Daily Summary – September 29, 2021 - No Bounce for Big Tech

 Daily Summary – September 29, 2021 - No Bounce for Big Tech

Please excuse typos.  As a side note, after talking with some followers, I'm going to try to make this a little more digestible for those who are not as familiar with the markets, lingo, etc.  Feel free to leave your thoughts in the comments section, they are appreciated.  Also, don't discuss crypto much as I'm still not that familiar with it.

Also starting a small glossary to help.  

SPX = S&P 500 
Naz = Nasdaq Composite
NDX = Nasdaq 100 (100 largest stocks in the Naz)
RUT = Russell 2000 (smaller stocks) 
DMA = Daily Moving Average (the moving average over the given time period (20, 50, 100, 200 days normally)).
MACD = Moving Average Convergence Divergence (basically a trend indicator)
RSI = Relative Strength Index (basically what it sounds like)

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Major US equity indices made a couple of attempts at a bounce (once in the morning and once in the afternoon) but both were sold as growth names were red again today offsetting progress elsewhere and leaving the indexes little changed (even though as we'll see most sectors actually advanced today).  SPX managed a slight gain (less than two tenths) while Naz, NDX, and RUT were down around two tenths. 

Style box was a sea of red with growth getting the worst of it.

And Heisenberg Report gave us our update on volatility targeting flows which I had surmised added to the selloff yesterday.  That was in fact the case as according to Charlie McElligott $35.4B was "de-allocated" (that's how institutions "sell"), more than we saw last Monday.  That brings total selling over the past week to $52B from these firms.

The reason is likely that as HR notes 1 and 3 month trailing realized volatility is moving up, so we can expect things to be choppier until things settle down.  The good news is that CTA (momentum funds, etc.) flows remain "well above" trigger levels.

Major Market Technicals

With the muted action not much to update on (just see yesterday's summary for the technical conditions).

SPX Sector Flag

SPX sector flag was much improved as defensives took control today bouncing back from heavy selling over the past week (plus).  As we've noted utilities tied a record for consecutive decline yesterday with 14.  So of course they led today, the only sector up over 1%.  Staples, health care, and real estate were the next three.  They were the only other sectors up over seven tenths.  The rest were little changed. Only two sectors were red and they were both just marginally so (tech and materials).   

SPX Sector Technicals Rankings

These are NOT necessarily in the order that I like them for investment but how their underlying technical fundamentals stack up.  I do often buy calls though when I upgrade.  Going to keep playing with the groupings so bear with me.  Started to bold changes.  

Defensive sectors were in dire need of some green so today was timely but not nearly enough to change any technical positioning.  So no real changes here.

- Sectors with good/ok technicals not stretched/overbought, above most resistance.  

XLE - Energy - MACD go long, RSI positive, over all MA's.  

XLF - Financials - MACD go long, RSI neutral, above all MA's. 

XLY - Discretionary - MACD go long, RSI neutral, fell below 20-DMA. On watch for downgrade.

- Sectors with mediocre to poor technicals but above all/most resistance.

- Sectors that look to have bottomed with positive technicals but below significant resistance.

None.

- Sectors regrouping (negative technicals, short-term downtrend, long-term still positive/uptrend).

XLI - Industrials - MACD go short, RSI neutral, below multiple MA's.  

XLB - Materials - MACD go short, RSI negative, below multiple MA's.

XLK - Tech - MACD go short, RSI neutral, under multiple MA's. 

XLP - Staples - MACD go short, RSI neutral oversold, under multiple MA's.  

XLC - Communications - MACD go short, RSI positive divergence, under multiple MA's. 

XLV - Health care - MACD go short, RSI under to over 30, under multiple MA's. 

XLU - Utes -  MACD go short, RSI oversold, under multiple MA's. 

XLRE - Real Estate - MACD go short, RSI under to over 30, below multiple MA's. 

- Sectors in poor shape (and in intermediate or long term downtrends (so expect further weakness for a while)).

None.

Key Subsectors - SOX (semis), IYT (transp), XBI/IBB (bios), XHB (homebuilders), XRT (retail) 

Homebuilders up a half percent, but otherwise pretty weak.  Retail was flat while semi's and small bios (XBI) were down over 1%.  Transp down two thirds of a percent and large bios (IBB) around half percent.

Semi's now down to their 100-DMA and technical conditions have deteriorated markedly.

Breadth

No outperformance for breadth again today.  On NYSE volume was 48% positive and issues 57%.  Naz was 49% positive volume, issues 40%.  So pretty average, but not weak at least. 

Commodities/Currencies/Bonds

Bonds - Bonds were stronger (yields weaker) in the morning for the first time in a week which continued for shorter durations but longer ones reversed with yields moving a little higher.  2-year yields finished down one basis point at 0.30%, five years were down one basis point to 1.01%, while 10-years were up one basis point to 1.55% highest since mid-June and 30 years were up two basis points to 2.09%.

Dollar (DXY) -  One of the big stories today with a very strong move up two thirds of a percent to $94.37.  Now at the highest level since September 2020.  Daily and weekly technicals remain positive but overbought.

