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My Takeaways and Observations

Originally published Dec. 14 at 5:42 p.m. EDT

"Everyone here likes the bounce."
-- President-elect Donald Trump (said in a meeting Thursday at Trump Tower with tech executives)

A good day for the ursine crowd but not so good for the bullish cabal as they had a bad day--for a change. (Yes, I am writing/talking my book!)
 
There was a lot of collateral damage from the Fed's rate rise.
  • It is important to note that the euro briefly fell below $1.05, the lowest since March 2015. If this trend continues, multi-national profits will be shattered.
  • Though in line with expectations, the Fed move tanked bonds (moving the yield on the 10-year U.S. note up by 10 basis points to 2.58%). (My Generational Bottom in Yields call is getting more powerful on a daily basis).
  • Crude got hit badly, down $2 a barrel.
  • Gold slammed again.
  • And, stocks tanked--with a classic buy-the-rumor-sell-the-news event Thursday afternoon.
Peter Boockvar on the Fed's move, here and here.
 
I enjoyed participating in a segment this morning on Bloomberg's " Market Surveillance ." We covered a range of topics.
 
Thursday, the Russell Index continued its weak and absolute relative performance--a constant refrain of mine over the last week or so. That said I took off our Trade of the Week for a nice gain. Remember, trades are short-term rentals and not long-term leases.
 
However, I remain very committed to being short the Russell Index here and here. (Good technical analysis of Russell by Robert "Not Rita" Moreno in Columnist Conversation.)
 
Metlife ( MET - Get Report) and Lincoln National ( LNC - Get Report) back on the Best Ideas List (short).

Danielle on the Fed--a subject she is well briefed in.
 
China risk--for auto manufacturers and Apple ( AAPL - Get Report) --is under-priced and under-appreciated. Lo and behold, we didn't have to wait!
 
I aggressively shorted the post-Fed ramp and covered most of what I shorted for a very nice trading day (for a change!)
 
Unconfirmed speculation of a Mondelez takeover (from a German newspaper). I would prefer Campbell Soup ( CPB - Get Report) , which I increased in size Thursday.
 
My two bits on the Trump tech meeting: I found it nothing more than a superficial and perfunctory photo opportunity. Real tech regulation and strategy making are complicated, only made through thoughtful due diligence, research and hard work. Excuse my reaction, but I continue to find this sort of BS meeting as disquieting. I am hopeful policy in the new administration is more pithy.
 
Mr. Market rallied post-Fed move, traded sideways, sold off small and then sold off larger. The swing from high to low was 30 S&P 500 handles.
  • The U.S. dollar moved dramatically higher.
  • Crude fell by over $2 to under $51.
  • Gold fell by $15 an ounce and broke through $1,150. I sold my tag end SPDR Gold Trust ETF (GLD - Get Report) long. (Boca Biff had a huge margin call yesterday and was forced to take massive losses. He has not returned my phone calls.)
  • Ag commodities: wheat and corn up a penny, soybeans down $0.03 and oats down $0.04.
  • Lumber was flat.
  • Bond prices were schmeissed. The 10-year U.S. note yield rose by 8 basis points to 2.57%. The long bond by 4 bps to 3.19%.
  • The 2s/10s spread flattened to 128 basis points.
  • Municipals fell but closed-end muni bond funds were bid for.
  • The high-yield bond market was junky.
  • Blackstone/GSO Strategic Credit Fund (BGB - Get Report) fell by $0.06.
  • Banks ripped on the Fed announcement and then failed. I shorted and covered the group aggressively after the Fed.
  • Insurance stocks were lower-- (MET - Get Report) and (LNC - Get Report) new Best Ideas (short).
  • Brokerages, by contrast, were strong during the trading session.
  • Auto stocks were lower, particularly General Motors (GM - Get Report) , because of talk of a trade issue with China.
  • Energy stocks got creamed as the commodity dropped by two beaners.
  • Biotech slightly higher though new low in Valeant Pharmaceuticals International (VRX) (the continued object of my disaffection) and lower Allergan (AGN - Get Report) and Merck (MCK - Get Report) . Gilead Sciences (GILD - Get Report) and Celgene (CELG - Get Report) rose. Speculative biotech like Aerie Pharmaceuticals (AERI - Get Report) , etc., was fine.
  • Retail was broadly lower. Downside features were Home Depot (HD - Get Report) , Nordstrom (JWN - Get Report) , Lowe's (LOW - Get Report) , Macy's (M - Get Report) , Best Buy (BBY - Get Report) and Nike (NKE - Get Report) . Market Retail Vectors ETF (RTH - Get Report) , a recent short and hedge against JCPenney (JCP - Get Report) (I am bidding $9.50).
  • Old tech was mixed. I shorted more International Business Machines (IBM - Get Report) .
  • A firming dollar smothered multinational, consumer staples like Procter & Gamble (PG - Get Report) , (CPB - Get Report) , Kimberly Clark (KMB - Get Report) and Coca-Cola (KO - Get Report) . I added to (CPB - Get Report) .
  • Ag equipment got hit led by short Caterpillar (CAT - Get Report) and Deere (DE - Get Report) .
  • Media better, Disney (DIS - Get Report) up.
  • (T)FANG reversed recent strength, though Alphabet (GOOGL - Get Report) traded slightly higher.
  • In individual stocks: profit taking hit DuPont (DD - Get Report) . Oaktree Capital (OAK - Get Report) leaves continue to fall of the limbs.
Here are some value-added columns on our site from our contributors:

