Hello there…
We are seeing improvement across the board this morning. After the week we just had, we will take it.
The VIX is pulling back below the rising trend we have been watching over the last two weeks. The OILU is pulling back, which is helping the credit situation. The FAZ is starting to roll over, a welcome sign for the banking space. And the FNGD looks ready to continue its downward trend.
These are all the things we want to see, especially on a Friday with options expiration and a market that once again looks ready to get going.
After a week of choppy, inflation-induced selling, this market is shaking it off. That will last until the next batch of data comes in suggesting prices are still climbing. But for now, it is party on.
Yesterday, the heavy lifting was done by a small group of names while the broader market weakened underneath. This morning, we are seeing that start to broaden out.
We marked those levels on the SPY and Russell charts yesterday. The Russell already cleared its level after a solid day. The Nasdaq is right at 715 and clearing it this morning. SPY still needs a little more to push above 743.
The last hurdle is seeing the IWM break this trend of lower highs…
The tech names are back in the pool. Intel (INTC) is once again atop our screamer list, up 77% over the last month and another 8.7% this week. Datadog (DDOG) remains in the two slot, having been there for over a week now.
SanDisk (SNDK), Qualcomm (QCOM), and Fortinet (FTNT) round out the top five. Micron (MU) and AMD are back on the list.
IBM is another one making the list this morning, screaming higher. The U.S. government announced a $2 billion investment in quantum computing, with IBM receiving $1 billion to build the country’s first dedicated quantum chip manufacturing facility.
We will be looking to sell some spreads on this name around the 245-250 level if we can get it.
Our crasher list is getting pretty thin on the S&P right now. That will be the next thing to watch. If it gets too thin, there is nobody to sell to on the other side of the trade, and that can often be the moment things start to turn around.
Smithfield Foods (SFD) is setting back up on the launchpad. Everybody knows Smithfield as a food company, but there is an energy story underneath this name that is not getting enough attention. They have a joint venture with Dominion to produce renewable natural gas from pig waste, which feeds into the pipeline network.
They are also sitting on a lot of land out West that is getting repriced as the enhanced geothermal push and data center relocation moves into Utah and Nevada. If that land gets revalued because of new power beneath it, that is upside not priced in at all.
SFD could hit some resistance around $27, but if it gets past that, you are looking at $30. Since the start of the year, every time this thing dips below its 100-day moving average, it has been a buy.
Cognizant Technology Solutions (CTSH) is the other chart I’m watching. It has an aggressive launch angle with room to its 50-day. This is the classic setup we like to see. Beaten down, starting to turn a corner, breaking key moving averages, and the hope is that it finds momentum and starts using those levels as support instead of getting rejected.
If you want to take a shot, buy multiple contracts, sell your first one at the 50-day around $56.30. Sell your second around $62.50. Hold the last one.
Gold and silver continue under pressure. If we see a major resolution on Hormuz over the weekend and oil pulls back significantly, gold miners would be the big beneficiaries as diesel costs come down, improving their margins.
On the insider front, we saw another buy of Tether into Gold.com. This is the largest digital dollar producer in the world, buying a gold distributor to help sell its gold tokens.
That is going to be a major theme over the next few years. Tether paid around $44.50 on their big purchase, and the stock is still under that level. If it dips below the 100-day, that’s when you add.
The dollar is still strengthening, so we have to watch it. But this is a market that is looking hopeful the worst is behind us with Iran, and wants to start putting the pieces back together. It still feels like more could go wrong than go right from where we are sitting, and any one headline could throw us lower.
This market is like musical chairs right now. If the music is playing, around we go. If it stops, make sure your ass finds a seat. We will be sure to send out a note if and when that happens.
Market outlook
Treasury yields pull back from multi-year highs with 10-year at 4.56% and 2-year flat at 4.08%
Microsoft (MSFT) in talks to supply Maia AI chips to Anthropic; deal would follow Microsoft’s $5B investment and Anthropic’s $30B Azure commitment
US awards $2B in CHIPS Act grants to nine quantum-computing firms in exchange for equity stakes; IBM gets $1B, RGTI & QBTS get $100M
Perpetua Resources (PPTA) wins $2.9B US loan to develop Stibnite mine; site to supply 35% of US antimony demand within six years
Stellantis (STLA) lays out $70B revamp under new CEO; targets nearly $7B in annual cost cuts by 2028
Russia plans new yuan bond issue following Putin trip to China; sale builds on growing Moscow-Beijing financial alignment
Momentum - Firming
The readings improved across the board overnight as oil and rate pressure continued to ease. All three indexes are positive on both the weekly trends and the daily momentum heading into Friday morning, the strongest set of numbers we’ve seen in over a week. Oil is down nearly 8% on WTI for the week and the MOVE dropped back below 80 on Thursday, which took some of the weight off that had been pressing on everything since the CPI and PPI prints.
The S&P is on track for its eighth straight weekly gain despite the swings. The daily flows have been volatile all week, but the weekly and monthly trends underneath kept building even when the surface looked shaky. The broad market daily reading swung from deeply negative Thursday evening to +37 this morning. Cap-weight side is running at +108. Crasher counts dropped sharply across all three indexes.
The rotation into consumer discretionary, healthcare, and utilities continued Thursday with nine of eleven sectors finishing green. Consumer defensive was the clear loser, down 1.76% on the back of Walmart’s inflation-driven guidance cut. The buying is broader than it’s been in weeks and it’s no longer just the mega caps holding things up.
Russell’s weekly trend is the strongest it’s looked since the inflation selloff. The anchor readings climbed to +22 on both sides with only 6 crashers across the entire index. Small caps went from the weakest part of this market two weeks ago to leading the recovery. Heading into the close today, the question is whether the market carries this into next week.
Insider Buying: Not Impressed (I like the Gold.com Buy)
The ratio of Buys to Sells: 1:41 ($19M to $770M)
Top Buy: $5.7M of Gold.com (GOLD) by 10% Owner Tether Global Investments
Top Sell: $317M of CVS Health Corp (CVS) by Director Larry Robbins
Top Insider Buys of Last 10 Days - Form 4 Documents
Market Liquidity
The bond volatility that dominated the early part of this week is cooling. The MOVE dropped back below 80, closing at 79.71, which gives the market some room heading into the weekend. But the issue that isn’t going away is the debt rolling over underneath. Roughly $1.35 trillion in non-financial corporate debt matures this year and must be refinanced at rates that have nearly doubled since issuance. Companies that locked in at 3% to 4% during the low-rate years are now staring at 6% to 7%. That gap hits cash flow, earnings, and credit quality across the board.
It’s not just corporate. Commercial real estate is facing nearly $900 billion in maturities this year with office vacancies still elevated and rates refusing to come down. Private credit funds are gating redemptions and watching defaults tick higher. The homebuilders getting crushed by the 30-year are the visible part. The refinancing wall building underneath is the part that develops slowly until something gives.
Dimon said Thursday that rates can easily go higher from here and credit spreads can widen. The consumer data this week made that more likely, not less. Redbook retail sales jumped 8.9%. Home Depot and Target both showed solid spending. That takes away the one argument the Fed might lean on to justify easing. Rate hike odds climbed to 41% for December. The bond market isn’t pricing in higher-for-longer anymore. It’s pricing in higher from here.
The MOVE below 80 is a reprieve for now. The refinancing math at these yield levels is not.
Stay positive.
Garrett Baldwin