VIX -   Pulled back a little but remained firmly above 20 at 22.56.  

Crude (/CL) - After failing at $77 WTI yesterday with a relatively large "wick" (so rejection of higher prices), and with continued dollar strength, was down seven tenths to $74.76 WTI.  Technicals remain firmly positive on daily chart.  EIA report link below in US Data.

  

And I missed that the OPEC+ JTC (joint technical committee) was meeting today.  They see a 1.4mbd surplus in 2022 now in their baseline scenario down from 1.6mbd previously.  Off the record commentary from participants is that they will keep the 400kbd scheduled increase for November when they meet on Monday.

And the Dallas Fed released their quarterly energy survey.  Overall business activity remained high but decelerated from 53 to 44.3 (full table below).  Production though fell with the oil production index falling from 35.0 in the second quarter to 10.7 in the third, and the natural gas production index fell 16 points to 19.3.  Costs were up, supply chain issues were elevated, utilization rates increased, cap ex remained high, margins widened, employment improved as did wages.  Six-month out expectations fell from 71.9 to 58.0 remaining strongly positive and uncertainty also increased.  The forecast for WTI was $70 and Henry Hub nat gas $4.74 for YE2021.  Here was some commentary:

For a second quarter in a row, costs rose sharply. Among oilfield services firms, the index for input costs increased to 60.8, a record high and indicative of significant cost pressures. Only one of the 47 responding oilfield services firms reported lower input costs this quarter. Among E&P firms, the index for finding and development costs advanced from 28.3 in the second quarter to 33.0 in the third. Additionally, the index for lease operating expenses increased, from 23.4 to 29.4.

It is also taking longer for companies to receive inputs. Among oilfield services firms, the index for supplier delivery time increased from 14.0 in the second quarter to 26.7 in the third, the highest reading since the survey’s inception in 2016. The index measuring delays in deliveries increased to 26.7, also a record high. Similarly, among E&P firms, the index for supplier delivery time increased from 4.0 to 10.5.

The equipment utilization index of oilfield services firms rose from 42.0 in the second quarter to 47.8 in the third. Operating margins continued to widen, with the index remaining positive at 21.8. The index of prices received for services rose from 30.0 to 42.2.

Labor market indicators improved in the third quarter. The aggregate employment index posted a third consecutive positive reading, increasing from 9.9 to 14.0. Employment growth continues to be driven primarily by oilfield services firms. The employment index was 25.5 for services firms versus 8.4 for E&P firms. The aggregate employee hours index remained positive but dipped from 24.0 to 19.0. The aggregate wages and benefits index increased, from 20.6 to 30.3.

Six-month outlooks improved, with the index remaining positive but declining from 71.9 last quarter to 58.9. After two quarters of declining uncertainty, the uncertainty index moved up from -19.6 to 4.3, suggesting a slight rise in uncertainty this quarter.

On average, respondents expect a West Texas Intermediate (WTI) oil price of $70 per barrel by year-end 2021; responses ranged from $42 to $90 per barrel. Survey respondents expect Henry Hub natural gas prices of $4.74 per million British thermal units (MMBtu) at year-end. For reference, WTI spot prices averaged $72 per barrel during the survey collection period, and Henry Hub spot prices averaged $5.22 per MMBtu.

Data were collected Sept. 15–23, and 142 energy firms responded. Of the respondents, 95 were exploration and production firms and 47 were oilfield services firms.

In the special questions:

Plug in electrics - What percentage of all U.S. sales do you expect to be plug-in electric by 2030?

The most-selected response was 10‒19 percent, chosen by 34 percent of executives. Twenty-nine percent of executives said they expect 20‒29 percent of U.S. sales to be plug-in electric by 2030, while 22 percent said 0‒9 percent. Fourteen percent expect 30‒49 percent of all U.S. sales to be plug-in electric, and 1 percent expect sales to exceed 50 percent. For reference purposes, 2 percent of U.S. sales were plug-in electric in 2020, according to the International Energy Agency.

 Carbon credits - a majority of executives—87 percent—said their firms are not purchasing carbon credits and/or carbon offsets. Ten percent said they are purchasing neither but are considering purchasing one or both options. The remaining 3 percent said their firms are purchasing carbon credits and/or offsets. 

Covid - Slightly more than half of the executives—53 percent—said COVID-19 caused minor delays or disruptions in operations in the past quarter. Thirty percent noted no delays or disruptions, while 17 percent encountered significant delays or disruptions.

 Labor issues -  This question was only posed to executives at oil and gas support services firms. Slightly more than half of the executives—51 percent—said they had difficulty hiring workers over the past quarter. Twenty-four percent said they did not have difficulty. Another 24 percent stated they didn’t have any job openings this past quarter.   Of those who responded that their firm experienced difficulty hiring, 70 percent noted a lack of qualified applicants, followed by 39 percent who cited workers looking for more pay than is offered. 

The comments contained a few regarding Covid and the difficulty in getting workers and contractors to get vaccinated. There were also a couple on difficulty of getting financing, and several about regulations impeding things as would be expected.  Capital spending plans remained constrained in no small part due to the "political environment".

