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Money Daily has been providing business and financial market news, views, and coverage on a nearly continuous basis since 2006. Complete archives are available at moneydaily.blogspot.com.
Money Daily has been providing business and financial market news, views, and coverage on a nearly continuous basis since 2006. Complete archives are available at moneydaily.blogspot.com.
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Friday, May 20, 2022, 8:54 am ET
Here's where US stocks sit, through Thursday, as the week draws to a close:
It's looking like US stocks will pile on another week of losses, making it eight straight for the Dow and NYSE, and seven in a row for the NASDAQ and S&P unless options traders ride to the rescue. US indices face some troubling realities going into Friday's options expiration day, and markets can be resilient. Traders continue to hunt bargains, and, like it or not, buy the dip mentality still has not be eviscerated from the trading regimen for more than a handful.
Hope springs eternal. The big score is just around the corner. At least that's what people like to think, even as we're getting close to the halfway point of 2022 and stocks have shown no signs of returning to the days of their glorious past.
That's why options exist and why today could be of importance. Not that this is a critical make-or-break moment for retirees, long-term holders, or even the best speculators in the business. For day traders and some of the heavy hitters on Wall Street, it's pretty large, because options are where the fast money resides. The volume of options trades often dwarfs that of the general market because at their heart, many people are just plain gamblers. They'd feel just as comfortable outside the walking circle at a race track as they would in front of a computer terminal, plugged into a favorite
The third Friday of every month used to be the big day for options trading, but that changed about 15 years ago, when regulators and exchanges saw fit to expand the options to just about any Friday of any month. At issue with this expansive attitude is liquidity. With the number of puts and calls limited only by imagination, there still needs to be enough volume in any tranche to provide adequate flow to ensure that options, premiums, discounts, and all that delta and gamma and implied volatility actually stand up against the actual prices of the underlying stocks they represent.
Without sufficient liquidity, there exists a distinct possibility for manipulation and gamesmanship. Stock prices are supposed to move options, not the other way around, but, with high frequency trading, lightning fast execution of orders and ultra-low commissions (often zero), that is what sometimes happens and it can cause quite unnatural swings in individual names or even entire indices, similar to how futures are often unreliable indicators.
Because stocks do not actually have to change hands until the strike date - and even then they're often unloaded without exercising - the money at play in options is substantially less than that which would apply to actual stock buys or sells. 100 shares of a stock going for $100 on the S&P would cost $10,000, but options offer the ability to play the game for much less, depending on the strike date, premium, or discount to the actual price. One could buy a 120 call that's three months out for probably less than $300, and the function of getting into the game on a shoestring is what gives options its appeal.
Of course, with options, if you guess wrong and a stock goes down when you bet it would go up, you can lose all of your capital, or at least a good portion of it. On the other hand, riches can multiply overnight. Imagine the windfall of anybody holding puts on Target expiring this week when it closed at 215 on Tuesday and opened at 163 on Wednesday. Boom! The exact opposite effect was exacted upon anybody holding calls from 165 all the way up to 240. They were instantly wiped out. Millions were made or lost on just one stock's options on just one day, demonstrating the power of simple up or down wagers.
Sophisticated traders use exotic strategies to increase or decrease their risk and/or reward, like ladders, straddles, and spreads, in much the same way a race track devotee would play exactas, trifectas, or the daily double.
There's big money and bigger egos at play in options, and, while the third Friday of any given month may not have as much punch as it did in years past, those dates still can pack a wallop.
That's what traders are looking at today. Nothing much else will matter other than price movements this Friday.
With US stocks set to open in less than an hour, a serious snapback, rip-your-face-off rally appears to be developing. Dow, NASDAQ and S&P futures are up 263, 174 and 42 points, respectively. Overnight, the NIKKEI added 336 points (1.73%) and the Hang Seng rose 596 (2.96%). European stock indices are up uniformly by nearly two percent. A 1000-point rally on the Dow or a 500-point gain on the NASDAQ cannot be ruled out.
Ladies and gentlemen, place your bets...
At the Close, Thursday, May 19, 2022:
Thursday, May 19, 2022, 9:20 am ET
Stocks were roundly routed on Wednesday as the reality of raging inflation, harmful government and central bank policies, and a tapped-out consumer became evident to all.
After Wal-Mart posted poor first quarter results on Tuesday, Target slapped a dollop of whipped cream and a cherry on top of the stagflation pie as the company posted one of the worst quarters in its history, earning $2.19 per share on expectations of $3.92. Gross margins fell from 30% to 25.7%, sending the company's net profit down more than 50 percent from the same period a year ago.
