Market Morning: Futures Back Down, Shorts Cover, Chesapeake Explodes, Newmont Bucks S&P 500

Market Morning

Futures Collapse After Biggest Dow Up Day Ever, But Not By Percentage

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And down again we go. Bear market rallies are notoriously intense, but also notoriously short. Yesterday’s rally of over 1,000 points in the Dow Jones Industrial Average (NYSEARCA:DIA) may end up only lasting a single day, as futures are down again this morning 315 points, or about 1.4%. Nearly all of the Dow’s biggest up days by percentage historically have happened in bear markets, though this last move was not one of them, since the index moved only 4.98%. In order to top the biggest Dow move in history by percentage, the index would have had to move up 3,344 points in a single day to take out the record achieved on March 15, 1933.

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In any case, Europe is down today too, with the lead decliner being Germany’s Dax, while Asia is mixed. Japan is trading higher after bouncing off bear market levels, and China is down slightly. Interest rates are down as well meaning that investors are once again running to the “safety” of global bond markets. Gold (NYSEARCA:GLD) is creeping higher once again after falling yesterday as soon as it hit $1,280, and gold mining stocks (NYSEARCA:GDX) are sharply higher over 3% in premarket trade. Real estate prices are coming out today on the economic calendar, and a number lower than expected could be the spark to continue the downtrend in equities.

Evidence Points to Short Covering Rally

The index of the most shorted stocks is specifically the one that rose the most in yesterday’s monster rally. These stocks include Bed Bath & Beyond (NASDAQ:BBBY), up 9%, Snap (NYSE:SNAP), up 4.6%, California Resources (NYSE:CRC), up a whopping 22%, and Abercrombie & Fitch (NYSE:ANF), up 10.5%. If this was indeed a short covering rally, it won’t last. “This is a short-covering rally,” said Michael Antonelli, managing director of institutional sales trading at Robert W. Baird in Milwaukee, quoted by Reuters. “The move you see is just everybody trying to get out of these super, super bearish positions that they have been in, that have been easy to make money in.”

Chesapeake Energy Explodes Higher

Chesapeake Energy (NYSE:CHK), which got clobbered in the 2008 oil crash, got clobbered again in the 2014 oil crash, and has since gotten clobbered again in the 2018 oil crash, each time has gone lower than the previous lows after each successive crash. The stock found new lows on Christmas Eve at $1.71, but catapulted higher to $2.11 on news that insiders bought millions of shares in the downturn. The insider moves makes a bit of sense since Chesapeake sells primarily natural gas, whose price has been rising as oil has fallen, though the company does have significant oil assets as well. Shares are down about 8 cents in the premarket.

The Gap To Close Flagship 5th Avenue Store

The Gap, (NYSE:GPS) is set to close its flagship store on 5th Avenue in Manhattan. The store will officially close on January 20th, so you’ve got about 3 weeks to get over there and buy up everything. The Gap, according to a November report, plans to close hundreds of its stores “with urgency,” though the company is profitable, has low leverage, and its stock has been on a generally stable uptrend since the 1980’s. The reason for the closures is that sales have fallen 7% over the last 12 months while its sister brands Old Navy and Banana Republic have gotten more popular, so Gap is really just shifting from one of its brands to another.

Only One S&P 500 Stock Fell Yesterday – Newmont Mining

An interesting piece of news after yesterday’s mega-rally is that Newmont Mining (NYSE:NEM) is the only stock in the S&P 500 to fall yesterday, though just barely, at 0.1%. Though on the Christmas Eve slaughter the stock was the biggest gainer in the S&P 500, indicating that Newmont could become a favorite for investors if we are in a bear market and it keeps performing as a contrarian to the general direction of the index. Newmont has more than doubled since gold prices bottomed in 2015, gaining 3.9% on Monday during the worst Christmas Eve selloff ever. The miner’s debt situation has markedly improved since 2015, which means it will be in a good position to capitalize if and when gold prices start to climb in earnest.


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