Monday, October 25, 2021

Morning Note: Don't Hold your Breath -- And -- Regime Shifts Are Tough!

Well, the very short-term SP500 technical setup, while not as bearish as it was bullish (as I pointed out in this video) heading into the month, doesn't look all that constructive as we close out the month.

60-day, 60-minute chart:

Bloomberg macro strategist Cameron Crise points out that automatic rebalancing schemes could weigh on stocks over the next few days:
"It’s already the final week of the month, and while megacap tech earnings will obviously be a focus for equity markets, consider also the possible impact of asset-allocator rebalancing.
After all, the stock market has enjoyed substantial gains in October even as bonds have struggled; the magnitude of S&P 500 outperformance over fixed income with a week to go in the month has been the largest since February.

The final week of that month saw the SPX drop 2.4%, albeit without the backdrop of a heavy corporate earnings calendar. But as Snap showed last week, cost-conscious firms may well decide that there’s no point advertising products that don’t exist. I had an experience of that over the weekend when a local retailer shrugged and said that our preferred brand of dishwasher wouldn’t be available until April at the earliest."

He also, nevertheless, hints that positive earnings could indeed overcome the net selling pressure of rebalancing. However he also points to something that's been on our minds heading into what is typically the best stretch of the year -- supply issues that lead to dramatically higher input costs for companies (if, that is, they can even get the inputs). 

All very short-term stuff, so don't hold your breath either way... 

Asian stocks were mixed overnight, with the markets we track split right down the middle in terms of red vs green.

Europe's mixed as well this morning, with 10 of the 19 bourses we follow in the red, as I type.

U.S. major averages are green to start the week: Dow up 33 points (0.10%), SP500 up 0.23%, SP500 equal weight 0.31%, Nasdaq 100 up 0.44%, Nasdaq Comp up 0.46%, Russell 2000 up 0.91%.

The VIX sits at 15.45, up 0.13%.

Oil futures are up 1.12%, gold's up 0.69%, silver's up 0.71%, copper futures are up 1.04% and the ag complex is up 0.76%.

The 10-year treasury is up (yield down) and the dollar is up 0.17%.

Led by ALB (lithium miner), uranium miners, base metals miners, MP (rare earth miner) and oil services stocks -- but dragged by Nokia, KRBN (carbon credits), Eurozone equities, AT&T and Viacom -- our core portfolio is up 0.43% to start the day.

Market regime shifts can be tough when they occur. Our view is that we're likely at the cusp of a major one (disinflation to inflation, growth to value, etc):

"Those most adept at profiting from a particular market are often least likely to notice when the game is over, and probably the least psychologically prepared to profit from the successor market."

"...the market has even crueler twists. It’s not sufficient that a player figure out when the game has changed. When a market shifts, it usually requires the investor to adopt a psychological stance anathema to the precepts upon which he built his earlier success."

 --Leon Levy

Have a great day!

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