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Santa Rally Goes Off the Rails

11-09-2018

The stock market went "off script" today, as it refused to march to the drumbeat of bull wishes to rally nonstop into the end of the year. There continue to be plenty of gaps across the tape, which indicates how brittle the market is and how unlikely there is to be a backdoor escape route. I expect it will culminate in a brutal dislocation at some point, but I don't want to get too far ahead of myself based on just one day's action.

Taking Chunks Out of Chips The market lost about 1% through midday, with the Dow doing a little bit better and the Nasdaq considerably worse. Virtually every tech-oriented stock I looked at was weaker today, with the chip sector particularly heavy, as the cumulative weakness emanating from conference calls and Apple's own obvious struggles finally appears to be causing some reassessment of the entire sector.

In the afternoon, the selling continued until a decent bounce began with about an hour to go, which trimmed the losses pretty substantially. When all the dust settled the Nasdaq closed down 1.5% with the Dow/S&P faring a little better.

In a deliciously ironic sidelight to the current obsession with beat-the-(stupid)-number, the original promoter of the wildly popular Wall Street game, GE, today fell another 6% to $8 and change. Jack and Jeff, how did moving heaven and earth to "win" in the short run work out for the shareholders?

Away from stocks, green paper was mixed and overall kind of flat, although it was strong versus the Chinese yuan. Fixed income was able to bounce on the equity weakness for the first time in a while, while oil lost a percent.

Fed Cred Holding, For Now The metals were hammered early on (and then just drifted sideways), with silver losing 2% to gold's 1% in what appeared to be a kneejerk pressing of bets on the back of the yuan weakness. I don't know how long that game will continue to be played, but at some point stock market weakness is going to change people's thinking about what the Fed is capable of doing, and to me that matters a lot more than whatever correlation is assumed to be at work between gold and the yuan, but for now the latter is all that anyone seems to care about.

Turning to the miners, both Wesdome and Pretium announced results, and both did well. I encourage anyone who is interested to listen to the conference calls, and if you do not have a position in either, it might be a good time to do some research and see if taking one is warranted.

Worth a Look For those with a RealVision subscription (or who are using a free trial), I suggest watching the interview with Russell Clark to better understand the very contrary -- but soon to be accurate -- bear case for the U.S. dollar.

Positions in stocks mentioned: short AAPL, long AAPL puts, long PVG, long WDOFF.