Santoli's Friday market notes: S&P 500 leaves a sideways May with the long-term uptrend intact

Published Fri, May 28 20211:08 PM EDT

This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics. On the first trading day of May, the S & P 500 hit 4206. It closed Thursday at 4200 and at this moment is at 4217. So nothing happened this month? Not exactly. A sideways market for sure, but one that weathered a 4% pullback in two waves, refused to buckle under its 50-day average, sowed some frustration among investors that helpfully drained away excessive optimism, allowed valuation to moderate on stellar earnings, absorbed a mini-inflation panic and its subsidence, and ultimately left the benchmark firmly within a longer-term uptrend, even if this proves to be the top end of a range for now. The index has shown some fatigue and wavering leadership (consumer, housing and semis softened a bit), yet with it all and thanks to sturdy credit markets has traded higher than the current quote on only two days in the history of bids and offers: The AMC/meme complex consuming far more than its share of the oxygen, growing unstable after the crazy run on blinding share and options volumes. More than a billion shares have traded and more than 5 million options contracts (covering 500 million shares) have turned over the past two days. Only about 493 million shares exist. The most-traded option today is the AMC $30 call, which expires in a few hours, traded as high as $7.87 this morning, now at 60 cents. It's a fun game for those who like to light firecrackers and wait for the fuse to burn down most of the way before tossing it. The company's enterprise value (equity + net debt) is around $25 billion, more than double the pre-Covid high and five-times that of Cinemark, a company in the same industry with the same short interest percentage whose business is about half as big as AMC's. No one knows why things go viral, or when they'll stop. But note AMC shares peaked in the 10am hour, which is when the S & P hit its low. Disorderly mo-mo meme action is a drag on the core market, all else equal. Warmer-than-expected PCE inflation print absorbed with little fuss this morning. The Treasury market has made its peace with the bump in springtime inflation readings, it seems, and has internalized the Fed's patient "talking soon but not doing anything for a while" message. That said, yields too have consolidated near their highs and are still in a firm trend. They look quite a bit like the reflationary equity sectors. A brief pause or a more lasting plateau? Nasdaq 100-type mega growth firmer today, has held above the March lows and, while no longer a leadership group, consinutes to help support the S & P in tiems when cyclicals need a breather. The ARKK complex has had a good week, up nearly 7%, an example of a former speculative fever pocket that has cooled and purged the fast money. Again, the charts are not pretty and the February highs look very safe but traction after liquidation is a real thing in markets. Market breadth is nothing special today, modestly to the upside. Equal-weighted S & P lagging the main index a bit. VIX is sliding, near 16, given steady indexes, approaching three-day weekend and – probably – the meme stocks reversing lower intraday. Wild stock options volume acts as a prop to VIX it gets truly out of hand. Maybe after expiration things stand to be less crazy next week on this front?

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

On the first trading day of May, the S&P 500 hit 4206. It closed Thursday at 4200 and at this moment is at 4217. So nothing happened this month?
Not exactly. A sideways market for sure, but one that weathered a 4% pullback in two waves, refused to buckle under its 50-day average, sowed some frustration among investors that helpfully drained away excessive optimism, allowed valuation to moderate on stellar earnings, absorbed a mini-inflation panic and its subsidence, and ultimately left the benchmark firmly within a longer-term uptrend, even if this proves to be the top end of a range for now.

The index has shown some fatigue and wavering leadership (consumer, housing and semis softened a bit), yet with it all and thanks to sturdy credit markets has traded higher than the current quote on only two days in the history of bids and offers: