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Things you need to know.

  • Stocks got sloppy yesterday and are even sloppier this morning
  • 10 yr yields up, VIX up, Gold up, Stocks down
  • Cryptos getting smashed…Bitcoin pierces trendline support at $39,800 – China cracks down says ‘Not so fast, not happening..’
  • Markets await the 2 pm FOMC announcement –
  • Try the Roasted Sea Bass in Marsala Wine on a Bed of Onions/Mushrooms

It was a reversal of roles at least for most of the day…. ….as investors went on a bargain hunting spree – looking for stocks that might offer some value after being beaten up so badly while they sold some of the names that have held up well….…and where do you think they found value???  Bingo…. Technology! Specifically Disruptive Technology.   And what did they buy…?  TSLA, ARKK, TDOC, ROKU SQ, ZM, CRWD and the list goes on….?  What didn’t they buy in the tech space?  AAPL, MSFT, AMZN, FB, GOOG – isn’t that interesting?  They bought all of the tech disruptors and sold the more traditional tech names….(FANG)….and that does make some sense, because the disruptors are all down ~30+% so far…while the FANG’s have not gotten that beaten up…..They also sold some of the cyclical, recovery names – as those too have held up fairly well and if the expectation is that the FED is going to change their terminology at all tomorrow – then expect the market to get hit.

Look – the sense is that it is all systems go…. nothing is going to change, rates to remain at 0 and the accommodation to stay in place…. that only means that if they change the language at all – it can only be in one direction……. they cannot get any more accommodative than they are….so we wait…as the clock ticks ever closer to 2 pm.

Here are the stats at 5 am this morning….and it ain’t pretty……

The 10 yr. ended the day at 1.63% and this morning it is yielding 1.66%, the VIX shot up by 8% to end the day at 21.34 (suggesting fear) and this morning it is up another 8% at 23 and Gold rose another $2.60 to end the day at $1868 and this morning it is unchanged. The Dollar index closed at 89.75 and this morning is trading at 89.92.   Bitcoin ended the day at $43k ish and this morning it is trading at $40k but not before it collapsed and traded down and thru the long term trendline at $39,800 to test as low as 38,500 after China cracks down on it saying that it cannot be used as a digital token…. while Ethereum ended the day at 3400 and this morning it is trading at 2900……..

European stocks are all down 1.5% across the board this morning and US futures are accentuating the negative too…. putting more pressure on stocks….

Last night the Dow gave back 267 pts and this morning Dow futures are down 167 pts, the S&P lost 35 pts and this morning they are down 27 more, the Nasdaq gave back 75 pts, and this morning are now double that – down 150 pts and the Russell fell by 16 pts and this morning they are giving back another 20 pts.  In the end – it was sloppy…. not panicky, just sloppy and this morning – expect the sloppiness to continue.  Calls for a coming correction in the Dow suggest that we will test 30k by mid-summer – which would be an 11% move lower from here – wiping out the year-to-date gains….and if the Dow comes under that much pressure expect to see more losses in the S&P, Nasdaq, Russell, and the Transports.

9 of the 11 S&P groups took a hit…. with Industrials, financials and Energy taking the brunt of the attack while value lost pace as well…. …. Only healthcare and real estate closed slightly higher….

The chatter is that today’s minutes will offer ‘a’ clue on real inflation pressure and a hint of a timeline about when the taper conversation will start… Now to be clear – Jay Powell has been very clear on this….The FED does not see any issue, they continue to believe its all transitory and that this too shall pass….so in fact – the chatter is different than what the FED is expected to say….and if Jay Powell suddenly changes the tune – then expect many to question their credibility and expect many to suggest that they have already LOST the fight….Why?  Because while there have been a lot of analysts/strategists/economists warning of inflation – Jay Powell and many of his co-workers have denied it…. Just this week – Bostic, Clarida, Bullard, Mester have all denied its existence and have called for maintaining the status quo.  So, strap in and hold on….

And in a blow to so many ‘seniors’ ATT got whacked yesterday after announcing that they plan on slashing their dividend after the announcement of the sale of their media assets and investors are not happy.  I say ‘seniors’ because T has a nice 7% yield, it is safe and boring, and many seniors are good with that….  The stock ended the day at $29.55 down 5.8%.  So here is the way this will play out….

If you own AT&T now – you also own Time Warner (TW)– AT&T is spinning out the assets of TW and selling them to Discovery (DISCA).  For all the AT&T holders out there – you are due essentially 0.24% of the new company – which right now represents about $6.75 – based on the current value of T.  TW + DISCA will become the new company -as yet unnamed of which you will own a proportionate share – so to keep it simple – if you own 1000 shares of T at $30 on the day of the transaction – and the new company is worth $7 – you will now own 1000 shares of T at $23 and you will own 240 shares of the new company valued at $7.   The money stays the same, ($30) but the strong dividend (7%) is (most likely) going to get cut and that is the reason for the pullback in the stock yesterday…. But remember – that dividend will not get cut until the deal is done – so maybe it becomes a 5% yield vs. a 7% yield…. ….….and then it is off to the races…. What happens then is anyone’s guess…. Just sayin’ – do not panic yet…. this deal is not expected to get done until mid-2022….