Reaction from investors was swift and punishing, dropping the share price of Target 24.93 percent, it's worst one-day performance since Black Monday, October 19, 1987. Wal-Mart, which took a 17% drubbing on Tuesday, followed through with another 6.79% drop on the day. Other major retailers, including Costo (COST, -61.07 (-12.45%)), Dollar Tree (DLTR, -22.55 (-14.42%)), and Dollar General (DG, -25.29 (-11.11%)) were among the biggest losers.
While the focus of the sell-off was on retailers, the general market suffered a major blow, pushing the Dow Jones Industrial Average to its lowest close of the year and worst percentage loss since June of 2020, as with the S&P, which was off more than four percent, sending the 500-stock index to an 18.20% loss on the year.
The NASDAQ suffered the sixth-worst point decline in its history, though traders in the tech-heavy index are becoming accustomed to large drops, Wednesday's session being the seventh time the NASDAQ has fallen by more than 400 points this year and the second time this month it lost more than 500 points (5/5, ?647.16, ?4.99%) in a single session. The NASDAQ is off 28.9% from its all-time high of 16,057.44 on November 19, 2021.
This mid-week carnage story does not end there, however. After the close Wednesday, internet infrastructure provider Cisco (CSCO) released fiscal third quarter results of 87 cents per share, a penny ahead of forecasts, but missed key revenue targets and issued negative guidance for the remainder of the year. The news sent share of Cisco down 13.12% lower in pre-market trading. Such a loss would extend the losses this year to nearly 33%.
As bad news spread globally, Japan's NIKKEI fell -508.36 points, or -1.89%, while the Hang Seng index dropped 523.60 points, a decline of -2.54%. European indices are all tracking lower by 2-2.5%.
US stock futures are deep in the red as the opening bell approaches.
Should markets fail to recover by Friday, it will mark the seventh straight week of declines for the S&P and NASDAQ, and the eighth consecutive week of losses on the Dow and NYSE Composite.
At the Close, Wednesday, May 18, 2022:
Wednesday, May 18, 2022, 8:40 am ET
As the market dithers over the next direction for stocks, big retailers are showing signs of stress. On Tuesday, Wal-Mart (WMT) missed and Home Depot (HD) exceeded expectations for first quarter results. Early Wednesday morning, Target (TGT) and Lowe's (LOW) both reported for the first quarter, with showing some slippage while Target's profit margins wrecked the retailer.
Lowe's beat, but same store sales fell four percent. The company, whose first quarter ended April 29, earned $3.51 per share, from $3.21 per share, a year earlier. Analysts had expected $3.22 for the quarter.
Lowe's management blamed a colder-than-normal Spring for the drop-off in same store sales, noting that most of their business comes from do-it-yourself (DIY) enthusiasts and cooler temperatures kept some from getting around to home repairs or projects. Despite the slow Spring, Lowe's reaffirmed guidance for the remainder of its fiscal 2022.
Over at Target, the picture wasn't quite as rosy as the company badly missed first quarter projections, sending shares down 22% in pre-market trading while delivering an inflation-related shock wave across the economic spectrum. Profit margin was the main culprit, as the retailer delivered solid top-line growth, grossing $25.17 billion in the first quarter of 2022. Gross margins fell from 30% to 25.7%, however, the company citing weak demand and increased costs due to higher transportation costs.
Target's total net profit fell roughly 52% to $1.01 billion. Excluding items, the company earned $2.19 per share, far below expectations of $3.92 per share.
The bleak results come a day after larger rival Wal-Mart missed estimates, cut its annual profit outlook and suffered a decline of nearly 17% on the day. It's becoming increasingly obvious that higher prices are slowing demand, a dicey situation for consumers and retailers alike.
While traders - or, the machines - ignored the company data and a slowing consumer as retail sales fell from an adjusted 1.4% gain in March to 0.9% in April, Tuesday, the stage is set for stocks to take a hit on Wednesday. Dow futures are down 180 points, while S&P and NASDAQ futures are off by 31 and 140 points, respectively.
Overnight, Asian stocks were mixed. Stock indices in Europe are all sporting losses in early trading, though the declines are minor, around a quarter of a percent overall.
Focus on Wednesday will be on the US consumer, a population that appears to be tapping out and the economy gets back to some degree of normalcy. Runaway inflation - mainly at the gas pump and grocery store - is putting a damper on consumer spending and causing many people to delay major purchases or projects. There are also signs of strain in housing, where rents are out of sight in many large cities and higher mortgage interest rates have slowed home-buying to a crawl in many markets.
