Airlines down, airlines up… traders are getting airsick

Stocks took a beating into the close yesterday as Omicron jitters got the best of an early morning rally.  Hurricane Omicron grew in strength and returned to the markets for a second bruising session.

N O T E W O R T H Y

A reversal of fortune.  If you haven’t figured it out yet, trading is a tricky business.  When I say Trading, I am referring to just that, trading.  I define traders as investors who seek short term profits by attempting to time market swings intra-day or over several days or weeks.  In contrast, investors seek long term wealth creation and income generation through rigorous portfolio management, research, and above all, patience.  As markets peeled off gains last Friday, traders sat at the ready looking for an opportunity to buy the dip, which is not really a strategy but, somehow has reaped some gains recently.  Monday came and markets were upbeat over calming, weekend words from vaccine providers.  In fact, on Monday the S&P500 opened higher than Friday’s close.  Traders would have done best if they bought within the first hour of trade when intraday prices hit session lows.  If they watched and waited too long, they would have chased the market and likely bought very near the daily high, which the market traded around for most of the afternoon session.  “No problem,” thought the trader, if the market continued higher on Tuesday, a sell would reap a decent short-term profit.  But it wasn’t to be.  COVID drugmakers changed their tones overnight, spooking markets before they even opened.  The smartest of traders would have sold around the open and taken their losses, realizing that one cannot predict the news tape nor how the market may react to news, especially during times of high volatility… like now. 

Stocks would sell off later in the session as Fed Chairman Jerome Powell made some hawkish statements in his Congressional testimony.  Was that another dip buying opportunity?  Traders who woke up and looked at futures markets yesterday morning would have seen an overnight rally as news from Africa filtered in… maybe the Omicron strain was not too bad, and we already kind-of knew that the Fed was going to raise interest rates next year.  Stocks rallied at the open, luring in hungry traders, likely sour that they missed the buying opportunity on Tuesday afternoon.  Then came news that the first Omicron case was detected in California.  The news caused markets to sell off, but many stocks were able to hold onto some gains.  Powell, on the Hill for a second day reiterated his inflation-fighting stance which caused the yield curve to flatten further.  Rising short-term yields spooked growth stock investors.  It didn’t help that growth stock superstar salesforce.com (CRM) reported disappointing earnings the night before and was already down by double digits.  The disappointing results initially caused the cloud stocks to sell off, but soon the disappointment spread to broader selling in tech, and ultimately into all growth stocks.  Was it another dip buying opportunity?  Maybe, but traders were nursing some serious losses and were not likely to have much of an appetite late in the session.  The ones that did suffered some real pain as stocks sold off aggressively into the close.  It was not just a difficult close in which the index gave up -1.18% on the day, but it was a painful intraday session which saw a roughly -3% decline from the daily highs through the close. 

This morning, I rose to news that Pfizer now thinks that its vaccine fairs pretty well against the Omicron-variant… in deep contrast to statements made just 2 days ago.  The early reports on the new strain appear to be pointing to weaker symptoms than the currently prevalent Delta-variant.  Stock futures have turned higher overnight (for now), led by recovery stocks like Carnival (CCL), Norwegian Cruise Lines (NCLH), Royal Caribbean (RCL), Delta Air Lines (DAL), United Airlines (UAL), Southwest Airlines (LUV), and American Airlines (AAL).  Wait, didn’t I just write about all those stocks trading down pre-market in my Tuesday morning note?  Traders who took their knocks late in yesterday’s session will wake up wishing that they had held on.  Traders who were wise enough to short the market earlier in yesterday’s session will wake up wishing that they covered their shorts in the minutes before yesterday’s close.  The VIX Index, which measures market volatility closed at 31.2 yesterday, its highest close since early February.  A VIX at 30 implies daily market swings of 1.86%… in either direction.  This is, in case you haven’t noticed, a volatile market… very tempting… for traders.  If you are an investor, I strongly suggest that you resist the urge to become a trader.  Measure your success in years, not minutes.  Rather than capitalizing on fear and greed, focus on diligence and patience.  You will come out the winner.

THE MARKETS

Stocks were pummeled into the close yesterday after giving up sizeable earlier gains on COVID fears.  The S&P500 dropped by -1.18%, the Dow Jones Industrial Average lost -1.34%, the Nasdaq Composite Index fell by -1.83%, the Russell 2000 sold off by -2.34%, and the S&P500 ESG Index erased -1.60%.  Bonds climbed and 10-year Treasury yields slipped by -4 basis points to 1.03%.  Cryptos fell by -1.71% and Bitcoin slipped by -0.19%.

NXT UP

• Initial Jobless Claims (Nov 27) is expected to have risen to 240k from last week’s 199k claims.
• Lots of market moving speakers today, including Treasury Secretary Janet Yellin, Raphael Bostic, Randal Quarles, and Mary Daly.
• This morning, Signet Jewelers and Dollar General beat on EPS and Sales.  After the close, we will hear from Marvell, DocuSign, Asana, Smartsheet, and Ulta Beauty.
• Apple is down in pre-market after it told suppliers that iPhone sales are softening.  Boeing is up pre-market on news that China may allow its 737 Max to return to service.