/ February 21
Daily Briefing
*Yesterday’s trade featured a negative bias, which is not entirely surprising in the context of the previous session’s all-time highs achievement; the major indices made a sharp move lower right out of the gate, driven by consolidation efforts and profit-taking especially in momentum-linked names; however, there was a steady climb off session lows in the afternoon trade, reflecting an ongoing inclination to buy on any weakness;
*The S&P 500 traded down as much as -1.0% and closed with a -0.4% decline; decliners had a 2-to-1 lead over advancers at the NYSE shortly after the open, but that margin narrowed to a 4-to-3 ratio by the close;
*We need to be aware that SPY is trading in a positive gamma regime from a market maker’s perspective; this translates into a range-trading motion from day to day, where dips are bought and rallies are sold, compressing week-to-week volatility; as such, it’s no surprise to see selling occur right after all time highs are reached; this also helps explain the intra-day buying; meanwhile, the overall price trend is bullish; resistance stands at $619 (M-Trend), while support is at the 50-DMA ($598);
*Despite yesterday’s sell-off, the bullish trend is alive and well, with the MACD signal maintaining a positive stance;
*Some attributed the risk-averse mood to disappointing fiscal Q1 and full-year guidance from Walmart (WMT, -6.5%); given Walmart’s size, it is a good proxy for the state of the average consumer and there are multiple data points suggesting the consumer is coming under more pressure as the economy slows;
*WMT was by far the worst performer out of the major S&P 500 stocks, with other names like META, AMZN and TSLA continuing to consolidate;
*Among sectors, consumer discretionary (XLY, -0.86%) and financials (XLF, -1.53%) were also weak, coming under selling pressure after their stellar recent runs; these sectors comprise 25% of the S&P 500 in terms of market capitalization;
*On the flip side, the energy sector (XLE, +0.91%) was the top performer, benefitting from rising oil prices ($72.49/bbl, +0.42, +0.6%);
*Weekly Initial Claims came in at 219K (vs. 217K expected); the key takeaway from the report is that it covers the period in which the household survey for the employment report is conducted, and with the continued low level of initial jobless claims, economists are apt to be expecting a fairly solid increase in February nonfarm payrolls — potentially translating into higher inflation;
*The 10-yr yield settled four basis points lower at 4.50% and the 2-yr yield was unchanged at 4.27%;
*TLT rose +0.37% continuing its consolidation pattern; the benchmark Treasuries ETF is still trading well below the key level of $89, yet bond remain part of our allocation this week, due to their inclusion in the Enterprise strategy;