Trade on Monday began and ended sharply lower. The S&P 500 (SPX) finished at 4,568, a loss of 1.1%. The benchmark S&P has now lost 3% during the past three sessions and it has fallen below the 50-day moving average at 4,607, asserts Jon Markman, tech sector expert and editor of Strategic Advantage.
Bulls must re-take the 50-day moving average to regain momentum for a year-end rally. Bears will take comfort in the steady downdraft since Thursday and the deluge of negative headlines like omicron, the Federal Reserve unwinding asset purchases, and the failure in Washington to pass further stimulus spending.
I wrote Sunday evening that a decline below 4,600 for the S&P would lead to a quick test of 4,545. Both of these events played out Monday. Now bulls need to step up or face a decline to test the December lows at 4,500.
Yet, this is the wrong time of year for a collapse. I suspect bulls will step in here with courage and call bears' bluff.
Stocks fell Monday as rising cases of the omicron variant of Covid-19 sparked fears of new restrictions ahead of the Christmas holiday, amid uncertainty regarding the passage of President Joe Biden's spending and climate policy bill.
All market sectors except utilities and consumer staples were in the red, with financials and materials taking the hardest hit.
Breadth heavily favored decliners 6-1, and there were 640 new lows vs 29 new highs. Big caps on the new high list included Pfizer (PFE), Broadcom (AVGO), America Movil (AMX), and America States Water Company (AWR). Tech, pharma, and utilities, hmm.
The 10-year US Treasury yield rose two basis points to 1.42%. West Texas Intermediate crude oil fell nearly 4% to $68.23 per barrel.
The Netherlands entered a full lockdown Sunday in an effort to stem the spread of the omicron variant, while several other European countries, including the UK, are contemplating similar restrictions before Christmas.
In Germany, the government is weighing imposing new restrictions on social gatherings starting Tuesday next week. The rules could include limiting gatherings to no more than ten people.
Sweden also announced new travel guidelines beginning Tuesday for its Nordic neighbors, now requiring vaccine certifications for travelers coming from Norway, Denmark, Finland and Iceland.
Omicron is now present in 48 US states, according to data from the US Centers of Disease Control and Prevention.
On Sunday, Democratic Senator Joe Manchin said he can no longer support Biden's proposed spending plan in its current form, dimming the odds that the bill will pass the Senate, where Democrats depend on Manchin for their one-vote majority.
In economic news, the US index of leading economic indicators posted a 1.1% rise in November following October's 0.9% gain, in line with expectations. The data suggest Q4 growth will be brisk. The Conference Board expects GDP growth to accelerate to a 6.5% annualized rate in Q4 before slowing to 2.2% in Q1 2022.
"The US LEI rose sharply again in November, suggesting the current economic expansion will continue into the first half of 2022," said Ataman Ozyildirim, the Conference Board's senior director of economic research. "Inflation and continuing supply chain disruptions, as well as a resurgence of Covid-19, pose risks to GDP growth in 2022. Still, the economic impact of these risks may be contained."
In company news, Moderna (MRNA) shares fell 6.3% after the vaccine maker said its Covid-19 booster dose showed a jump in neutralizing antibodies against omicron.
Note: Moderna opened sharply higher before tipping over, allowing our Tactical Options customers to record a 149% profit on calls held for less than an hour.
Carnival (CCL) shares rose 3.4% after the cruise operator reported a net loss of $2.31 per share for its fiscal fourth quarter ended November 30, compared with a loss of $2.41 per share a year earlier, while revenue grew to $1.29 billion from $34 million. The company said it expects to report a profit during the second half of its current fiscal year.
Intra-Cellular Therapies (ITCI) shares were nearly 16% higher after the US Food and Drug Administration approved the company's Caplyta medication as monotherapy—or in combination with lithium or valproate—for the treatment of depressive episodes linked to bipolar disorder in adults.
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