The bear market roller-coaster ride continues as the major indices look to end seven straight weeks of declines on the Dow and NYSE Composite and a six-week losing streak on the S&P and NASDAQ. With options expiration on Friday, the remainder of the week promises be extremely volatile, characterized by wide swings in stocks up and down.
Tuesday's gains in hand, markets look to give back a portion on Wednesday, though how much remains a mystery. The likelihood for a washout remains high.
At the Close, Tuesday, May 17, 2022:
Tuesday, May 17, 2022, 9:05 am ET
Market follow through after Friday's big gains was notably absent on Monday. Outside of the NASDAQ, which was down all session, stocks wavered across the unchanged line, with the Dow spiking in the afternoon before closing with an ominous downdraft, wiping out close to 300 points worth of gains.
As Monday turned to Tuesday, Asian stocks were led by the Hang Seng, up 652.31 (+3.27%) on a technical oversold rally. It should amount to little as the Hong Kong bourse is already deep into bear territory, the bulls taking back a little of their losses.
Along with the Hang Seng, other indices attempting to rise from bear market status include the NASDAQ, Russell 2000, DAX, CAC, Shenzen, SSE, Kospi, amd the EuroStock 50. Holdouts are the FTSE, Dow, NIKKEI, and S&P 500, the latter two of that group dangerously close to the requisite textbook 20% decline.
Beyond the Ukraine conflict, oil and gas prices have risen of late to stunning levels, the US blaming refinery issues causing bottlenecks in the flow of production. Warnings of food shortages this summer are making rounds through the gloabl media complex as yet another scare affront is unleashed on the world's population.
Tuesday morning, retail giants Wal-Mart (WMT) and Home Depot (HD) reported first quarter earnings. The former missed and the latter beat with WMT down about six percent and HD up four in pre-market trading. US stock futures are largely discounting both, figuring it a tie.
At 8:30 am ET, the Census Department released April retail sales, showing an increase of 0.9 percent from the previous month, and 8.2 percent above April 2021. The figures are unadjusted for inflation, so the takeaway is that retail was lower for the month as March was revised upward to 1.4 percent from 0.5 percent. That too elicited little to no response in the futures trade.
With a little more than 30 minutes to the opening bell, it appears that "risk on" is the signal for the day, despite mixed signal from data and company reports. The operative condition is for a short term rally to sucker in more "buy the dip" bagholders before the next down leg.
It's the usual set-up by institutions, bidding stocks higher to then crush them lower with timed selling at key junctures. Retail investors are being savaged by institutions. Those holding passive positions in stocks are being wrecked on a regular basis as big money jerks stocks higher prior to the eventual rug-pull.
If it occurs, today's rally will confirm that nothing has changed, other than S&P 4000 being hailed as the new support line, despite the fact that the index closed below it twice last week, on Wednesday (3935.18) and Thursday (3930.08). Market exhaustion is a good explanation for making, then bouncing off, fresh lows last week. How long the rally will run - it could cease at any given moment, even today - is more a matter of price levels than market data. S&P 4200 appears the goal, with investors keeping the NASDAQ out of the picture, for now.
At the Close, Monday, May 16, 2022:
Sunday, May 15, 2022, 11:52 am ET
Friday's relief rally did little to change general market sentiment or the overall direction of stocks and the greater economy, as the major US indices suffered their latest in long strings of weekly losses. The Dow Industrials and NYSE Composite were lower for the seventh straight week while the S&P 500 and NASDAQ suffered their sixth consecutive weekly declines.
Dow Transports had the worst of it, registering a decline of nearly three percent on the week. The Transportation Average has been trading in rather herky-jerky fashion, but fell to its lowest level since last October. The other indices bottomed out at levels not seen in 14 months, Friday's rebound helping to ease the pain to some small degree, but the charts appear worrisome, with current prices well below both 50-and-200-day moving averages.
Entering the third week of May, there are sure to be shrieks of a bottom being put in, especially with options expiration on deck for Friday. Trading volume may be on the upswing as investors swallow some of the bullish kool-aid that will surely be passed around by the financial media. Even if stocks make gains in the coming week, stopping a six or seven-week losing streak really isn't anything to crow about, though the cackling would surely be boisterous.
On the downside, there's nothing preventing stocks from declining further into the abyss. Economic conditions have not changed, inflation is far from being tamed, and political leadership continues to fumble policy. The best that can be said about current conditions is that the markets have not crashed. Being that this recent downturn is the culmination and natural extension of 14 years of overarching easy monetary policy, it is possible that a one-day, event-driven crash is not in the set-up. Now in its fifth month, the extended bear market is likely to just drag on, gradually stripping away all the fake wealth created since the Great Financial Crisis of 2008 - and especially since 2020 - that was papered over with counterfeit FRNs, stock buybacks, ZIRP, maximum QE, special Fed programs, reverse REPOs, and federal government stimulus checks.
