Santoli’s Monday market notes: The S&P 500 finds traction and rebounds as investors remain on guard

Published Mon, Dec 6 20211:18 PM EST

This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics. The broad market found some traction where it "should have" after last week's washout in which most stocks left the tape oversold and under-loved. The S & P 500 has been chopping around its 50- and 100-day average (where it bottomed in early October), has retraced almost exactly half of the Oct.-Nov. recovery rally, the percentage of stocks down more than 10% and 20% has ballooned, protective put volumes exploded, investor sentiment and positioning have collapsed pretty quickly. All makings of a good bounce prospect in the first part of this week. So far it's a tentative an selective rebound attempt, stopping right at Thursday's high in the S & P 500. It's a decent step in the right direction though both dip-buyers and rally-sellers are on guard. Typical action in a stressed market that's been undergoing some forced liquidation and collective rethink of the macro set-up into 2022. It's a plus that with expensive/crowded Nasdaq stocks still being flushed, the market's old rotational routine is working again today, as Treasury yields lift a bit after perhaps having overshot to the downside. Banks, industrials, energy, consumer-cyclicals, and even small caps managing to recover a bit. As noted in the weekend column , there's a plausible if perhaps narrower path higher for stocks, with investors having to navigate the Federal Reserve's new conviction about quickening the wind-down of bond purchases and the unknown growth effects of omicron. Today's action implies marginally more comfort with the overall economic resilience story. The 2022 strategist outlooks are coalescing around the themes of lower returns, more volatility, a preference for quality/value stocks and navigation of late-cycle dynamics. This all makes sense, as the consensus always does, though a given year rarely conforms to the playbook and calendar-year gains of 8% to 12% are exceedingly rare. Expect to be surprised is usually a good plan. Market breadth is decent on NYSE 2:1 up:down volume, equal-weight S & P up 1.5% vs. the main index up 1%. Respectable. Nasdaq breadth is more mixed, with another day of 600+ new 52-week lows. So many stocks being ditched in the lower reaches, probably makes for a ferocious Lazarus/January Effect trade as the tax-loss pressure lifts and investors get a new P & L to play with. Such back-from-the-dead action often gets going ahead of January. VIX itself is hardly down at all, just under 30. Traders not ready to relax given the pattern of late-day swoons lately. Doesn't mean we'll get one – could make it less likely that we do – but this seems to be the behavioral expectation.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, October 19, 2021.

Brendan McDermid | Reuters

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