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Morning Commentary


By Charles Payne, CEO & Principal Analyst
2/25/2021 9:19 AM

Turn Those Machines Back On!!! ::: Trading Places ::: - YouTube

Don’t look now, but the Duke Brothers are going to be pissed. Someone let the riffraff back into the market, and now the short squeeze saga continues. The establishment has spent the last three weeks running victory laps and chuckling over those silly Reddit people.

How dare they think they could play our game; a Duke has been in the market since the turn of the century (pick one). Financial media skeptics continued their condescending coverage, but GameStop (GME) never made it to the starting blocks.

Instead, GME smoldered and hinted from time to time that it wanted to nudge and test the shorts.  Well, it did not only nudge hedge funds - but it also nuked them again. Shares of GME began to edge higher and then took off like a rocket ship. Even when the establishment pulled a few of their stunts, such as halting the stock from trading until one minute was left in the session.

That trading halt curbed gamma buying, a technique that smacks around hedge fund shorts like garlic to a vampire.

Shares of GameStop (GME) surged to $91.71, +103% on 75.6 million shares. In after-hours trading, the shares climbed another 103%.

GameStop (GME)

DTCC To the Rescue

Although the move in GME and other heavily shorted names began during a segment on Robinhood on my show (‘Making Money’), I do not take credit. The Depository Trust & Clearing Corporation (DTCC) issued a white paper on the roadmap for shortening the settlement cycle for U.S. equities to one business day after the trade is executed.

According to the paper, the benefits would include:

The DTCC says it needs two years to implement this plan, as it would take time to galvanize the necessary support for the project across a wide range of market participants. 

For those unfamiliar, the DTCC was created in 1973 when volume on the NYSE surged in the late 1960s.  With daily volume routinely climbing above eight million shares, there was concern about the ability to handle the onslaught.

Today, the DTCC is global and operating in 65 countries. 

Settlement Days

When I began in the business, it took five days (T+5) for trades to settle. As you could imagine, there were some serious issues with that. Although back then, as a stockbroker, I needed all those extra days as I nervously waited for the customer’s checks to make it through the postal service.

Soon thereafter, the industry moved to shorter settlements, and then even shorter settlement times.

On September 5, 2017, the DTCC moved to (T+2), but in this fast-paced digital world with algorithms, high-frequency trading, and legal front-running, that is still too slow. It has exacerbated liquidity issues for brokers while making shorting harder to monitor. The DTCC says they have always had the ability to go to (T+0), but not sure the system is ready for that just yet.

I’m thrilled we could soon see (T+1). I just wish it could happen today. And I hope hedge funds do not resist.  Link to White Paper: https://perspectives.dtcc.com/articles/project-ion

Trading Places

I keep reminding everyone the best way to assess the level of fear in the market is to check on the performance in Utilities followed by Consumer Staples and Real Estate. When those sectors are down the most, or in the case of yesterday’s session (the only losers), the market is not afraid.

S&P 500 Index



Communication Services XLC



Consumer Discretionary XLY



Consumer Staples XLP



Energy XLE



Financials XLF



Health Care XLV



Industrials XLI



Materials XLB



Real Estate XLRE



Technology XLK



Utilities XLU



Technology staged a very impressive rebound, but the real story of the rally is how would-be value has traded places with mega-cap stocks. Reopening trades: Norwegian Cruise Line (NLCH), United Airlines (UAL), and Royal Caribbean Cruise (RCL); Farm economy: Mosaic Co (MOS); Commodities Super Cycle: Occidental Petroleum (OXY), EOG Resources (EOG), Halliburton (HAL), Cabot Oil (COG), and Tesla (TSLA). 

Fun in the Sun

Norwegian Cruise Line Holdings





Mosaic Co.





United Airlines










Occidental Petroleum





Iron Mountain





Royal Caribbean Cruise





EOG Resources





Halliburton Company
















Portfolio Approach

We added to Financials and Materials  yesterday in the Hotline Model Portfolio and closed a position in Healthcare. This morning, we took profits in Consumer Discretionary. 

Today’s Session

This morning’s initial jobless claims are a weekly reminder that a large swath of Americans is being left behind.   The good news is 730,000 is far less than the 825,000 expected, but there is some noise from Texas where accurate data was impossible.  This number will be revised higher, but the trend is still moving in the right direction.

United States Initial Jobless Claims

Central Bank Challenge

Market resolve has been remarkable this week, but the challenge isn’t over, as global bond yields continue to surge.

The last two days, when the market stumbled out the gate, Fed Chairman Powell was on Capitol Hill to assuage concerns.  He is off the hook today, but if there is noticeable weakness, we might hear from someone on the team to remind the world they are not worried.

In real terms, current yields are not a problem.  The angst has come over the pace they are climbing.

Last Three Months

While Powell & Co are playing it cool, there is a sense the ECB might take some kind of action, even though many nations, including Germany’s ten-year yields are in negative territory.

That was a great commentary this morning Charles. Love it when you get down in the dirt and dig up words of wisdom. Thank you my friend.

James Hurley on 2/25/2021 10:10:26 AM
Hi Charles, I love your service. I'd love it even more if your graphs were a little bit bigger and a little bit more clear (vision wise). I look forward to your analysis and your show every week day.

No need to post

allan dobberfuhl on 2/25/2021 11:15:40 AM
So much to try to comprehend it's mind numbing Charles. How do you do it! Thanks. I read your story every morning and miss you on the weekend.

Lorin K on 2/25/2021 11:55:12 AM
Buying the dip on Tsla? Working so far! Thanks Charles.

Leon on 2/25/2021 12:11:12 PM
Charles, love your work. I am always baffled that most analysts, including you, seem to NOT dwell on the dominant downward pressure that happens in the natural trough between earnings seasons. That’s what’s happening right now. I didn’t need a lot of technical info to handle this in my portfolio. I was sure we’d see this trough again, it was the triumph of common sense to me. Your thoughts?

Leo Velis on 2/25/2021 1:25:40 PM

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