Stocks have not even reversed to pre-pandemic levels, so more downside is to be expected. It may take another 18 months to as long as four years before the ultimate bottom in stocks is discovered, the recent downturn just an appetizer on the menu of a bear market feast.
Treasury Yield Curve Rates:
As the tables above demonstrate, yields at the short end of the curve have been ramping higher, especially in one-month and three-month bills, in anticipation of the Fed's planned interest rate hikes of at least 50 basis points at the next two FOMC meetings (June 14-15 and July 26-27). There have been rumors and discussion about 75 basis point raises, though odds are currently running against such shock and awe policy that would surely trigger a sharp stock market decline.
Long-dated maturities were tamped down in the past week after reaching multi-year highs on May 6. Entertaining some of the Bank of Japan's yield curve control (YCC) mechanics, the Fed will continue to attempt allaying fears that the global economy faces total collapse by squelching long-term rates, though the key dynamic in the shape of the curve continues to be distorted and inverted along several fronts, especially 7s-10s and 20s-30s.
With 3-month bills already above one percent, the likelihood of it going to two percent by mid-summer is apparent. As the Fed punches rates higher over the course of the year, yields on long-dated notes and bonds should increase at a more gradual pace as buyers flock to short-term gains to be made in bills. By the end of the hiking cycle, it's very possible that 3-month bills could yield higher than 30-year bonds, especially if general economic conditions continue to deteriorate.
While there will be particular focus on the 10-year note and mortgage interest rates, the short end of the curve is where most of the action will be taking place. A full-blown recession (recall that 1Q GDP was -1.4%) may be confirmed as early as the end of July, a condition that appears to be well-grounded, being halfway through the second quarter with economies tightening further.
For all its supposed wisdom, the Fed increasingly appears the ultimate fools. Hiking rates into a recession is policy error 101. The worst of it is that they know exactly what they're doing, putting the global economy at the precipice of disaster. There's much more to come from the fixed-income market, a leading indicator for global direction.
WTI crude shot forward to its highest level since late March, closing out the week at $110.18/barrel, and with it, the US national average for regular unleaded gas at the pump surged to a record high of $4.47 a gallon, according to gasbuddy.com.
As usual, California leads the pack at an average price of $5.95, with second place going to Nevada, at $5.15. There are only two states averaging less than $4.00 per gallon, those being Oklahoma ($3.97) and Kansas ($3.98), primarily due to their proximity to the hub at Cushing, OK.
As Memorial Day weekend approaches, expect gas prices to continue creeping higher and creeping out American drivers, who are sure to suffer strokes not from the heat, but from sticker shock along the interstates, where fuel prices are going to be at gouging levels. If anything can wreck an economy, its the cost of transportation, and the US is getting it in spades, thanks in large part to the wrong-headedness of the people populating the nation's capitol.
Bogus Joe isn't the only culprit here. The US congress, the most overrated gaggle of political opportunists ever assembled, bears most of the blame for allowing policies that actually harm the general well-being. As summer progresses, there's high expectations for congress to do nothing to alleviate inflation, be it at the pump or the food counter.
Anybody looking to elected officials for any kind of help simply haven't been paying attention. They don't give a whit about you. All they care about is re-election, an endeavor that should be avoided at all costs by taxpayers and would-be voters. It would send a message oud and clear if voters stayed home in November, expressing the full weight of their disgust. And that's just for starters.
The price of fuel, and food, will remain high until the miscreants in Washington, DC are taught some lessons in justice and governance.
What happened to Bitcoin and the entire crypto market over the past week was nothing short of a disaster. Much of the carnage was tethered to the stable-coin TerraUSD (UST), and the alt-coin Terra (LUNA), as the stable-coin fell from its dollar peg, triggering a cascade of forced liquidation in UST, LUNA and Bitcoin while sending the entire crypto universe into a dizzying tailspin.
Bitcoin, the only crypto that was worth anything in any case, fell to a low of $25,401.05 on Thursday, its lowest level since Dec. 28, 2020. As Terra was slammed to earth, Bitcoin has since risen to a current reading of $29,903.36, due almost entirely to Friday's rally on the NASDAQ.
