The next few days may reveal whether investors have been riding one big suckers rally, says this strategist.

“Half a million jobs, climb down off the wall, call the recession off. This isn’t a soft-landing, the economy is still flying high,” says Chris Rupkey, chief economist at fwd: bonds, a research company.

Add the jobs numbers to a long list of things that don’t make sense right now, says Matt Maley, Miller Tabak + Co.’s chief market strategist. “After the action in the stock market this past week, you’d think that this earnings season has been great…and that the Fed has declared that they’re definitely going to cut rates soon…AND institute another QE program.  However, none of these things took place.  In the end, the fundamentals still matter, so be careful,” Maley told clients.

In our call of the day, Maley highlights “some artificial factors” that have been pushing stocks higher, leading some investors to believe that the markets are “looking beyond 2023.”

“Once those artificial factors peel away…the real/concrete developments will become much more prominent.  When that happens, the stock market could/should reverse to the downside very quickly,” he said.

Maley expressed surprised that the S&P 500 is trading at a price more than 19 times 2023 estimates, and given the fact earnings season hasn’t gone that well.

He also notes odd views making the rounds, such as the idea that the Fed pausing its rate-hiking program will be the same as a pivot, though historically pausing has never been the catalyst for a new bull market.

Maley takes a deeper look at the charts, where sees some good news and bad. Firstly, if last week’s gains that took the S&P 500
SPX,
-0.49%,
the Nasdaq 100
NDX,
-0.49%
and the Russell 2000
RUT,
-1.35%
above key resistance levels hold, it will be the best thing the bulls have going for them right now.

But those markets have also become overbought in the short term, he says.

With that in mind, he says watch the shape of any pullback to come.

“It should last for a few days…and maybe even more than a week. If it’s a mild one…with low volume and the kind of breadth that is not extreme, it should mean that we’ll see even further material upside movement before we get through the month of February.”

“If however, the decline comes on high volume and rotten breadth…and is more than just a mild decline…it could signal that the recent rally was merely a great big sucker’s rally,” said Maley.

The markets

The Dow Jones Industrial Average
DJIA,
-0.25%,
S&P 500
SPX,
-0.49%
and Nasdaq
COMP,
-0.65%
have all opened in the red. Bond yields
TMUBMUSD10Y,
3.623%

TMUBMUSD02Y,
4.441%
have climbed. The dollar
DXY,
+0.69%
is higher, along with oil
CL.1,
-1.23%
and gold prices
GC00,
+0.19%.

For more market updates plus actionable trade ideas for stocks, options and crypto, subscribe to MarketDiem by Investor’s Business Daily.

The buzz

Catalent stock is up 21% after a report that Danaher
DHR,
-1.16%
is interested in taking over the contract manufacturer and pay a significant premium.

Dell
DELL,
-4.05%
is reportedly planning to cut 6,650 workers, according to a report, and adding to the thousands of tech layoffs announced thus far.

Tyson Foods
TSN,
-3.78%
shares are tumbling after a hefty miss on earnings and revenue. Take-Two Interactive
TTWO,
-2.96%
and Activision Blizzard
ATVI,
-3.80%,
among others, will report after the market close.

Monday’s data and Fed calender is quiet, but Chair Jerome Powell will speak at the Economic Club of Washington on Tuesday, so all eyes on that.

A 7.8 magnitude earthquake has left more than 1,900 dead in southeast Turkey and Syria, with hundreds feared trapped in crushed buildings across cities and villages on both sides of the border. Turkey was hit by a second big quake hours later.

Tensions are rising over a Chinese balloon U.S. President Biden ordered shot down over the weekend. Hong Kong stocks fell.

Best of the web

The world’s biggest passenger airlines are heading back to the skies.

The big risks on the table as we enter year two of Russia’s war in Ukraine.

Goldman Sach CEO David Solomon’s “hobby” as a popular DJ is putting him and the bank in an uneasy spotlight.

The chart

You want a little good news for stocks? Check out the so-called hot dogs.

“The most popular stocks in hedge funds have been outperforming. This is good news for the market, as a shift in performance was seen in late 2018 right before the December bottom,” Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets, tells clients in a new note.

She also says correlations within the S&P 500 and Russell 2000
RUT,
-1.35%
are falling, notably for healthcare, consumer discretionary and comm services. This is positive for stock pickers because high correlations within equities makes it very tough for those active investors to beat the market. 

The tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.

Random reads

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Under threat of being swallowed by a mine, a Swedish town is moving itself one building at a time.

$1,850/month — what this 27-year old pays to live in an old NYC laundromat

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