As noted, – European markets are all under pressure this morning…UK inflation more than doubled in April – rising 1.5%…Melanie Baker Sr Economist at Royal London Asset Management had this to say.

“CPI inflation has finally broken out of the 0.2% to 1% y/y range that it has been in since the pandemic took hold.  However, even with core CPI higher, this does not yet reflect rising underlying domestic inflationary pressure.  The UK economy is still operating below pre-crisis levels and inflation expectations look well anchored.  However, as the economy reopens, it seems likely that we will see some further price increases and inflation is likely to end the year higher.”

Beyond that – European investors await the FED data….at 5 am – the FTSE -1.38%, CAC 40 -1.17%, DAX -1.56%, EUROSTOXX -1.45%, SPAIN -0.63% and ITALY -1.09%.

Oil rallied hard on Monday and traders took some profits in it on Tuesday…..Brent Crude – hit $70/barrel while WTI crude did trade above $67/barrel – all on the excitement of a world re-opening…..Yesterday though, traders took some profits off the table……the rumor is that the US may lift sanctions on Iran and if the US lifts sanctions on Iran then that country will boost oil shipments and the will bring more supply to the markets. This morning – oil is down again -$1.11 at $64.38, that is no surprise as it appears markets are all accentuating the negatives.  In any event – I remain in the demand will still outstrip supply camp and prices are headed up…. which ends up being a tax on everyone in the country.

Bitcoin is trading at $40,000 – but understand, it did break trendline support last night at $39,800…. another test of that level could see buyers step aside and see the coin trade down to $30,800.  Ethereum is at $3,500 and Doggy Coin is trading at 0.49 cts….

The S&P closed at 4127 – after trading in a 44-pt. range – 4125/4169…. closing near its low but not on its low……and it felt sloppy – which suggests we could see more selling today….….and in fact – we are seeing more selling in the pre-market hours…. which I think will clearly carry over to the regular trading session.

Trendline support is at 4027 – 2.5% lower from here…the Dow trendline is just 1.5% lower from here while the Nasdaq and Russell have already broken those trendlines….so it is a mixed message for sure with lots of uncertainty….and remember – markets and investors can deal with good or bad news…it has trouble with ‘uncertain’ news…. Capisce?

Text INVEST to 21000 to get my digital business card – give me a call if you want to discuss the markets or a plan.  You can now get a video version of this note on my YouTube Channel.  KennyPolcari.
Take Good Care

Chief Market Strategist, Consultant

Roasted Sea Bass, Marsala Wine Sauce, Bed of Onions & Mushrooms

Sea bass is a fish that you find in cold waters of the southern Atlantic/Pacific and other Southern Oceans (Indian).  It feeds mostly on squid, shrimps, and other small fish and for itself is the delight of Whales, Elephant Seals and Octopus… You can find this fish around the world called by different names – Chilean Sea Bass in the US, Mero in Chile and Japan, and Merluza Negra in Argentina and Uruguay.  It is a white flaky fish that is easy to prepare and can be combined with many ingredients to make the perfect presentation.  Today’s meal is a roasted sea bass on a bed of Onions/Mushrooms.

You will need:  1 lb. of sea bass, olive oil, butter, onion, Marsala Wine, Fresh wild mushrooms, Chicken stock, s&p, and chopped parsley for color.
Prepare by chopping the onion, slicing the mushrooms, and chopping the parsley.  Have all other ingredients out on the counter to ease the process of creating this dish….

Preheat the oven to 450 degrees –

In a sauté pan – heat the olive oil and the chopped onion – cook until soft and translucent.  Turn the heat to high to make the pan hot – then remove the pan from heat and Deglaze with 1/4 cup or so of Marsala Wine – you can use White wine if you prefer – but you will get a different flavor – just fyi.  (I say remove the pan from the heat because – if you use Marsala – the flame can easily ignite the wine and singe your face. – reg white wine – no worries) When the wine has cooked off add the sliced mushrooms and about a tbsp. of butter.  Reduce heat to med and cook until tender.
Now add the chicken stock – maybe 1/2 cup or so….and s&p… let it cool down…. just so it thickens a bit….

In another sauté pan heat up a bit more olive oil…season the sea bass with s&p and add to the pan skin side down for about 5 mins…you want the skin to be crispy……flip and cook for about 1 min – transfer to a baking dish and put in the pre-heated oven and roast for another 4 / 5 mins.

Warm the serving dishes and place a bed of the onion/mushroom mixture on the plate and then top with the pan roasted filet.  Adorn with a bit of chopped parsley.  You can serve this dish with herb/garlic wild rice and sautéed green beans.  Complement with a chilled bottle of your favorite white wine…. light the candles, turn down the lights…. and you are off to the races…. like putty in your hands.

Buon Appetito.