[Chart courtesy of MarketWatch.com]

1. Moving the markets

The direction the futures markets take is not always an indication as to what will happen during the regular trading session. Such was the case last night, with the major indexes were down some -0.5%, but they opened in the green yet ended up meandering aimlessly all day.

Even Nasdaq trading was subdued with Big Tech earnings on deck, as well as a slew of reports from blue-chip companies, as we are heading to the center of the earnings season.

Volatility reigned supreme in some areas, as CNBC reported:

Wild swings resumed in heavily shorted stocks, including GameStop and AMC Entertainment, as enthusiastic retail investors active in chat rooms continued to bet against short-selling hedge funds. The volatility has some investors concerned about stocks becoming detached from fundamentals as speculation runs rampant.

As I have pounced on for years, fundamentals are no longer important, it is reckless and rampant speculation mixed with complacent and bubbly investor sentiment, all of which can potentially have a negative effect on the markets. But right now, “fear not,” seems to be the meme, “the Fed has our back and will do anything in their power to not let markets collapse.”  

In the meantime, the Fed began its two-day meeting and tomorrow’s policy statement will be analyzed down to every word to be sure that any potential market rescue efforts remain in place.

While I am writing this, Microsoft just reported blowout earnings, which should bode well for the direction of the Nasdaq tomorrow.

Despite the major indexes being flat today, the biggest 3-day short squeeze since March/April last year pushed the most-shorted stocks back to record highs, as ZH reported.

The US Dollar drifted lower, but Gold could not find the spark to use that weakness as a springboard for advances, so the precious metal remained stuck in its current trading range.

Oh well, tomorrow is another day.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

One look at the above chart tells you that an early excursion above the unchanged line came to a sudden halt, when the bottom dropped out with the major indexes doing their best imitation of a swan dive.

Even the Nasdaq, up early by +1.3% lost it all, crashed into the red, but managed to recover almost half of it, as the afternoon levitation pulled the major indexes out of the doldrums and towards green territory, with only the Dow failing to reach it.

Stimulus plan optimism fizzled somewhat after news that a bipartisan consortium was attempting to cut down the proposed $1.9 trillion figure. Adding to the sour mood were rising Covid cases and delays in vaccines supplies and distribution logistics.

Still, I have to wonder if something broke in the markets this morning, since there was no known major event that might have caused the indexes to react like this and the 10-year yield plummeting like shown here.  

Adding to this debacle were reports of investors having difficulty accessing their accounts with ZH summarizing it as follows:

• Robinhood is experiencing issues with crypto trading
• Vanguard tweeted it understands some clients are experiencing issues accessing their accounts
• TD Ameritrade says it is aware of an issue impacting a small number of clients on the thinkorswim platform, a company spokesperson said
• Charles Schwab announced it worked to resolve an issue
• There was a slowdown in Merrill logins earlier Monday, but the situation has been resolved, according to a Bank of America spokesperson
• E*Trade users reported problems Monday, according to Downdetector

Despite all that, the early trapdoor closed again, and the steady afternoon comeback pushed the S&P 500 up by +0.36%, a small margin, but large enough to register a new record.

However, contributing to today’s volatility was a company called GME, which experienced an insane short squeeze leaving both, shorts and longs, scratching their head and wondering what happened. This chart shows the ride.

In terms of earnings, CNBC summed it up like this:

Companies kicked off the earnings season on a strong note. Of the S&P 500 components that have already reported earnings, 73% have beaten on both sales and EPS, according to data from Bank of America. The firm said this is tracking similar to last quarter when the number of companies beating hit a record.

I have talked about the dangers of sudden volatility before, and I am sure we have not seen the last of it.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

After yesterday’s euphoric dash to all-time highs, the futures continued their relentless march higher, still boosted by optimism that a giant wave of fiscal spending will not only power corporate earnings but also revive, or rather rescue, economic growth.

However, that reckless enthusiasm was tempered somewhat during the regular session with the major indexes riding the range and closing just about unchanged. Despite clinging to the unchanged line, the Nasdaq and S&P managed to eke out another record.

The tech sector has been the big dog over the past couple of sessions, with the Nasdaq powering ahead by +0.55%, thereby clearly outperforming SmallCaps (IWO), which surrendered -0.81% on the day.

Of course, the vaccine story remains in the headlines:

Equities closed at record highs in the previous session as President Joe Biden was sworn into office, ushering in hope that an improved vaccine rollout will ensure a smoother and faster reopening. Some on Wall Street are optimistic that Biden’s plans to combat the pandemic will give the stock market a further boost through 2021.

On the economic front, things continue to look dicey in the employment arena. We learned that 900k Americans filed for first-time unemployment benefits last week, which is at 4-month highs. While that is below the expected 935k number, it is nevertheless a horrific stat.

It’s hard to say whether theses consistently bad numbers point to trouble on the horizon, but they pretty much assure us ongoing central bank interventions and more stimulus programs.

Tweeted my favorite analyst Sven Henrich:

And there you have it from a different viewpoint. It’s not the economy that determines market direction—it’s the creation of “free” money, also known as global liquidity, which powers the investment universe.