Daily Summary – January 28, 2021

  Daily Summary – January 28, 2021

So, in pulling in y'day as I often do, couple of things to note. For one, I noted that if we are using last earnings season as an analog, we saw a dramatic three day pullback at the start, but that I wasn't sure we'd see that this go round due to various reasons. And while it's too early to call an all clear, markets did not terrible (RUT down a tenth) to pretty well (Naz, SPX, and NDX up between half and one percent led by the SPX) although all finished well off the highs fading starting around 1.45 pm. Style box reflected this bias to the large caps although mid-caps really performed best and the growth vs value was all over the place. 

Secondly, the "speculation" I noted yesterday about the wider impacts stemming from the multitude of short squeezes has become "fact" as documented by numerous reports. While restrictions on short selling were instituted that caused broad pullbacks in those stocks, which I think in part helped indices to their mostly positive finishes, I think there remains an overhang from the whole incident that is causing a lot of volatility.  Look no further than the 2-day chart of the RUT which looks like a roller coaster.  Of course, one has to take into account that stocks like Gamestop have grown to large positions in indices like the RUT so that is clearly not helping use of them as a broader indicator of market action. Nevertheless, that green line is the 20-day MA so that is clearly acting as solid support so far.

But, in any event, this whole short selling thing will go where it goes, and hedge funds and other market makers will adjust just as they did when the short vol trade blew up almost exactly three years ago. Hopefully we don't have to go through that sort of drawdown as things get unwound. But that's exactly the type of thing that can happen in a big deleveraging as it starts to feed on itself, so be forewarned. 

Moving on to more normal talk, technically not much changed from y'day except the SPX was able to push back into its channel, although was not able to hold the top of its 20-day MA so remains just below. 

The SPX sector flag much nicer to look at today than recent days with all 11 sectors green led by cyclicals with fins, materials, and inds three of the top 4 and energy not far behind. In all 7 sectors finished up at least 1%, very solid. Discr, RE, staples, and tech all finished clustered up just under half percent. 

In key subsectors, semi's were able to bounce back but like the SPX finished just under their 20-day MA. Transp in the same situation but with its 50-day. XBI underperformed and pulled back to its 20-day MA.  Due to the short selling restrictions XRT was down 9% but still remains well above its 20-day MA.

I'm not sure how much breadth cont'd to be impacted by the Reddit crowd but it cont's to look weird. NYSE had only 51% of volume positive but 68% of issues.  So issues was what you'd expect to see but volume was really poor for an up 1% day SPX.  Naz on the other hand had 71% positive volume but only 54% issues.  So it's the reverse.  Again, I'm pausing interpreting breadth until things stabilize a bit. 

Outside of equities, a little more action today as VIX sold off but remained above 30, joined in the red by crude, gold, dollar, nat gas, and long bonds.  First three all reversed from green starts while nat gas reversed somewhat from steep losses to milder ones. 10-yr yield pushed back over its 20-day MA (barely). Gold interesting after silver was up 8% today (Reddit).  I haven't shown the crude chart in a while but it's in a channel like the major indices that it's testing the bottom of (which is also the 20-day MA). The technicals are not in great shape, so we'll see if it holds. Copper was able to finish green.

Overnight we'll get quite a bit of Asian data followed by some from Europe. In the US we'll see PCE, personal income and spending, Chicago PMI, pending home sales, and UoM consumer sentiment.  A little less heavy day for earnings but still 6 over $100B market cap (LLY, CVX, SAP, HON, CHRT, CAT), 58 total

Overall, as I indicated I thought would be the case y'day, markets are proving resilient through what is a relatively tumultuous period between earnings, this short squeeze situation, etc. We'll see if it can hold up but one nice is thing is that sentiment seems to be finally dialing back as seen by AAII today which showed more bears than bulls for the first time in months.  Still think at some point we're getting that 5-7% pullback but as always calling the timing is the tricky part.