Santa Baby, Volatility, CDC Shift, Apple $3T, CES, Trading Energy Stock APA

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 It was a “risk-on” Monday, in a low-volume environment, in a very polite sort of way.

U.S. equities rallied broadly, along with most of the commodity complex to include precious metals, as well as the long end of the U.S. Treasury yield curve. Only the U.S. dollar, which for the most part ran sideways, did not participate. Oddly, Bitcoin, or cryptocurrencies in general, rallied for most of the day on Monday,, and have sold off almost sharply overnight. Early risers will find domestic equity index futures trading modestly higher, and cryptos under some pressure.

The officially unofficial “Santa Claus Rally” period got off to an impressive start on Monday as the S&P 500 and Nasdaq Composite both gained 1.4% for the session with the S&P closing at an all-time record for the 69th time in 2021. The Nasdaq 100 led the way for large caps, at up 1.6% as all 11 S&P sector select SPDR ETFs closed in the green.
How broad was the action on Monday? The Energy ( ( XLE) ), Technology ( ( XLK) ), and REITs ( ( XLRE) ) SPDR ETFs all scored daily increases of more than 2%, while the Utilities ( ( XLU) ) finished the day in dead last, but still scored a 0.5% gain for the session.
Smaller-cap indexes got in on “the fun” as well. Both the S&P Midcap 400 and the S&P SmallCap 600 ran more than a full percentage point each until slowing as each neared potential resistance at their respective 50-day simple moving averages (SMAs). The Russell 2000, which has notably struggled, finally did manage to take that 200-day SMA that we spoke of 24 hours ago, but just by a smidge. Holding that line, for the Russell 2000 could have broader equity market implications as the week of our most famous fictional North Pole resident develops.

Trusting Santa?

Monday was actually the fourth consecutive session spent in the green for our major equity indexes. The S&P 500 alone is now up 4.9% since last Monday’s closing bell. Bloomberg News reports that through this past Thursday’s closing bell, the S&P 500 has moved by an average of 1.1% per day for the entire month of December, making this the fourth most volatile December since that incredible year of 1987.
Bloomberg also reports that the S&P 500 has averaged an increase of 1.3% over the seven-day “Santa Claus Rally” period since 1969. The period traditionally only includes the last five days of the old trading year plus the first two days of the new trading year. That makes this morning (Tuesday) “Day 2.” As traders know, I tend to break things down by weeks. I also tend to break eras down by trading models, as prior to the mid-2000s, decisions impacting price discovery were largely made by human beings quickly doing math in their heads at the point of sale, while increasingly after that such decisions have been made at much greater speeds and in much smaller individual trade size by algorithms.
That’s why I chose 2005 as a new starting point. This includes everything from the Great Financial Crisis to modern (arguable) advances made in the use of policy as a tool to finance government spending at low cost, as well as the actual official turn toward what was termed a “hybrid” market model at the NYSE in 2006, away from the two-sided open outcry auction.
Over those past 15 years, the S&P 500 has posted an increase for the last week of the trading year 67% of the time for an average increase of 0.88%. Most traders, by the way, and this is just my lone anecdotal opinion, do believe in Santa at this time of year. Monday’s returns alone, have already exceeded both my more recent study for the week, or Bloomberg’s longer reaching study for the entire seven days. Does that make for a more volatile rest of this week? It certainly could, and I expect that it will.
On Monday, trading volumes dried up significantly, which is normal. Winners beat losers at the NYSE by more than two to one, while winners just barely beat losers at the Nasdaq Market Site. Advancing volume comprised 65.6% of the NYSE composite on Monday, while advancing volume took just 54.1% of the Nasdaq composite for the session. Aggregate trading volume for the day landed 36% below the 50-day trading volume moving average for constituents to the S&P 500, and 27% below that line for the constituent names to the Nasdaq Composite.

