Spectacular - The quality of being very impressive

The S&P closed at 2656.00 – So today’s circuit breakers are:
 
Level 1.  185.92 pts (7%) or 2470.08
Level 2.  345.28 pts (13% total) or 2310.72
Level 3.  531.12 pts (20% total) or 22124.88

 

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The SPECTACULARITY (the quality of being very impressive or dramatic ) of the moves - both up and down - is amazing......and btw - NOT unexpected at all.....The ‘correction’ that we have seen in the past week - a correction that took the S&P down 11.7% from its January highs in a few short days - while causing some ‘indigestion’ - was good – we needed to shake the trees a bit….and the 5.2% rally back in two days is exciting….BUT don’t be fooled - it ain’t over.....the move up and up for months on end while it felt good - needed to be tested, it needed to back off in order to ‘normalize’. 
 
Normalize - is to become ‘normal’ and normal is something that is usual and ordinary – (I guess the real question is – Is anything ‘normal’ any longer?)  So like interest rates that the FED is trying normalize - the stock mkt is also trying to ‘normalize’ after the beatdown that it suffered last week. The sudden collapses followed by surging advances followed by sudden collapses etc....is normal ‘thrashing’ mkt action after such a break across a range of technical data points.
 
The mkt has suffered a fair amount of technical damage - damage that can certainly be repaired but repair that will now take some time...and when prices collapse as quickly as they did last week - history tells us that there is usually a second shoe that will fall. Another period of sustained selling - so this ‘dead cat bounce’ that you witnessed on Friday and yesterday - while dramatic - is NOT the all clear signal! 
 
Yesterday’s action saw the mkt rally out of the gate and never look back...by mid-day - the Dow was up nearly 500 pts....while the S&P, Nasdaq and Russell were up 36, 144 & 32 pts respectively. By the end of the day - all of the indices - while still up on the day - were off their intraday highs - setting us up for what I think will be a down day today.....Not necessarily a dramatic down day - but a day where the trader types will try and ring the cash register after the two day dramatic surge - You see - after the collapse that we have seen - so many trader types will use the increase volatility to ‘Trade Stocks’ as they try to create additional alpha to make up for the losses they suffered....and this mentality will play right into mkt volatility. 
 
Perfect examples are some of the highlights from yesterday....BA + 3.3%, MMM +3.98%, DWDP + 3.4%, CAT +2%, APPLE +4%, AXP +3.25%,  UNH +2.14%  and GS +1.5%- all stocks that had gotten hugely ‘dislocated’ in the downturn BA – 11.7%, MMM -16%, DWDP -13%, CAT -17%, APPLE, -16%, AXP -12%, UNH – 14%, and GS -12%....Why? because they are large cap stocks and investors/traders can easily raise cash - and so these names tend to get hit hard as ‘panic’ builds....traders/investors will sell stocks that they can vs. selling what they really need to - until the mkts calm down....so just as these names got hammered - they were the ones to enjoy the company of buyers and rally back hard.....so don’t be surprised to see some of them come under pressure again today as traders whip it around....but again this creates opportunities for the longer - more discreet buyer.
 
Look – nothing has really changed, right?  The concerns that were around last week are still here this week…Rising global rates, inflationary concerns, bond yields approaching 3%, rising wages, changes in global monetary policies, massive US budgets and stimulative spending plans that are putting pressure on the dollar as the need for an increasing supply of bond offerings will surely cause bond prices to retreat sending yields higher…..Now this is not all bad…if the economy can digest it…and up until now – the sense was that it can – but now some are raising the caution ahead flag….and this is causing some investors to become less aggressive  - that does not mean that they are abandoning the mkts – it just means that they are getting a bit more selective in prices paid….that is until the mkt calm down….and that may not be until after the March FED meeting – where we expect the FED to raise rates by 25 bps. 
 
