The Streaks End, Peloton Gadget, Rivian IPO, Utility Software, PayPal, Palantir

Two hundred and forty-six years. The young nation was not quite one nation, but more like thirteen individual, sovereign states loosely united in a cause. Not quite sure beyond that cause, what exactly they had in common. The young nation had created a “continental” army in June out of a handful of New England states and town militias, and placed George Washington in command. John Adams had finally put together enough funding by October of that year to found a “continental” navy, which was really just a few ships and a loose confederation of privateers. The young nation needed more. They needed something unique. They needed a flexible, versatile, kind of warrior.

A committee of the Continental Congress met in a bar in the nation’s new capital of Philadelphia. They met at Tun Tavern to draft a resolution calling for two battalions of “continental” Marines to be able to join the fight for independence on land or at sea. The resolution was approved on November 10th, 1775. Samuel Nicholas was appointed the first Commandant of Marines, and Robert Mullen, the tavern’s owner… was commissioned a captain in the youngest and smallest branch of this new nation’s armed forces. Owning a pub where independence minded patriots were known to meet, he also became the first recruiter in Marine Corps history.

The legend begins. Eternal

First to fight for right and freedom

And to keep our honor clean

We are proud to claim the title

Of United States Marine

– Jacque Offenbach, 1867

Thank Goodness, I Think

The streak, or rather… the streaks are over. Don’t get me wrong. I like a positive P/L as much as everyone else. I know, I will regret writing this, but it was almost nice to be reminded that the saloon doors to the financial markets still swing both ways. Winning streaks for the Nasdaq Composite and S&P 500 came to a screeching half after 11 and eight days, respectively. No, the day was not a bloodbath, not in the least, but shades of red were seen across the spectrum of equity market indices, as the treasury yield curve flattened in response to a sloppy auction of 10 year notes, and as dollar valuations appeared to bottom after last week’s minor bout with weakness.

Six of 11 sector select S&P SPDR ETFs closed in the green, led by the Utilities (XLU) , up 0.51%, with the Financials (XLF) in tenth place, down 0.55%… both in response to the already mentioned contraction in yield spreads. Early on Wednesday morning, these spreads have already started to expand, with the US 10 Year Note paying just less than 1.48%, after Treasury sold $39B worth of newly issued 10 year paper at a high yield of 1.444%, and the series traded as low (yields move inversely to price) as 1.42% in secondary market trading on Tuesday afternoon.

Last place performance on Tuesday, was reserved for Consumer Discretionaries (XLY) and for a very specific reason. That’s where the automobile manufacturing industry lives. The Dow Jones US Automobiles Index gave up 10.3% on the day, weighed down by it’s largest name… Tesla (TSLA) which was off 12%. That saloon door apparently can swing both ways.

My Point

Breadth was not awful. Of all of our major and semi-major equity indices, only the Dow Transports (-1.4%) backed up more than 0.8%, and like the auto industry in microcosm, the damage there was largely done by one name, with Avis Budget (CAR) , having given back 14.8% for the session.

Losers beat winners by less than 200 issues at the NYSE, but by more than 700 at the Nasdaq Market Site. Aggregate trading volume decreased on Tuesday from Monday for names listed at both of our primary exchanges, which is a subtle positive. Advancing volume comprised only 41% of that aggregate for NYSE listed stocks, but still took 52.5% of the aggregate for Nasdaq listed stocks despite the poor headline performance.

The thing is that the two major large-cap indices that we use to track our markets have to test their 21 day EMAs and their 50 day SMAs every once in a while. At some point either the indices move back toward the moving averages, or they at least slow down and consolidate while the averages catch up. Coming out of last weekend, both the S&P 500 and Nasdaq Composite stood at roughly or even greater than 4% premiums to their respective 21 day EMAs, and 6% premiums to their respective 50 day SMAs.

That is about as stretched as those metrics ever get and was one more reason why I told you that I gave both Advanced Micro Devices (AMD) and Nvidia (NVDA) haircuts on Monday, even though I still love both names and adore their respective CEOs. It’s all about comfort zones. It’s all about risk tolerance. If it bothers you to walk away from your screen long enough to use the restroom or make a sandwich… you need to adjust your exposure on the fly.

By the way, the S&P 500 closed on Tuesday at a 2.2% premium to its 21 day EMA, and at a 4.5% premium to its 50 day SMA. Those same metrics for the Nasdaq Composite now stand at 2.8% and 5.3% premiums. Anything can happen. Seasonality is still leaning in the bulls favor, but there is still clearly more room to the downside if the markets choose to take it, with earnings season starting to wind down (still, the retailers beckon) and a bank holiday tomorrow (Thursday… no bond trading, equity trading volumes will be thin). I have returned cash levels back up to 20% and expect to possibly (I don’t lie, but I do sometimes change my mind.) stay there for most of the holiday season. We have had a heck of a year. No reason to risk that, and a lot of managers are going to feel that way until the officially unofficial Santa Claus rally begins.

Danger, Will Robinson!

Traders and investors need to be fully cognizant that China Evergrande Group (EGRNF) has multiple 30 day grace periods expiring Wednesday (today). I have not seen news that the embattled Chinese real estate giant has made the $148.1M in coupon payments for three different dollar bonds required before the day is out. Nor have I seen evidence that Evergrande will not make this payment.

