Morning Comment: Just How Strong Is The Consumer?

It was another rough day for the stock market yesterday…as the S&P 500 fell 1.4% and the Nasdaq declined 2.5%. The futures are looking lower again this morning, so it looks like our concerns from earlier this week…that the bounce off the Monday lows was merely a technical bounce off a very-short-term oversold condition…are coming to fruition. In other words, the stock market sure does seem to have a lot of concerns about the Fed’s new tightening policy…and the that decline will not be a short-lived on (like most pundits had been thinking).

This morning, one of the groups that has outperformed so nicely recent (the banks) is getting hit pretty hard. Although WFC is trading a bit higher after their earnings report, JPM and Citi are trading much lower. (Down 4% on JPM and -3% for Citi as we write.)….As we highlighted earlier in the week, the bank stocks have tended to sell-off after the report earnings…EVEN when the report good numbers…so this morning’s reaction is not a big surprise. However, the news on JPM is not very good this morning…as their net interest income was lower than expected. Therefore, today’s pullback in the bank group might not be a one-day wonder.

The decline in the futures this morning is meaningful, but it’s not enough to take the S&P 500 or the Nasdaq below their Monday intraday lows. Therefore, we’re certainly not looking at a disaster this morning. That said, the fact that the early week bounce has failed will definitely raise a lot of concerns in the marketplace as we head into the long weekend. Thus, today’s action could/should still be very important.

The intraday low on Monday for the S&P 500 was 4,582…and for the Nasdaq Composite, it was 14,530 (15,165 for the NDX Nasdaq 100). If things get ugly today, those are going to be VERY important support levels. If we break below those levels, it could/should lead those momentum based algos to become more aggressive on the sell-side.

HAVING SAID THIS, Monday’s lows are NOT “line in the sand” levels for the stock market. Yes, it will be quite disappointing if we break those levels, but in order to declare that a major change in trend (to the downside) has taken place, those indices will have to fall below their early December lows. (In fact, one could argue that it would take a drop below the early October lows to really signal that we’re moving into an ugly phase for the stock market.) In other words, the stock market looks quite dicey again this morning, but it will have to get absolutely clobbered to day to do any significant longer-term technical damage.

Switching gears a bit, the retail sales number this morning was much worse than expected….falling 1.9%. A little over a week ago, we highlighted how the retailers had been underperforming since mid-November. Well, this morning’s number isn’t going to help the group…and it seems to be indicating that the consumer might not be quite as strong as the consensus on Wall Street has been telling us. (Let’s face it, if inflation is going to continue to be a problem, it makes total sense that the consumer will pull in their horns.)

If the XRT retail stock ETF breaks below 85 on this news (which seems likely) the group is going to make an important “lower-low.” That will not be good on a technical basis at all…and it could signal that the bank stocks might not be the only group that sees a surprisingly strong decline today.

Matthew J. Maley

Chief Market Strategist

Miller Tabak + Co., LLC

Founder, The Maley Report

275 Grove St. Suite 2-400

Newton, MA 02466


Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.

Posted to The Maley Report on Jan 14, 2022 — 8:01 AM
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