Tuesday, December 21, 2021

Morning Note: Lo and Behold -- And -- "Enjoy Being in the Minority"

Yesterday morning we credited the then equity market selloff to a dire headline related to COVID and a market-rattling one suggesting President Biden's bill was kaput.

Well, stocks are bouncing back so far this morning on, lo and behold, the following:

"Signs President Biden's economic agenda can be salvaged, paired with optimism vaccines can tame omicron, sent U.S. futures and global stocks higher."

With regard to Biden's plan, while politics are (to put it kindly/mildly) messy, when one understands the actors' constraints (more so than their preferences) one can somewhat accurately anticipate coming moves. 

Let's do a quick check of the technicals. 

Note first that headline risk right here remains huge! So take the following with a grain of salt...

The 60-minute SP500 chart looks decent:

Price is breaking out (to the upside) of a bullish falling wedge (top panel), while the momentum indicators (bottom two) look constructive.

Essentially the same for the 2-hour chart (although not quite as much in terms of the relative strength measure [bottom panel]):

The daily chart remains troubling:

The index needs to recapture its flattening 50-day moving average (red line in panel 1) and break above that triple top (red circles) with force sometime soon. Those negative divergences in the momentum indicators look threatening...

Now, be sure to read Part 3 of our year-end letter (posted last evening) for the long-term stuff that matters.

Asian equities mostly rallied overnight, with all but 2 of the 16 markets we track closing higher.

Europe's looking good this morning as well, with all but 2 of the 19 bourses we follow in the green, as I type.

US major averages are rising across the board to start the day: Dow up 371 points (1.04%), SP500 up 0.76%, SP500 Equal Weight up 1.47%, Nasdaq 100 up 0.29%, Nasdaq Comp up 0.58%, Russell 2000 up 2.06%. 

The VIX sits at 22.32, down 2.40%.

Oil futures are up 2.62%, gold's up 0.11%, silver's up 1.36%, copper futures are up 0.94% and the ag complex is up 0.68%.

The 10-year treasury is down (yield up) and the dollar is up 0.02%.

Led by oil services stocks, uranium miners, Viacom/CBS, solar stocks and base metals miners -- but dragged by consumer staples and healthcare stocks (our only down positions on the morning thus far) -- our core allocation is up 0.81% to start the session.

John J. Murphy's classic Technical Analysis of the Financial Markets is a must-read for anyone interested in understanding the technicals. In my view the following snippet to some degree applies to good portfolio managers across the board, whether or not technical analysis guides their approach:   

emphasis mine...
"The technician learns to be comfortable in a situation where market movement disagrees with the so-called conventional wisdom. A technician begins to enjoy being in the minority. He or she knows that eventually the reasons for market action will become common knowledge. It is just that the technician isn’t willing to wait for that added confirmation."

Have a great day!

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