25 Mar 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%.