1. Jim "El Capitan" Cramer thinks things are getting back to normal. (I am less certain that things are "normal"!)
2. Gary "The Sun Will Come Out To" Morrow reviews the technical condition of one of my favs, Campbell Soup.
3. Rev Shark on one less bull market teammate.
4. Chief Jay So Many on the Fed.
5. Chris "Not the Designer" Versace on the Fed's first- or second-inning of rate rises.
 
Positions --
Long: SDS small, HIG large, DD, CPB large, JCP large, OAK
Short: SPY small, IWM, MET small, LNC small, CAT small, DIS small, RTH small
 
Position: See above.

Some Kinks and Divergences in the Market's Armor

Originally published Dec. 13 at 7:02 a.m. EDT

I long have felt that that divergences, especially in breadth, near or at the end of market advances often indicate that the end of an upside move is close at hand.

That observation and others could apply to the current move and signal some near-term weakness:

  • Over the last two to three days breadth has turned slightly negative as the averages made all-time highs.
  • Investor sentiment and swift changes in psychology are often indications of market exhaustion. The CBOE 10-day put/call ratio is at the lowest level since July (0.86). The five-day put/call ratio is even lower (at 0.80) and more worrisome. Over the last five years, a five-day put/call low has led market pullbacks that have continued for two to three weeks. One good example was in late December 2014, when the ratio hit 0.82; within two days a two-week market downdraft occurred. This year, in mid-July, the five-day put/call ratio fell all the way down to 0.76; another two-week decline started within three days.
  • Measured moves--a reversal advance, correction/consolidation and continuation advance--in a host of stocks are also signposts of a potential for a consolidation/decline. In the Dow Jones Industrial Average there are seven stocks--Disney (DIS - Get Report) , JPMorgan Chase (JPM - Get Report) , Goldman Sachs (GS - Get Report) , AT&T (T - Get Report) , Travelers (TRV - Get Report) , UnitedHealth (UNH - Get Report) and 3M (MMM - Get Report) --that have experienced measured moves since the Trump election victory.

Bottom Line

These observations are likely to sound trivial to those that want to believe the markets, like trees, will grow to the sky in an uninterrupted manner.

But I have found that conspicuous divergences within the market -- some of which I have observed above -- often serve as warning shots to the broadening optimism that emanates from rapidly advancing stock prices.

Position: Long SDS small, TZA small; short SPY small, IWM small, QQQ small.
 

Moving to Market Neutral in Retail, Net Short Consumer Discretionary

Originally published Dec. 12 at 2:09 p.m. EDT

Vaneck Vectors Retail ETF (RTH - Get Report) has made a move from about $73 to $79.50 since the early November election.

 
In keeping with the prior post I am short ( RTH - Get Report) (scaling in on any strength) against my long JC Penney ( JCP - Get Report) .
 
That said, looking at retail and consumer discretionary where I have taken meaningful profits in short covers e.g., Disney ( DIS - Get Report) (tagends), Starbucks ( SBUX - Get Report) (tagends), etc. in a broader sense (together), I am net short consumer and retail.
Position: Long JCP large; short RTH small, DIS small, SBUX small.

Retail Smackdown

Originally published Dec. 12 at 1:22 p.m. EDT

Over the weekend I spoke to several informed retail industry consultants.

The message was that retail activity is subdued and sales have been heavily discounted (for obvious reasons).
 
I don't expect much upside and some downside to consensus expectations in the space.
 
I am dramatically under-weighted the space (and, in a broader sense, consumer discretionary) with only a long in JCPenney ( JCP - Get Report) .
 
The retail sector is getting taken to the woodshed this morning with Nordstrom ( JWN - Get Report) , Macy's ( M - Get Report) and Kohl's ( KSS - Get Report) downside the market and space leaders.
 
My concerns are multiple and growing. New concerns are rising interest rates (which will shatter the refi business, which is an important adjunct to incomes) and climbing commodities prices (particularly of an energy kind). Moreover, my expectations for overall domestic economic activity next year is far more pessimistic than a growing consensus following the Trump election victory.
 
For the many reasons I have previously cited, I have no plans of selling my JCP holdings, but I do plan to either short Vanceck Vectors Retail ETF ( RTH - Get Report) or two to three specific retail names.
 
Stay tuned.
Position: Long JCP large.

Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long AGN, AAPL, GOOGL and SBUX.

Doug Kass is the president of Seabreeze Partners Management Inc. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.