Hello – due to the holiday we are going to post this week’s recap a day early!
The week that was…
Pre-holiday trading tends to skew positive with light volume. This past week was mostly that, although a bit less of a move to the upside than normal; but that can be excused considering the tremendous run up post election. Aside from Wednesday there was not a move either up or down greater than 0.25% in the S&P 500 this past week; and Wednesday’s move was only 0.36%.
“The word of the day is ‘holiday,’ which has been settling in as a theme all week,” said Frank Davis, head of sales and trading at LEK Securities. “There has been a slowdown in trading volume and a slowdown in volatility, and we’ve also had a pretty good move since the election, so we’re digesting that move, which is healthy.”
This is a great chart via Bespoke of daily volatility by day of the year since 1928. You can see most of the year is pretty consistent until a jump begins in September & October (October being famous for some historic moves)… then you go back to “normal” in November, and then the drop off to the low end of the range (and below) in December. So not only does volume drop off…so does intraday volatility!
There was a lot of chatter about the implications of DOW 20K this week, but it really is nothing but a nice round number – 19,999 or 20,001 are just as meaningless. Humans just like round numbers.
“With the DJIA flirting with the 20,000 level, we are reminded that millennium and century marks on major stock indices have traditionally acted like rusty doors, requiring several attempts before finally swinging open,” said Sam Stovall, CFRA’s chief investment strategist, in a note. “Therefore, it should come as no surprise if stocks take a breather to digest recent gains,” he said.
Economic news was not the type that really moved the market so no reason to rehash those data points (durable goods, existing home sales, third quarter GDP revision up from 3.2% to 3.5%, etc). It is worth noting new home sales rose to their 2nd highest level since 2008.
According to TrimTabs Investment Research, U.S. stock ETFs have received $97.6 billion in inflows between Nov. 8 and Dec. 15. By itself, that’s about 150% of the $61.5 billion that went into the category over all of 2015.
David Santschi, chief executive officer at TrimTabs, said the “stampede” into the funds “has been nothing short of breathtaking.” He added, “one has to wonder who’s left to buy.” Santschi said the inflows could be a warning sign, noting that “ETF flows tend to be a good contrary indicator when they become extreme, so the buying frenzy doesn’t bode well for U.S. equities.”
Financials continue to lead the way in this post election move; continue to watch these charts for new breakouts.
Here is a 5 day “intraday” chart of the S&P 500 via Doug Short.
The week ahead…
Markets are closed on Monday and one would not be surprised to see the same low volatility, drip drop action the remainder of the week. Perhaps we’ve had enough consolidation in the past 2 weeks for bulls to give the bears one more spanking as we exit 2016! Economic data is again sparse and non market moving; we’ll get more interesting data when we return for the new year.
Good ole Katie Stockton continues to be negative short term…she said this the prior week:
Katie Stockton, chief technical strategist at BTIG, believes that stocks are showing signs of exhaustion. “We would look for a significant pullback to unfold next week as short-term overbought conditions take their toll,” she said in a note.
When that didn’t happen she said this in the past week:
“Short-term overbought conditions are likely to lead to a pullback in the weeks ahead,” wrote Katie Stockton, chief technical strategist at BTIG.
Markets certainly could fall – no one knows – but overbought can be taken care of by time (sideways action with little movement) not just price (i.e. a drop).
Short term: A second week in a row of consolidating but in an even tighter range; the S&P 500 continues to outperform the NASDAQ due to the lag in big cap tech and healthcare which are the type of companies far more prevalent in the NASDAQ. It would be nice to see the 20 day moving average catch up to price on the S&P 500 chart.
The Russell 2000 also consolidated for a second week; this is a prime example of what was noted above – this index is consolidating through time, not a pullback of any significant sort. The price was WAY ahead of the 20 day moving average 2 weeks ago; now we’ve had 2 weeks of sideways action which allowed the moving average to catch up to the price.
The NYSE McClellan Oscillator is in good shape; mildly positive and not near overbought.
Long term: Here are 5 year charts on the major indexes; for those with this sort of time frame it is going to take a lot of work to get bearish.
Charts of interest:
A massive week for Fred’s (FRED) as it was announced they would acquire 865 stores from Rite-Aid & Walgreen so those 2 companies would not face anti trust issues in their merger.
The transaction would more than double the company’s size. Fred’s had 650 stores as of Oct. 29—about half had pharmacies—and had market capitalization of about $400 million before the deal was announced. Walgreens-Rite Aid would be left with about 12,000 stores. The transaction would give the company a broader reach but it would still be dwarfed by the Walgreens-Rite Aid as well as CVS Health Inc., which has 9,600 pharmacies.
Blackberry (BBRY) shares initially rose Tuesday on an upside earnings surprise; and then closed near the lows of the day – bad action. The rest of the week was not so good for the company. The real question is who the heck still owns a Blackberry!
If you are into the whole tiny biotech “lottery picks”, this week was the one for Conatus Pharmaceuticals (CNAT) which rocketed 141% Tuesday after the company late Monday announced a licensing and collaboration agreement with Novartis AG for a liver disease treatment.
Red Hat’s (RHT) stock plunged 14% Thursday after the software company gave a weaker-than-expected outlook and said Chief Financial Officer Frank Calderoni is stepping down to accept a chief executive job at another company.
It really wouldn’t be a proper week without a brick & mortar company falling over itself, would it? Bed Bath & Beyond (BBY) dropped 9.2% Thursday after the retailer’s disappointing earnings and outlook late Wednesday.
Have a great week and we’ll see you back here next Sunday!