Daily Note

We Don’t Need Another Hero

Dec 14, 2021

Thomas Thornton

The equity markets have been dropping into tomorrow’s Fed announcement and it’s actually a decent set up as the market believes the Fed will have a hawkish message and will double the size of the QE taper to $30 billion. The average stock in the US has seen substantial declines while the mega-cap stocks have started a topping process and that is when the leadership becomes even more narrow ending with Apple and Microsoft leading the upside. There’s just one problem believing the markets will bounce, it’s December, and putting on more risk this late in the year isn’t what a lot of money managers and their bosses are inclined to encourage.

Bounces or face rippers just “because” can happen and should happen as it’s part of a corrective process. There are still way too many people hoping and calling for a bounce. We shouldn’t discount the Covid case rise or Omicron even if it’s mild at this point. I am more concerned with politicians causing more economic damage with more restrictions and mandates. Don’t get me wrong, I’m not anti-vax or anti-mask, I just believe it could cause economic hesitation the more it’s discussed in the media with travel, shopping, etc.

If there is an equity bounce, you likely will see bonds sell-off with rates rising and that might put some pause into the bounce. That vicious circle would kick in with the 10 year moving over 1.60% – 1.70%. Today’s PPI number was huge and for those last week that discounted the inline yet high CPI this report should be more of a concern the PPI measures what companies are paying for goods, materials, labor that will soon be pushed to the consumer when it goes to the retail market. Expect margin compression/peak in the next few quarters before inflation starts to moderate based on supply chains returning to normal or even demand slowing.

I don’t want to be a hero trying to gauge the coming bounce with too many “what ifs” and would rather react when there is more clarity after the Fed.

I’m on Real Vision’s Daily Briefing today at 4 pm and have a raging headache therefore today’s note is a little thin with charts. You can watch it on YouTube at 4 pm or on Real Vision.

trade ideas

I’ve had an FDX long / DASH short pair trade and I am taking off the FDX long position ahead of earnings on Thursday. FDX is up 4% and the DASH short is down 28%. I am going to hold on today the DASH short a little longer. FDX has had either up or down 6% moves after earnings and I’d rather lock it in. ADBE also reports on Thursday and the short is working +11% and I am going to hold on through earnings as DOCU missed bad and it’s a comp for ADBE and if this 600 level breaks support is substantially lower. I am covering both NVDA and AMD shorts both with 12% gains. Clean gains. That’s all.