Wall Street Breakfast: Mr. Market’s Wild Ride

Mr. Market’s Wild Ride

Weekend Bite, a Seeking Alpha Original Series: In this episode, we are joined by Eric Basmajian, from EPB Macro Research, to ask him when the pain will end. We discuss the new Producer Price Index and Consumer Price Index numbers that both came in higher than expected this week, and the housing battle with The Fed. Also, Kim Khan shares next week’s Catalyst Watch and Twitter poll.

Bulls stampeded back onto Wall Street yesterday, inspiring a stock market comeback for the ages. Futures spiked on hope of a U.K. resolution to its debt liquidity crisis, plunged after core CPI came in hot, then rallied through the session. By the close, the S&P 500 (SP500) (SPY), Nasdaq (COMP.IND), Nasdaq 100 (NDX) (QQQ) and Dow (DJI) (DIA) had notched gains well above 2%. “The term rollercoaster is one of the most overused, lazy terms to describe markets, but the last 24 hours are best summed up by being a major rollercoaster ride and actually home to one of the biggest intra-day turnarounds in living memory,” Deutsche Bank’s Jim Reid.

Tale of the tape: S&P futures peaked +1.57% ahead of the CPI release, bottomed out -2.4% and the S&P 500 closed +2.6% with a roundtrip intraday range of 5.52%, according to Deutsche Bank. The Dow rallied +1,400 points from its low. The Tick Index, which compares gainers to losers at any point, went from -1,900 to +1,900, the first time there have been such extreme numbers on either end, according to Bloomberg data going back to 1990. It was just the 11th time since 1993 where SPY made a 52-week low and closed more than 4% above that low while also closing green, BTIG noted.

What sparked the buying?: The rally numbers are clear, but the reason behind the buying is not so much.

Some speculated that algos kicked in to buy when the S&P had given up 50% of its post-COVID rally. Bloomberg reported that options hedgers needed to unwind short positions when booking post-CPI profits on put options. Deutsche Bank’s Reid said there was “no obvious reason” other than stretched bears ahead of the CPI. Yesterday “saw the market turn abruptly at 9:32 am with the S&P at 3491.58 and then, magically, and mysteriously, the entirety of the algorithmic investing community (and red-blooded SPY traders, too) were assured by (Harvard economist) Jason Furman’s third swing at the ol’ horsehide that ‘Today’s report was probably “peak” inflation for the core CPI,'” John Roque, head of technical strategy at 22V Research, wrote.

A blip or a bottom?: The question remains whether this historic reversal signals a base where bulls can gain further traction.

“Many proclaiming that ‘THE’ bottom is in likely have said that many times this year already,” BTIG strategist Jonathan Krinsky said. “From a seasonality standpoint, a low today fits the narrative. On the other hand, the VIX (VIX) is still sitting around 30. Of the prior 10 (big reversal) occurrences … four saw the VIX close below 37 on the day of the reversal. Only one of those (Dec. ’18) marked the final low.”

22V’s Roque noted that the febrile buying was heavily concentrated in the SPY: “Advancing Stocks beat Declining Stocks in the SPY by a ratio of more than 15:1. However, Advancing Stocks beat Declining Stocks on the NYSE only by a ratio of 2:1. If (Thursday) was a full-fledged reversal I think that the Advance Decline Ratios for the SPY and the NYSE would be more alike.”

Yesterday’s action “definitely gives the bulls some ammo they have been lacking much of this year,” Krinsky said. “At the very least, this could give some near-term relief. With that said, it’s far from an all-clear signal and we aren’t yet ready to proclaim that the worst is behind us. There will be a day when a bullish narrative takes hold and the market makes its bear market low, but it’s hard for me to believe that’s happened just yet when private equity parties on the French Riviera are targeting retail investors,” Krinsky added. (4 comments)

Netflix with ads

Netflix (NFLX) has confirmed it will launch its ad-supported service level on Nov. 3, with plans starting at $6.99 per month. The company’s “Basic with Ads” plan will be in addition to its existing ad-free plans, which won’t change: Basic, Standard and Premium levels. In the U.S., Netflix offers its ad-free Basic plan at $9.99 per month; its Standard plan at $15.49 per month; and its Premium plan at $19.99 per month.

Twitter poll: Would you watch Netflix with ads? Take our poll and let us know. (68 comments)

Musk investigation?

Twitter (TWTR) claims that billionaire Elon Musk is under federal investigation over his on-again/off-again attempt to take the social-media giant private, and the firm wants correspondence his team exchanged with the SEC and FTC over the matter.

“Elon Musk is presently under investigation by federal authorities for his conduct in connection with the acquisition of Twitter,” TWTR wrote in a Delaware state court filing made public late Thursday. “Through counsel, he has exchanged substantive correspondence with those authorities concerning their investigations. Twitter wants those documents.” (11 comments)

Kroger shops for Albertsons

Kroger (KR) is said to be in talks to purchase small supermarket rival Albertsons (ACI) for about $25B. Kroger is expected to pay cash and stock for Albertsons, according to a Bloomberg report. The exact price and structure of the deal weren’t known.

Bloomberg earlier Thursday reported news of the transaction, though without giving any details on the possible value. Albertsons shares soared 12% in regular trading on Thursday. Albertsons has a market cap of over $15 billion. The reports come after Albertsons announced in late February that it was evaluating strategic alternatives for the supermarket chain. (20 comments)