Where’s The Tantrum??

San Francisco, CA 

Seemingly, the markets go up every day (The Nasdaq 100 is now up 10 days in a row) and the tolerance for risk combined with the lopsided positioning gives off the notion that losing money in the markets is not an option anymore.  Getting through the Fed meeting/tapering event this week relatively unscathed has only boosted the collective investing crowds resolve to ensure that the seasonality, or the Santa Claus rally, will once again be delivered on schedule this year.

We aren’t here to ruin Christmas, especially after last year’s “non-Christmas” due to Covid.  But, in the spirit of Scrooge, there are a few observations we find concerning.  Let’s start with the lopsided sentiment as evidenced by the put/call ratio of just .64.  Hardly, a tell-tale sign but worth noting.  Also, the Daily Sentiment Indicator for the Nasdaq sits at a lofty 93 (out of 100)

Some other items to note:  The VIX, after trading a shade under 15 earlier in the week, formed a nice reversal on Thursday and is now up near 17 and slightly up for the week.  On a more fundamental note:  We saw oil reverse from its highs earlier this week, only to regain a $80-handle today after the OPEC meetings.  Copper has traded to a 3-week low this week and bond yields moved lower.  All three ignoring the move in equities.

Here in the US, earnings continue to impress, as we have moved into the small-cap portion of earnings season.  But in China, we continue to hear rumblings of property bond defaults, continued weak action in large cap technology, as evidenced by the 7% drop in KWEB, this week.  Also, there was an odd report this week out of Bloomberg which said China is urging its citizens to stock up on essentials for the winter and focus on less food waste in restaurants. 

Today, Friday, we received great Covid news from Pfizer, a robust jobs report, and more assurances from DC that an infrastructure bill is closer to being passed.  In response we saw bond yields tumble below 1.50% to 1.46%, gold climb over $1,800, and the Yen/$ catch a bid.  Hardly the response one would imagine.  Maybe the bonds are trying to tell us something (Powell loses his job soon?) or maybe it’s just a weird Friday.  Whatever the case, it has us on edge some after this incredible run higher.

The action in crypto remains stable, rather boring, and that’s a good thing.  We see this as a resting period before a move back through all-time highs hopefully while we carve up the Christmas goose (if you can find one)

“I have no doubt that we are in a raging mania in all assets.  I also have no doubt that I don’t have a clue when that’s gonna end.” – Stanley Druckenmiller, 11/4 at the Boston Investment Conference