Mike Santoli's market notes: Resetting sentiment, options market playing a role, Tesla back to $500

Published Thu, Nov 19 20201:59 PM EST

This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics. (This story is for CNBC Pro subscribers only.) The market remains in rest, reset and rethink mode. Resting after a headlong 13% sprint to start November. Resetting exuberant sentiment and over-extended cyclical stocks back toward more sustainable paths. And rethinking, in a measured way, expectations that a vaccine-aided reopening moment is near enough and certain enough to allow investors to ignore near-term economic slowing and Covid shutdowns. It all doesn't amount to very much yet, just a modest slip from a record high, cushioned today by a return to the big growth and stay-at-home names that got us through much of the year. The S & P 500 is back within the box of a trading range that dates back almost four months. There's around 3% of further downside before it even gets to a place where one would think any damage was being done, around 3470. Unless/until it shoots below there, it's a pretty routine pullback. Jobless claims worse than expected, weakening from already-worrisome levels and further shutdown talk is unwinding a portion of the rotation into cyclicals/value, with Nasdaq 100 and pure bunker-down stocks (Zoom, DocuSign, cloud stuff) taking up much of the slack. All pretty orderly/rotational. I continue to hear that the S & P is restrained by heavy options-dealer hedging ahead of expiration tomorrow. Short version is, there were mechanical drivers of yesterday's dip along with real news, and the chance for squirrelly action and air pockets remains. Part of this matters more these days because the public is gorging on speculative call options in tech stocks again, just one of several sentiment measures that look a bit overripe lately. Put/call ratio scraping against levels that have coincided with stock-market slippage: The weekly NAAIM tactical fund-manager equity exposure gauge also back up to late-August highs (this is as of last night): None of these readings are automatic rally stoppers, but act as offsets to the positives (strong uptrend, rising earnings forecasts, sturdy credit markets, favorable seasonal patterns) and possible headwinds to fast further market upside. They can be taken care of either with a further pullback or a period of sideways digestion, typically. Tesla back at $500 is another callback to the end-of-August market peak, a sign the public is getting excited about some of the obvious glamour names again. Higher it goes the more friction there will be for the rest of the market when it enters the S & P 500 in a few weeks. Manageable but could be cause of technical pressure in coming weeks, along with likely heavy pension rebalancing activity out of equities at month- and year-end. Just stuff to put on the radar. Treasury yields slipping again, dragging down banks, which are now roughly flat on the week. Very mixed action under the surface today. Nasdaq has more stocks down than up but advancing volume is 70% of the total – thanks in part to TSLA, by far the stock with heaviest dollar trading volume almost every day. NYSE a pretty even split, the equal-weight S & P giving back some recent outperformance, down half a percent. Credit spreads showing no real stress or macro anxiety today. VIX steady in the 23s, above the recent lows but not by much. Keep in mind looking out the next 10 days we'll only be trading four and a half of them with the holiday, so that's a drag on volatility expectations.

Traders work the floor of the New York Stock Exchange.

NYSE

This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics.

(This story is for CNBC Pro subscribers only.)

The market remains in rest, reset and rethink mode. Resting after a headlong 13% sprint to start November. Resetting exuberant sentiment and over-extended cyclical stocks back toward more sustainable paths. And rethinking, in a measured way, expectations that a vaccine-aided reopening moment is near enough and certain enough to allow investors to ignore near-term economic slowing and Covid shutdowns.