As Canadian crude will get a safer way to get more to the US starting Friday than the rail and trucks currently being used for a lot of it.

Nat Gas (/NG) - We noted the huge wick yesterday that could indicate a reversal, and that's just what we got with nat gas falling several percent to $5.46.  Has some minor support here.  Daily and weekly technicals are mixed with RSI going from over to under 70.

    

Referenced the Dallas Fed survey above.  Here was the chart of Henry Hub prices for YE 2021.

Gold (/GC) -  With the dollar that strong it's tough for gold and it was down a bit further today finishing at $1726.  In a clear downtrend.  Daily and weekly technicals remain negative.    

On a related noted, silver fell to a 52-week low today chalked up to the dollar strength and the softening in industrial growth due to the global power issues.  BBG.

Copper (/HG) - Also a victim of the strong dollar and growth concerns, down a half percent today falling to just above the 200-DMA.  Technicals remain negative daily chart for now.  

Coal - As the once left for dead commodity is now top of mind in Asia and Europe as nat gas supply runs short and Chinese buyers are hoovering whatever they can get their hands on as there's just not enough to go around.  BBG.

U.S. Data

Did reports on EIA and August pending home sales.  Links below.

US DoE Crude Oil Inventories (W/W) 24 Sep: 4.578M (Est -1.652M; Prev -3.481M) - Surprise Build This Week - Total Of 10.0mb Across All Products, Demand Remains Healthy - Details

https://seekingalpha.com/instablog/15085872-cbus-neil/5644917-us-doe-crude-oil-inventories-w-w-24-sep-4_578m-est-minus-1_652m-prev-minus-3_481m-surprise

US Pending Home Sales (M/M) Aug: 8.1% (est 1.3%; prevR -2.0%; prev -1.8%) - Housing market remains very strong with big increase of pending home sales in August - details

https://seekingalpha.com/instablog/15085872-cbus-neil/5644845-us-pending-home-sales-m-m-aug-8_1-percent-est-1_3-percent-prevr-minus-2_0-percent-prev-minus

Also didn't get a chance to get into the details of the weekly mortgage applications this morning which fell -1.1% last week after increasing 4.9% the week earlier.  Refis and purchases were both down -1% w/w.  Y/y refis are now up 0.4% while purchases remain with very tough comps down -12%.  Rates increasing later in the week brought down the numbers a bit.  High prices were also noted.

From the report:

“Increased optimism about the strength of the economy pushed Treasury yields higher following last week’s FOMC meeting. Mortgage rates in response rose across all loan types, with the benchmark 30- year fixed rate reaching its highest level since early July 2021,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “The increase in rates – mostly later in the week – led to a decrease in both purchase and refinance applications, with a prominent decline in government loan applications. Conventional loan applications increased, driven by a rise in conventional refinances. This was perhaps a sign that some borrowers reacted to higher rates and decided to refinance.”

Added Kan, “With home-price appreciation continuing to run hot, increasing more than 19 percent annually in July, applications for larger loan amounts continue to outpace lower-balance loans. The average loan size for a purchase application reached $410,000, its highest level since May 2021.”
...

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) increased to 3.10 percent from 3.03 percent, with points increasing to 0.34 from 0.30 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

 

Next 24

Tomorrow in the US we'll get the weekly Initial and Continuing Claims report and the third estimate for Q2 GDP. 

Internationally, we'll have quite a bit of data.  Highlights are August retail sales and industrial production out of S Korea and Japan, Sept Chinese PMI's, German Sept unemployment, and more European price data.

Overall

I said yesterday that "Congress is creating a high level of uncertainty that is clouding the picture.  I think it's pretty clear we're likely to get everything resolved in due time, it's just a question as to how quickly the market can get comfortable with that and a handle on the growth concerns that have popped back up."  Clearly Congress didn't do much on the former.  And the latter is starting to really pick up steam in terms of the potential for Q3 earnings which start in a couple of weeks.  Sherwin-Williams and Micron were the latest to cut their outlook.  That could present a headwind until we get into the season (which as we know often doesn't start out great anyway).  

I do think we're starting to move past the rise in rates as an issue per the analogy to February, but those other issues remain unresolved and I'm remaining cautious for now.

Misc.

Other random stuff.  

Repos now over $1.4T.

Which we indicated would be happening as we got closer to the debt ceiling date as money markets buy fewer short term bills and instead use the repo facilities.  BBG.

And causing short term rates to increase around the "drop dead" date noted by Secretary Yellen yesterday.

As the Democrats scramble to get on the same page to pass critical legislation.  So far they've been unable to do so.  WSJ.

   While on the infrastructure side...

And as to the debt limit...

Relatedly, Joe Manchin is proving to be a massive thorn in Democrat's side making it basically impossible to push the reconciliation bill through quickly enough to appease progressives (or include a debt ceiling increase).

To see more content, including summaries of most major U.S. economic reports and my morning and nightly updates go to https://seekingalpha.com/user/15085872/instablogs for more recent or https://sethiassociates.blogspot.com for the full history.