territory, 13% off its high, while the S&P 500 has dipped below this 10% threshold but recovered to currently being off its high by only 7%.

High volatility and huge volumes combined with panic selling and panic buying has now created an environment, whose direction is still in doubt. That is further emphasized by the big boys on Wall Street, some of which hold diametrically opposed opinions. For example, JP Morgan opined that “We Go Higher,” while Morgan Stanley counters “Sell Rallies.”

This total uncertainty has been reflected by the behavior of our Domestic Trend Tracking Index (TTI), which has chopped above and below its dividing line between bullish and bearish territory. After hanging around in negative territory for a few days, the index managed today to crawl back above it (section 3 below), as the bulls found some month-end support.

Now that January is over, I would not be surprised to see a resumption of the recent sell off, as none of its causes have been rectified, and this 2-day ramp merely represented a bounce from an oversold position and the effects of rebalancing.

Nevertheless, should this rebound continue, we will cautiously add the appropriate equity positions back into our portfolios.