As Cathie Wood Sheds Palantir, Is It Time to Buy the Dip?

In just horrifying news, the people of the Pacific Palisades area in between the cities of Malibu and Santa Monica appear to be up against a wildfire that has scorched something like 3,000 acres as of the zero-dark hours on Wednesday morning. Hundreds of homes appear to have burned as more than 30,000 people have been forced to evacuate and Los Angeles has been blanketed in smoke.

Long traffic jams on major roads have turned into huge parking lots as residents have been forced to abandon their vehicles in order to avoid the approaching flames. There are reports that in several areas, fire hydrants were unable to produce water as firefighters attempted to do their jobs. Nice going, California. State and local governments need to take a major hit for that unforgivable mishap if true.

I think before we begin our daily routines this Wednesday morning, we should take a minute and say a prayer for the welfare of both those impacted and those whose occupations will put them in harm's way by these fires. If you can't do that, then at least you can think of those folks and what they are going through.

The Ugly Stick Appears?

The "ugly stick" was out and about on Tuesday. No, the losses suffered by the mid-major to major equity indexes were not enormous, but the losses suffered were broad, and there were huge losses in spots. This is now the fifth trading day of the new year. After Santa Claus failed to show up, the next seasonal item on the checklist that legend suggests that we look at is the "First Five Days" indicator. Well, after four regular trading sessions, the S&P 500, the S&P 500 is still up 0.47% month and year to date as the Nasdaq Composite is up 0.93%. So, maybe it's not as awful as it has felt? Maybe.

On Tuesday, it was some positive-looking macroeconomic data that did financial markets in. The S&P 500 gave back 1.11%, as the Nasdaq Composite surrendered a nasty 1.89%. All of the small to mid-cap indexes traded lower as well. Only the Dow Transports among these higher-level indices sported any green by day's end. This forced the yield for the U.S. Ten Year Note, which had been through a fairly ugly auction intraday, up five basis points to 4.68% and the U.S. Thirty Year Bond up to a new 14-month high of 4.92%.

The U.S. Dollar Index spiked back up to levels not seen since earlier this week as traders priced out the probability for any Fed rate cuts anytime soon. As of this morning, Fed Funds futures trading in Chicago are now pricing in a 68% probability that there will not be a quarter-percentage point rate cut until June 18 and a 53% chance that there will be but that one rate cut for all of 2025. This market is also now pricing in a 17% probability that the Fed never even cuts rates at all in 2025.

Interestingly, the stronger dollar and risk-off move across U.S. financial markets had a significantly negative impact on Bitcoin. That said, crude oil, gold, silver, copper, natural gas, corn and wheat all rallied in dollar terms despite higher dollar valuations relative to peer reserve currencies. Slice it any way you like it, but that alone is highly inflationary activity.

The Macro

First, the national balance of trade for November crossed the tape slightly better than anticipated. This took the Atlanta Fed's model for Q4 gross domestic product up to growth of 2.7% at a quarter-over-quarter, seasonally adjusted annual rate from 2.4%. Then, the ISM Services or Non-Manufacturing PMI for December, hit the tape at an also better than projected 54.1. This was the eighth consecutive month of headline-level expansion for the series. Even better, New Orders were up for a six consecutive month from the month prior. 

Now, for the not so good news from within the ISM Services report. Prices expanded for a 91st consecutive month and accelerated a great deal in December from November as that subcomponent printed at 64.4, up from an already hot 58.2. Inflation easily made the hottest single contribution to December's headline level growth. Not like we haven't been banging the drum on re-accelerating inflation.

Lastly, some strong JOLTs job openings data hit markets. November job openings printed at 8.098 million, well above consensus view and at the nation's highest level since May. However, job quits printed at their lowest level since August 2020, which is a sign that the labor force believes that job openings at least of lateral quality are still scarce.

All of this data is on the warm side, but it was the inflationary nature of the ISM Services PMI for December that coupled with the inflationary nature of last week's ISM December Manufacturing PMI that scared the stuffing out of traders. Another month of data like this and the Fed will have to consider raising short-term rates in 2025. Pricing something like that in, will hurt net-long portfolios... at least until President Elect Trump's tax cuts become reality.

Ugly Auction

Equities did not have the ugly stick all to themselves on Tuesday. The U.S. Treasury tried to auction off $39 billion worth of new Ten-Year Notes and that auction went badly. A high yield of 4.68% (highest for the series since 2007) was awarded, which was up a gnarly 44 basis points from the November auction. This auction also tailed the "when issued" at the time, as bid to cover dropped to 2.53 from November's 2.7.