Just understand what lurks. There are more dangerous beasts in this jungle than October US consumer prices, and Walt Disney’s (DIS) third quarter results.

News

Pfizer (PFE) and BioNTech (BNTX) announced on Tuesday that they have submitted a request to the US FDA seeking an amendment to the EUA (Emergency Use Authorization) that would grant a booster shot to all individuals aged 18 years and older versus the current EUA for fully vaccinated individuals aged more than 65 years or at high risk for poor outcomes if infected, or at elevated occupational risk.

The new request is based on a 10K subject clinical study that showed a favorable safety profile for a third jab and a 95% efficacy rate (that included exposure to the Delta variant) versus the previously standard two-dose regimen.

Another Expensive Gadget?

Peloton (PTON) closed at $50.13 on Tuesday afternoon. That’s down 70.8% from the January 2021 high, and down 49.5% from the late October 2021 high. The firm that sold consumers highly priced treadmills and stationary bikes attached to screens that offered those masses a sense of working out within an interactive community, will now offer a $495 TV set topper with a camera that guides users through exercises.

The new device offers the individual an on-board camera, a movement tracker, and both self and body modes. The movement tracker determines if the user is doing the exercise correctly, self mode shows the user’s form as compared to an on-screen instructor, and body mode will analyze which muscles are exercising and recommend further workouts.

Hey, to each his own, but can you imagine needing to be told which muscle groups you are working out. Pretty sure muscle heads have been doing everything this machine offers with a mirror since before I was born. Not to be mean, but get your home gym a mirror and save a few bucks.

Brand New

Rivian Automotive (RIVN) , the electric vehicle manufacturer owned by 20% by Amazon (AMZN) , 14% by Ford Motor (F) and several financial institutions priced 135M shares at $78 on Tuesday night, above the anticipated range of $72 to $74, which was well above the original range of $57 to $62. The deal raises an approximate $11.9B for the firm and values the entire company at $66.5B.

Morgan Stanley, Goldman Sachs, and JP Morgan are running managers for the book today, which means that if Rivian is your game, you can probably go back to bed for a few hours. This is not the old days, and these guys are not exactly lightning when it comes to opening their deal stocks.

Unity Software

Unity Software (U) reported an adjusted loss of $-0.06 per share on revenue of $286.33M. Both numbers beat Wall Street. The revenue print was good for growth of 42.6%, a sixth consecutive quarter of growth of 39% or greater. The firm also raised Q4 revenue guidance to $285M-$290M, which is in line with Wall Street, and would be a deceleration in the pace of growth to 29% to 32%. For the full year, the firm guides revenue toward a range of $1.08B to $1.085B, which is above the $1.06B that Wall Street was looking for.

The firm also reported a definitive agreement to acquire the technology businesses of Weta Technology including tools, pipeline, technology and engineering talent for $1.625B. This does not include visual effects and animation teams. This is also why the shares are trading lower overnight. After closing at $171.63, I see the shares trading with a $162 handle.

I would love to own a few shares of Unity, which I do not at this time. Overbought according to every metric I see, after the shares had run into earnings, obviously $171 was a bit expensive. Thinking just for me, I think $62 is still a bit expensive. Readers will see the 21 day EMA at $148.52 and the center of the Regression model at a rough $149. To me, that means that though I do want the shares, I probably wait to give that $150-ish area a chance before I go pulling any triggers.

Playing Defense

Because a few readers have asked… In the face of tumbling share prices on Tuesday for PayPal (PYPL) and Palantir (PLTR) , I have been put in the position of playing defense in both names. I had previously said that I was willing to add to PLTR post earnings below $24.50, and that’s exactly how I have set myself up through the selling of naked $25 puts expiring this Friday. Right now, that trade is against me, but my equity position is still up 31% even at $24. I plan to stand by that strategy even if I have to eat the shares.

I tripled my long position in PayPal very close to the lows on Tuesday, and now have a much larger position than I like. I also sold (covered) January $210 calls against the entire position. I may have limited any potential profit through January, but I have also reduced my net basis to $201.91, so all of the fun and games were worth it, at least for now. PYPL is trading with a $204 handle early this morning.

Economics (All Times Eastern)

08:30 – Initial Jobless Claims (Weekly): Expecting 266K, Last 269K.

08:30 – Continuing Claims (Weekly): Last 2.105M.

08:30 – CPI (Oct): Expecting 5.8% y/y, Last 5.4% y/y.

08:30 – Core CPI (Oct): Expecting 4.3% y/y, Last 4.0% y/y.

10:00 – Wholesale Inventories (Sep-rev): Flashed 1.1% m/m.

10:30 – Oil Inventories (Weekly): Last +3.291M.

10:30 – Gasoline Stocks (Weekly): Last -1.486M.

12:00 – Natural Gas Inventories (Weekly): Last +63B cf.

13:00 – Thirty Year Bond Auction: $25B.

14:00 – Federal Budget Statement (Oct): Last $-62B.

The Fed (All Times Eastern)

No public appearances scheduled.

Today’s Earnings Highlights (Consensus EPS Expectations)

Before the Open: (WEN) (0.18)

After the Close: (BYND) (-0.39), (BROS) (0.08), (SOFI) (-0.14), (DIS) (0.51)

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