/ January 08
Daily Briefing
*The stock market initially started in rally mode, but gains faded quickly as participants responded to the economic releases at 10:00 ET; treasury yields also shot higher as stocks declined in response to a stronger-than-expected ISM Services PMI reading for December and a November JOLTS - Job Openings Report that showed a noticeable increase in job openings;
*The ISM Services PMI also featured a notable pickup in the Prices Index (to 64.4% from 58.2%), which topped the 60.0% level for the first time since January 2024; this is obviously bad news on the inflation front, as progress seems to have stalled and further Fed rate cuts are seriously being questioned;
*SPY remains under selling pressure, as the technical support at the 50-DMA was easily broken in the intraday action, and there was little hope of recovery by the end of the session, when selling intensified; when all was said and done, SPY lost -1.13% on the day and remains in a technical limbo, with no obvious support level to provide a lift to prices; the only silver lining is that short-term oversold conditions should provide enough incentives for dip-buyers to surface; resistance stands at $603 (M-Trend), while the first serious level of support is at the $550 area (S1 & 200-DMA, -6.5%);
*The MACD signal has not deteriorated meaningfully, despite yesterday’s noticeable sell-off; it is still pointing to a short-term recovery;
*On another technical note, it was the break of the 50-DMA which caused prices to really start sliding; losses in the major indices were fairly muted up until this technical event; the Nasdaq Composite also dropped -1.9%;
*Returning to the inflation theme, one of the alternative indicators we are watching is called Truflation - a real-time indicator of US inflation; this indicator normally front runs the official headline number by 1-3 months, due to its “live” nature; fortunately, inflation has been on a downward path since early December, but official readings may as well show increases due to their lagged nature;
*There were outsized declines in mega cap names which had an outsized impact on index losses; Apple (AAPL, -1.1%), which was downgraded to Sell from Neutral at MoffettNathanson, and Tesla (TSLA, -4.1%), which was downgraded to Neutral from Buy at BofA Securities, were standouts in that respect;
*NVIDIA (NVDA, -6.2%) was another influential loser after trading up as much as +2.5% at its high following Jensen Huang's keynote address last night at the Consumer Electronics Show;
*Dollar Transaction Volume picked up, as selling interest appeared to be well founded - this is not something that we’d like to see going forward, as a volume increase on lower prices is bearish;
*The price action in NVDA and AAPL contributed to the -2.4% decline in the information technology sector (XLK), along with the loss in Microsoft (MSFT, -1.3%); TSLA shares weighed down the consumer discretionary sector (XLY, -2.2%), along with the move in Amazon.com (AMZN, -2.4%);
*As it stands right now, all sectors are showing a negative medium term trend and a hefty deterioration in short term technicals, especially the Basic Materials (XLB) sector;
*The only S&P 500 sectors that closed higher were energy (XLE, +1.1%) and health care (XLV, +0.6%); Healthcare (XLV) is the outlier here, as the correlation with long term treasuries is positive for XLV, being the 4’th most exposed sector to interest rates fluctuations (though not nearly comparable to Utilities, Real Estate and Staples);
*The real issue in yesterday’s data was the December ISM Services report, at 54.1% (versus 53% expected); it was a double-whammy for rate cut expectations in that the expansion in services sector activity accelerated while the prices index picked up noticeably;
*In reaction, the 10-yr yield settled at 4.68%, seven basis points higher than the day before;
*The carnage in long term bonds continues, with TLT losing another -1.13% on the day; the technical damage is extensive, despite bonds being very oversold at the moment and way below our stop-loss value of $89.6;