A MIXED DAY

Equites closed at their lows with the NASDAQ shedding about 2.0% and the Dow unchanged. Treasury prices were insignificantly higher in price.  Some, including myself, believe a reason for the mixed market was the grounding of a huge cargo ship in the Suez Canal, a grounding that is further interrupting COVID distorted supply chains.  Oil surged about 6% on the grounding, albeit I do believe the surge specifically from the grounding may be short lived.

I also rhetorically ask was the selloff in tech stocks the result of the predicted rotation?  I must write, ultimately companies are valued by their cashflows discounted by some interest rates. 

Speaking of a component of cashflows, according to AlllianceBernstein, “the technology group still looks very expensive even after the most recent selloff.”  According to the firm the top quintile of tech names is trading at 17.4x revenue on a cap weighted basis, “the highest since the tech bubble and entirely unsustainable even in the most opportunistic conditions.”  Bernstein is suggesting reality may finally be returning.

Several times I have commented about the surge of call option buying, primarily the result of purchases by retail investors, remarking how such purchases are inherently bullish via “gamma squeeze.” Conversely if these calls are not rolled over or expire worthless, it is inherently bearish.  The volume was/is primarily focused in the largest 25 capitalized companies.

According to the CBOE, the number of call options traded daily has slipped to an average of 23 million contracts from a record 30 million in February.  This is still the third highest amount in history.   BTIG believes the reduced volume in call options is a contributory reason to the increased volatility in the NASDAQ.

Changing topics, yesterday’s auction of the 5-year Treasury was met with tepid demand even though the bonds have increased markedly in yield since last month’s auction.   Looking at the auction positively, some were expecting another disaster as to what occurred in last month’s 7-year Treasury auction.  What is this suggesting?

What will happen today?

Last night the foreign markets were down.  London was down 0.16%, Paris down 0.17% and Frankfurt down 0.20%.  China was down 0.20%, Japan up 1.14% and Hang Seng down 0.07%.

The Dow should open mixed.  Today is the 7-year Treasury auction.  What will be the demand?  Oil is down about 1% as efforts to clear the Suez Canal are still ongoing.  The 10-year is up 1/32 to yield 1.62%.

 

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. The information contained herein has been compiled from sources believed to be reliable; however, there is no guarantee of its accuracy or completeness. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. The material provided in Daily Market Commentaries or on this website should be used for informational purposes only and in no way should be relied upon for financial advice. Please be sure to consult your own financial advisor when making decisions regarding your financial management. Members of FINRA and SIPC, Capitol Securities Management is a privately owned full-service retail brokerage and investment advisory firm headquartered in Richmond, Virginia. For nearly 30 years, we have been serving the needs of our investors. Today, more than 200 Capitol Securities Management investment professionals and support staff serve approximately 18,000 customer accounts from Southern Florida to the New England coast.