DJIA: 40,563

The earth’s surface is 71% water … the rest they say is covered by Naeher. No, that’s not a misspelling of Nvidia, it’s the US Olympic soccer goalie who recently outperformed Nvidia (123). Corrections happen and the one in Tech was on its way even before the global margin call in the yen-carry trade. And NAZ 10% corrections are hardly rare – six in the last five years. The good news is in three cases the 10% was pretty much it. The problem is these sharp selloffs are often followed by uninspiring recoveries. The S&P reached the 10% mark only intraday, but here history shows a high likelihood of a test. Meanwhile, the recovery has impressed us in what we care about most, positive and impressive A/Ds six of the last eight days.

Nvidia’s 30% recovery from the recent low has to be called a good one. Then, too, the guy who jumped from the 50-story building on floor 25 said the fall was a good one. Nvidia’s recovery is more than good if you’re in around the low at 90, but not so much if you’re in around the high at 135. And the problem here is that there was a lot of trading in that area between early June and late July. The theory goes that is now supply/resistance. As it happens, we don’t so much worry about that, but we do worry about the 50-day which also is around 120. So, this is a bit of a moment of truth, so to speak. A move above the 50-day would certainly be a positive.

The VIX (15) or Volatility Index is one of those measures which for the most part has no message. Sometimes called the “Fear Index” it’s at those times that it screams at you. It began life in 1990 and since then has seen an average close of 19.5. It closed a week ago Monday at 35.5, and earlier in the day hit 65. That’s panic and can be taken as a sign of real selling. And of course it’s selling that makes lows, not as most think the buying. Often misunderstood is it’s the level of the VIX that’s important. In different markets and different lows, it varies. What is important is what happens after a peak. A reasonable drop in the VIX means the panic is over. Currently well below 20, it seems safe to say that’s the case now.

Typically, we place greater emphasis on momentum, market movements, rather than on sentiment, how investors react to those movements. Other than the drama of that 1000-point Dow loss and the 9-to-1 down day, we haven’t exactly seen real washout numbers. Then, too, for the Averages it has been more or less your garden-variety correction. Where there have been standout numbers has been on the sentiment side, the VIX being a prime example. Though they get little attention, and perhaps because of that, put/call ratios also have proven useful. An appeal here is they are measures of what people actually do, rather than just opinions. These numbers worked well at the low late last year, and again in May. The equity only ratio has reached an extreme in Put buying, and according to SentimenTrader.com, the ratio for retail trades has done so as well. Together with the VIX, they suggest a low is in place.

The history of these sharp selloffs is a probable test, and a struggle higher. There’s also the problem that August and September seasonally are no prize, and World War III if not already begun, could be about to start. That said, do you worry about the above, or do you believe your eyes – the recovery has been impressive. It’s rarely right to be negative on Tech, and we would rather not risk what career we have left. That said, there is real damage to most of the charts there, and remember down the most turns to up the most but only initially. Meanwhile, as Walmart (73) made clear on Thursday, there are alternatives, and in its case with a better long-term chart than most of the Tech. Cintas (768), of course, and Parker Hannifin (591) fit that pattern, and among the still positive Financials, consider Progressive (237) or AJ Gallagher (284).

Frank D. Gretz

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DJIA:  40,347

It’s likely a long and winding road … the next six months.  A couple of weeks ago there was a dramatic change in market momentum. Consecutive days of 3-to-1 advancing issues, coming near a peak in the Averages, has led to higher prices virtually every time six months out. It’s not the 3-to-1 numbers per se, it’s the idea these sort of numbers are more typical of lows rather than markets near peaks.  Last week we saw a nasty selloff that took the S&P from 5% above its 50-day to below that average. Outcomes from this pattern are similar to the one described above, that is, higher prices six months out. While this may seem surprising, there is a logic here in that sharp declines are not how bear markets begin. Those are a process. Declines like last week’s might better be described as profit-taking panic.

The Russell 2000 is all the rage. If the truth be known, we’ve often and unkindly referred to it as love among the rejects. Of the component issues an amazing 40% lost money in the last 12 months. As for what you might call the up-and-coming, they are rare. The up-and-coming no longer go public, they are funded by venture capital. The good guys, the growers, they graduate to the grown-up indexes. So how is it the Russell is up more than 10% since mid-July? It’s what technical analysis is all about – supply and demand, more buyers than sellers. The Russell is 17% Regional Banks – how many do you own? Chances are few do, and hence the lack of supply. Will it last, of course not. The problem, however, is it could outlast you. This so-called move to secondary stocks seems more simply a move to Financials, big and small.

When at Merrill Lynch a long, long time ago, we would have a 9 o’clock meeting every morning.  At the meeting we would all express our thoughts on the market. Then Bob Farrell would offer his, which pretty much then became ours.  After all, he was the smartest guy in the room, and in most rooms.  What prompts this bit of nostalgia is an indicator we used to follow back then. We kept track of the number of stock splits and found they rose with the market and coincided with peaks.  There is, of course, no magic here, rather stocks peak when they’re up a lot and when they’re up a lot they split a lot.  Still, we can’t help but wonder why stocks like Nvidia (109) and Amazon (184) after all this time suddenly decide to split.  Perhaps it’s not the mechanics that’s important here, rather the sentiment – a bit euphoric?

