1. Moving the markets

The first couple of trading hours were hopeful with the Dow jumping ahead over 300 points indicating that recent volatility had subsided and traders assuming that we’d be well on our way to the much-anticipated Holiday finish.

Those hopes were dashed suddenly, when the bears took the upper hand and pounded the major indexes into oblivion with the Dow ending the session down over 460 points, which means the index covered a range of almost 800 points. The S&P 500 and Nasdaq followed suit with the latter suffering the worst loss.  

This moment of reality was caused by reports that the Omicron variant had arrived in the US. Of course, the MSM used that event for more fearmongering, but the real negative came from the Fed’s Williams:

“Clearly, it adds a lot of uncertainty to the outlook,” Mr. Williams said of the new variant. He later added that a risk with the new variant is that it “will continue that excess demand in the areas that don’t have capacity and will stall the recovery in the areas where we actually have the capacity.”

That, he said, would “mean a somewhat slower rebound overall” and “also does increase those inflationary pressures, in those areas that are in high demand.”

On other words, the dreaded “S” word, as in stagflation, has moved front and center again and sent equities on a southerly path. Bond yields reversed their recent northerly trend with the 30-year settling back below 1.79% last seen at the beginning of this year.

The US Dollar dipped and ripped but ended the session unchanged, which helped gold to stay in the green. After giving back some of its early gains, the precious metal managed to advance 0.38%.

Our Domestic Trend Tracking Index (TTI) is now rapidly approaching its trend line from above and is in clear danger of breaking it to the downside. Please see section 3 for more details.

1. Moving the markets

First, there was more fearmongering, as Moderna’s CEO raised doubts about the efficacy of the current batch of vaccines versus the omicron variant. That took the starch out of any bullish momentum and pulled the major indexes down.

Second, in a lesson to all economic hacks, Fed head Powell destroyed the long-held view that inflation is transitory by announcing the following:

“The economy is very strong and inflationary pressures are high and it is therefore appropriate, in my view, to consider wrapping up the taper of our asset purchases…perhaps a few months sooner,” Powell said, during testimony to the Senate Banking Committee.

Suddenly, the “transitory” inflation narrative, which I have countered all year long, came not only apart at the seams but as a total shock to traders and algos alike. Market reaction was fast and furious with the Dow dropping from barely being in the red to down 500 points within a minute, with the other indexes following suit.

In the end, the sell-off was broad and deep with no place to hide. Even gold, up some 1.25% early on, got hammered and closed lower by a moderate 0.48%, despite the 10-year bond yield sinking by 5.6 basis points to 1.44%.

The US Dollar resembled the chaotic activity of a penny stock by dumping, pumping and fading into the close.

We have now reached a point where the above narratives could very well continue and end this current bullish market cycle. As I posted before, the International TTI has at times been the canary in the coalmine by forecasting the fate of domestic equities. Please see the latest numbers in section 3 below.

Some trailing sell stops are close to being executed, and I believe that market action over the next few trading days will be indicative as to whether there will be a directional change or not.

Stay tuned.

1. Moving the markets

The Dow was the most volatile of the major indexes by giving up an early 380-point gain and retreating almost all the way back to the unchanged line. The sudden turnaround happened with lightning speed after Biden’s announcement that Covid lockdowns were not needed for now, despite MSM fearmongering about the latest omicron variant.

Added Fundstrat’s Tom Lee:

“As with the case for Beta and Delta variants, the ‘bark’ has proven worse than the bite in each of those precedent instances. The market carnage, in our view, will be short-lived and transitory.”

That’s all it took, and the bears had their way with a ramp-a-thon designed to make up for some of Friday’s losses. The mission succeeded, as the Nasdaq took the lead with a solid 1.88% comeback with marquee names like Microsoft, Amazon, and Apple evolving as the winners.  

Bond yields moved higher but slumped into the close with the 10-year ending at 1.52%. The US Dollar rode a roller coaster and rallied but only by a moderate 0.18% causing gold to tread water.

The ongoing battle between “growth” and “value” was clearly won by the former with RPG sporting a 1.95% gain, while the latter, as measured by RPV, gave back 0.17%.  

On deck this Friday will be the all-important jobs report with economists expecting optimistic gains of 581k new jobs added in November.

Hmm…