Evolution

“The future ain’t what it used to be.”
– Baseball Hall of Famer Yogi Berra
The Atlanta Fed’s GDPNow model currently shows fourth-quarter GDP running at a 7.6% rate of growth (q/q, SAAR). Of course, this model presents only a snapshot, taking into account only reported results for macroeconomic data, and not projections. Hence, this model is not a projection, but more a reflection. Economists have been busy cutting back projections for both the rest of the fourth quarter as well as the first quarter and beyond in an attempt to “price in” the impacts of the spread of this Omicron variant of the SARS-CoV-2 coronavirus both globally and domestically.
As has been noted, many businesses, most notably the travel industry over the holiday weekend, and most significantly across service providers of all types, have become far less efficient and far less capable of selling what they offer to the public. Transactions involving goods have not slowed. Data released by Mastercard ( MA) SpendingPulse preliminarily showed holiday retail sales (ex-autos) up 8.5% year over year, and “online” sales up 11% when isolated. However, we also see numbers released by JPMorgan Chase ( JPM) that show data from credit cards and debit cards that imply depressed spending not just across the airlines at the holidays, which was due to supply issues, but also across restaurants and entertainment venues as demand and supply both wane in the face of growing infection rates. How many sporting events, and how many shows have been either delayed or canceled outright?
On Monday, the Centers for Disease Control and Prevention changed guidance for infected individuals to now isolate for only five days, conditional upon the clearing of symptoms and then wear a mask around others for an additional five days instead of isolating for a solid 10-day period. The idea is to get folks back to work sooner rather than later, and follows the lead of New York Governor Kathy Hochul who took a similar step only days ago for essential workers across health care, transportation, sanitation, groceries and more in an attempt to keep that state’s economy open.
Unfortunately, for those needing a negative test result in order to work or return to work, are standing in lines many hours long with no guarantee that they will even be tested as availability has become worse than scarce and turnaround on test results is taking longer than the illness for some folks rendering even tests taken quite useless.
The lack of available testing has become a national embarrassment as the states of New York and New Jersey see their numbers of newly infected individuals spike to their highest levels since the start of the pandemic nearly two years ago. The president, for his part, in apparent frustration, said “There’s no federal solution. This gets solved at the state level.” Yeah, thanks for coming in today, boss.

Business

Apple ( AAPL) closed its New York City bricks-and-mortar retail locations on Monday, impacting 16 stores. These stores join closed outlets in California, Florida, Georgia, Ohio, Texas, and the District of Columbia as the world’s greatest consumer electronics company tries to cope with the impacts of Omicron on its customers and staff.
Apple stock still ran 2.3% for the session based more on some scuttlebutt about a 2022 projected release of a virtual/augmented reality headset. For the first time in almost two weeks, Apple stands again on the precipice of a $3T market capitalization.
Quite definitely, in the face of current events, next week’s physical CES 2022 show in Las Vegas appears to still be “game on” despite the cancellations of a plethora of high-profile exhibitors. Investor’s Business Daily reports that Jamie Kaplan of the Consumer Technology Association said “We have 2,200 companies who want to have a show. So, we are having a show.”
On Monday, Intel’s ( INTC) Mobileye unit decided not to have a physical presence joining the likes of Amazon ( AMZN) , Meta Platforms ( FB) , General Motors ( GM) , Microsoft ( MSFT) and T-Mobile ( TMUS) as well as both the Waymo and Google units of Alphabet ( GOOGL) , all of which canceled last week. Other companies, including Advanced Micro Devices ( AMD) , AT&T ( T) , Nvidia ( NVDA) , Pinterest ( PINS) and Twitter ( TWTR) had already made the decision not to attend.
Currently, expectations are for attendance of 40K to 60K at the physical show, down from 171K for the last physical show in 2020.

Trading

Readers know well that I entered into a long position late last week in APA Corp.  ( APA) , the old Apache Oil, for seasonal reasons. Energy tends to be the strongest sector over the final week of the year, and APA at an average return of 3% over the past 15 years tends to be one of the sector’s top performers.
Well, the stock ran 7.3% on Monday as WTI Crude spiked to roughly $76 per barrel and took the entire sector with it. In addition, APA announced the signing of an agreement with the Egyptian government worth $3.5B to modernize, develop, explore and ultimately produce from existing facilities within the nation. APA is up another 1% overnight.
Given that this position was only intended to be a week-long rental in the first place, with the goal of earning 3%, and has already vastly outperformed my original idea, this is one of the rare occasions where I will use a stop order to protect a victory.
The 50-day SMA, currently at $27.07, would be, for me, such a spot. Allows for further appreciation, while protecting a profit of roughly 4%.

Economics (All Times Eastern)

08:55 – Redbook (Weekly): Last 16.4% y/y.
09:00 – Case-Shiller HPI (Oct): Expecting 18.6% y/y, Last 19.1% y/y.
09:00 – FHFA HPI (Oct): Expecting 0.8% m/m, Last 0.9% m/m.
10:00 – Richmond Fed Manufacturing Index (Dec): Expecting 10.2, Last 11.
16:30 – API Oil Inventories (Weekly): Last -3.67M.

The Fed (All Times Eastern)

No public appearances scheduled.

Today’s Earnings Highlights (Consensus EPS Expectations)

After the Close: ( CALM) (0.29)