All of the sudden, foreign interest in this new benchmark U.S. foreign debt rolled off of the table. Indirect Bidders took down just 61.39% of this issuance. This was the smallest slice of the pie for Indirects since October 2023 and down from 70% last month. Direct (domestic) Bidders took a 22.97% slice of the pie, while Dealers were stuck with 15.6% of the auction, the highest percentage that group has been forced to eat since August.

Wacky Breadth

Breadth was rather awful on Tuesday, until you get to trading volume, which was odd looking. Just like I told you that Friday failed to produce a technical "Day One" move to the upside, Tuesday failed to produce a technical "Day One" move to the downside. It may have hurt, I'll give you that, but I am not convinced that this was the start of a downward trend. I need more evidence. This is why.

Nine of the 11 S&P sector SPDR ETFs closed in the red with three of those funds closing lower. Growth, which had been strong only a day earlier, led to the downside as Tech XLK, the Discretionaries XLY and Communication Services XLC all were slapped around. The semiconductors led this weakness as Nvidia NVDA gave up 6.22%. I explained this in a piece published on Tuesday morning. Energy XLE easily led to the upside.

Now for the fun. Losers beat winners by more than 2 to 1 at the NYSE and by a rough 9 to 4 at the Nasdaq. That's decisively broad, right? Now check this out. Advancing volume took a 48.7% share of composite NYSE-trade, but on aggregate volume that contracted 8.7% on a day over day basis. The lower trading volume prevents this from looking like a "Day One" to me.

For Nasdaq-listings, aggregate trade was up a whopping 39.5% day over day. So, was it a "Day One" for the Nasdaq? No. Why? Because incredibly... On such a weak day overall, advancing volume took a somewhat commanding 64.4% share of composite trade for names domiciled up at Times Square. Things that make you go hmmm.

Time To Buy The Dip in Palantir?

I don't think we have to just yet. News broke on Tuesday that Cathie Wood's ARK Invest ETFs sold more than 196,000 shares of Palantir PLTR on Monday for about $15 million. The stock gave up 4.97% that day and an additional 7.81% on Tuesday. Fellow Palantir Investors, even I, one of the more well known PLTR bulls, have taken token profits at price targets and tried to buy them back lower when granted the opportunity. We had to expect some high-profile profit taking after 2024's 349% run. Am I sweating? I am never sure of anything. That said, I have other things to worry about that I consider to be higher priorities.

In Karp I trust... on this name. Valuations are high. Sure, they are, but Palantir scores a 64 on the "Rule of 40," which is how one rates growth stocks. That's the rate of growth plus profit margin. What it means is that PLTR is still the king of software applied big-data focused, AI-infused analysis and there is no shortage of demand for these services. Let me show you what I see.

The stock is trading down small this morning. In between the lower trendline of our regression model and the 50-day simple moving average, I will be willing to add to my long position. A loss of that 50-day line would provoke my bailing out of that short-term trade that would be outside of my core position. My target price remains a Wall Street-high $90, and my track record in PLTR is probably the strongest anywhere on Wall Street.

Past performance is no guarantee of future results. That much we know. The daily Moving Average Convergence Divergence is postured bearishly at present, and the stock may have formed a sloppy looking head & shoulders pattern from the start of December into the present. That said, relative strength is still neutral. Are we afraid? Fear is but for the wicked. So, let the wicked tremble before us. Semper Fidelis.

Economics (All Times Eastern)

07:00 - MBA 30 Year Mortgage Rate (Weekly): Last 6.97%.

07:00 - MBA Mortgage Applications (Weekly): Last -12.6% w/w.

08:15 - ADP Employment Report (Dec): Expecting 137K, Last 146K.

08:30 - Initial Jobless Claims (Weekly): Expecting 210K, Last 211K.

08:30 - Continuing Claims (Weekly): Last 1.844M.

10:30 - Oil Inventories (Weekly): Last -1.178M.

10:30 - Gasoline Stocks (Weekly): Last +7.717M.

12:00 p.m. - Natural Gas Inventories (Weekly): Last -116B cf.

1:00 - Thirty Year Bond Auction: Last $22B.

3:00 - Consumer Credit (Nov): Last $19.24B.

The Fed (All Times Eastern)

08:30 - Speaker: Reserve Board Gov. Christopher Waller.

2:00 p.m. - FOMC Minutes.

Today's Earnings Highlights (Consensus EPS Expectations)

Before the Open: AYI (3.72), ACI (.65)

After the Close: JEF (1.04)

At the time of publication, Guilfoyle was long NVDA, PLTR equity.