I guess the one thing that has changed since last week is the Short Vol Trade…. there are less people in that trade today than there were last week…so that might be a good thing
 
US futures are down 15 pts in early pre-mkt trading....as the whipsaw continues.... signs of firming inflation around the world appears to be the reason today….UK CPI was 3.0% vs. the expectation of 2.9% y/y and Japanese PPI at + 0.3% vs. the expected +0.2% m/m only serves to reintroduce the inflation saga that triggered the recent spike in volatility – which caught so many of the big guys with their pants down….
 
And tomorrow the US will report January CPI – exp of +0.3% m/m and Ex food and energy of +0.2%.  Y/Y CPI of 1.9%...and do not kid yourself…this report will be very important…. all eyes will be laser focused on the details….and while the y/y rate may look like 1.9% - BEWARE…. economists appear to be readying the 3 months ‘annualized rate’ and if the monthly rate comes in at +0.2% (expected) it will cause the 3-month annualized rate to be 2.3%.... (Do you see where this is going?)    So, any concerns that inflation is suddenly piercing 2% may cause the mkts to convulse again…and the test of the long term moving avg at 2540 is NOT OUT OF THE QUESTION……. I’m just sayin……. It’ ain’t over til the fat lady sings and I don’t hear her yet – do you? 
 
European mkts are all lower as they too look for their ‘Chi’ after the thrashing around…. the balance of earnings as well as macro data playing out over their today…. Nothing more dramatic other than those mkt trying to normalize as well.  FTSE + 0.05%, CAC 40 -0.49%, DAX -0.52%, EUROSTOXX -0.71%, SPAIN -0.99% and ITALY -1.02%. 
 
OIL is down 0.32 cts at $58.97/barrel…..as it bounced off of intermediate support at $57.66 on Thursday…..Oil is now down 12% off the January highs of $67/barrel….recall how that too had gotten way ahead of itself and while we kept discussing rising supplies and rising US production – the big investment banks kept telling us that oil was only going higher……Chock one up for the little guy…at the moment – Oil is stuck in the $57/$61 range…another leg down for stocks could cause oil to sell off – but do not forget the benefit of a weaker dollar is for oil and other commodities.
 
The dollar index is down 0.48 at 89.74 – yes up from the lows of 88.77 but under renewed pressure after Trump released his budgets for 2018 and 2019.  This budget will attempt to gut Obamacare (again), rollback Medicaid expansion and cut Medicare expenses….in favor of defense and ‘the wall’……I thought Mexico was paying for that?
 
US Futs are now down 15 pts as we move closer to the NY opening.  Intermediate support for the S&P is 2641….so if this weakness persists into the opening then we will test that level immediately.  If we fail to hold it and that sets us up for a test of the longer term 200 dma at 2540 – a level I fully expect us to test again……. if we test and hold that long term level then we will hear the fat lady sing….and if we test and fail –  well……let’s not go there right now……

Take Good Care

KP

Baked Italian Pork Cutlets 

 Simple, easy and always good. This is a quick dish that you serve up with sautéed spinach or steamed broccoli and a lg green salad.  Should take you no longer than 1 hr. 

Preheat oven to 350 degrees.
 
Rinse the pork cutlet - (off the bone) and pat dry.  Beat a couple of eggs and set aside.  Prepare a bowl of seasoned homemade breadcrumbs. Set aside.
 
Melt 1/2 stick of butter in frying pan.... Dip the pork in the egg wash and then dredge in the homemade breadcrumbs making sure to coat well on all sides.  When the butter sizzles place the cutlet in the pan and brown on both sides.  Remove and place in a baking dish.  Deglaze the pan with white wine.  Now add in some chicken broth and mix....
 
Pour this mixture over the cutlets - do not drown.  Just bathe -  and seal with tin foil.  Place in oven and let bake for 40 mins - (the steam will soften the cutlets).
 
Remove and serve on a warmed plate.  Accompany with the sautéed spinach (sauté with garlic and olive oil on the stove) season with s&p.   A large green salad and you are done.
 

  
Buon Appetito.