What's occurring in the crypto space is the result of a couple of dynamics, the first being the push by governments around the world to bury cryptos under blankets of regulation, but, the foremost reason that the promise of bitcoin and other digital currencies not tied to sovereign nations or central banks is being shattered is the willingness of digital creators to comply with heavy-handed legislation and rules.
Cryptos' original premise was for anonymity and a currency outside the mainstream debt-based fiat system. Neither of those goals have been met. Every transaction can be tracked and traced, thanks to the slavish behavior of exchanges like Coinbase, which is deservedly headed to bankruptcy on short notice. One of the largest exchanges on the planet, there's been nothing other than acceptance of every regulation and tax placed on cryptos at Coinbase, leading to desertion of users in the millions over the past number of months.
Anybody living in a developed nation and still believing in bitcoin or any other alt-coin, best read the following:
There's nothing the Federal Reserve hates more than competition (see gold and/or silver for reference) and bitcoin was seen as a significant threat. The Fed, with ample help from the likes of the exchange Gemini and investment behemoths, Blackrock and Citadel, the three of which have patently denied any involvement in the crash of TerraUSD (UST), which has suspended operations since May 9 and is currently posting a non-peg of 17 cents (it's supposed to peg at $1.00 US, hence the "stable coin" moniker) and parent Terra (LUNA).
While the background story of the demise of LUNA and UST may or may not hold true, what's of particular note is the quick denials of the three above-named parties, without any proof for or against their purported involvement. Generally speaking, conspiracy theories often end up conspiracy facts, and, in the upside-down, bizarre world to which we are currently subjected, claims of truth or falsity are usually attempts to point fingers in opposite directions.
The LUNA experience, which was priced at nearly $100 less than a month ago and is now settling at $0.0002236, is the first of probably many liquidations in the crypto space. The absolute power of the Federal Reserve and its cohorts will be on full display as cryptocurrencies are decimated over coming weeks, months, and years.
Previously, Money Daily had been a big supporter of bitcoin, though not of all cryptocurrencies. Since this obvious intervention from the outside and the continued joining at the hip of bitcoin and the NASDAQ since November, 2021, that is no longer the case. In case this sounds like investment advice, it's not. It is survival suggestion.
Bitcoin and other cryptos may serve purposes in places like Nigeria or Thailand, but expectations of cryptos becoming any kind of legal tender in "civilized" places any time soon are over the rainbow at this juncture.
Enthusiasts of precious metals as long term stores of value are not being swayed by recent thumping on the COMEX broad exchange, nor are they even slightly impressed with the dramatic decline of the past month, which has take gold down from $1986.40 to $1810.30 and silver from $26.15 per ounce to $21.13 at the close of business on Friday.
Rather, gold bugs and silver stackers have been stocking up on the metals at what they consider bargain-basement prices, though some are still holding off on purchasing more to enhance their horde of PMs, expecting everything - especially stocks and fiat currencies - to fall off the map.
With the value of the dollar versus other fiat currencies gaining by leaps and bounds Since the middle of January, gold and silver prices have been shunted lower, as would be expected. Arguing against the logic of dollar dominance, oil should also be pricing lower, though it is not. More on that topic below.
With the US$ now at a nearly 20-year high (104.47 on the DXY) and the expectation for it to move even higher, perhaps patience will be rewarded in the longer term.
When the US$ was reaching highs of 118 on the DXY in 2001-02, gold was just beginning its ascent from around $275-300 per ounce to record highs, finally topping out above $1900 in 2008, at the same time the US$ was dumped as low as 72 on the DXY. It bears notice to follow this inverse relationship while it plays out. The dollar may continue to rise for months, which would suppress precious metals even further. Indeed, when weighed against the likes of yen and euros, the dollar looks like a winner in the short term. Japan is a basket case of an economy, totally controlled by th BoJ, while Brussels seems to be following in Tokyo's footsteps, desperate to keep their currency a relevant contender.
Additionally, with bitcoin and cryptocurrencies under attack, precious metals appear to be the obvious choice for long term preservation of capital.
Gold price 04/24: $1,932.50
Silver price 04/24: $24.19
Here are the latest prices for common one ounce gold and silver items sold on eBay (numismatics excluded, shipping - often free - included):
The Single Ounce Silver Market Price Benchmark (SOSMPB) dropped decidedly over the past two weeks (last week's reading undiscernable due to a prolonged internet outage at Money Daily), to $36.22, a decline of $3.45 from the May 1 price of $39.67.
Well, that was quite a week. What's ahead may be even more challenging and awe-inspiring.
Good Luck and Be Prepared.
At the Close, Friday, May 13, 2022:
For the Week:
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