In market declines it’s typically only near the end of the weakness that you find the reason for the weakness. What makes this time a bit different is already there’s talk of, can you imagine, double ordering in Semiconductors. If you’ve been at this for a while, you know double ordering has been going on since Lawrence Welk was a Semiconductor. Next they may figure out there could be competition. It’s way too soon for bad news to kill Tech, that will take time. Meanwhile, Nvidia seems to be tracing out its pattern of last March. To look at Aerospace and Defense Stocks, there seems little threat of an outbreak of peace. Then, too, business might just be that good.

This market makes it difficult to talk about THE market. On the NYSE stocks above their 200-day at the end of last week were above 70% and had never dropped below 60%. For the NAZ the number was below 50%.  Much of this is about the Financials, which is not to say that’s a bad thing. And by Financials we’re really speaking of rate sensitive shares like the REITs, homebuilders, insurance brokers, banks and so. There are many. And whether you think the Fed will or will not cut in September it doesn’t really matter. The market thinks they will. The Financials seem here to stay, though come September you may want to sell on the news. Wednesday’s rally was led by Tech, but that’s more about down the most turning to up the most in a lift. Recovering won’t be easy, the winding part of the road.

Frank D. Gretz

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DJIA:  39,753

Show us market breadth …and we’ll show you the money. Liquidity and the lack thereof drives markets.  When you say to yourself you wish you had more money to invest but you don’t, if that’s true for everyone that’s the top. When all the money is in – that’s it. How do you measure liquidity, sideline cash? Back in the dark ages we used to watch mutual fund cash levels, thinking that cash on the sidelines was a good thing. It wasn’t. When the market wanted to go higher the money always seemed to come from somewhere – foreign buying, whatever. The best measure of liquidity is market breadth, the Advance/Decline Index. It takes a lot of money to push up 3000 stocks a day and earlier in the year that happened with regularity. Now 2000 at best is more the norm. The numbers are not a disaster but they have deteriorated, meaning so too has liquidity and the health of the bull market.

The market should be in sync, the A/Ds should keep pace with the Averages even day to day. Down days in the Averages likely will see negative ADs. Bad days happen. It’s the up days with negative A/Ds, what we call bad up days, that cause problems. Again, it’s about enough money to push up the Averages, but not most stocks. Divergences are an important insight, but it’s easy to lose focus. The Averages are the last to give it up, which means there has been money to be made in the FANGs, Semis, LLYs and so on.  And if you’re in the rest and not making money, you have hope your turn will come – hope being a wonderful part of life, but a terrible part of the stock market. When the Averages continue to act well, it’s hard to sell even if it’s time to do so.

Tesla (241) could be a case study in contrary thinking.  EV sales are in decline, the company is being outsold in China, yet the stock rallied on what had to be considered dubious news – the old not as bad as expected.  In this case, it’s not the “news” that was important, it was the “expected” that mattered.  When it comes to the stock market, what is expected, what we all know, isn’t important. It’s priced-in discounted, whatever.  Not every contrary opinion works this well, of course, and in this case the chart was a big help.  The day of the news the stock was down pre-market, suggesting someone had gotten it wrong. It wasn’t the chart.

Summers are great, but not so much for stocks. The history of June, July and August is pretty much that of a trading range, especially when the seasonal pattern of particularly strong days ends this Friday. The world will not end, but it has been a good run recently leaving the market a bit stretched to the upside. And there’s a peculiarity in bonds, wherein the spread between the AAA and BBBs recently was at a 35-day high. This is more typical of weak markets rather than one at new highs. It suggests bonds don’t see the same rosy scenario that stocks are seeing, and historically bonds typically have won out. The Transports generally and stocks like Parker Hannifin (528) and PACCAR (103) also pose some economic concern.

Wednesday finally saw a 3-to-1 up day, the first since mid-May. Then came Thursday, which might have been called revenge of the nerds – Tech hammered, everything else up. The Russell was up more than 3% and the A/Ds were better than 4-to-1. Not exactly the look we were expecting, but some change can’t be a complete surprise.  If Thursday is any guide, a reset could be a healthy one – any broadening of the market can’t be bad. One day is just that, but admittedly we had expected the market to just continue to narrow in a trading range summer. And while one day is just that, there are many stocks outside of Tech that have more than good one-day patterns. We’re thinking here of stocks like Ingersoll Rand (96), Eaton (329), Cintas (716), Intuitive Surgical (444), Trane (345) and others.

Frank D. Gretz

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DJIA:  38,647

Sometimes a low is just a low … and not a shiny new uptrend.  The semi washout low in late May, a 5-to-1 down day and a couple of decent up days, seemed to turn things for now. What turned, however, were the Averages and not so much the average stock.  If you can’t hurry love you certainly can’t hurry markets.  We all tend to think of it as trending but that’s only true if you include sideways as a trend.  Markets spend a lot of time going nowhere, consolidating gains or losses.  In this case consolidating the 10% gain in the first five months this year.  The good news is that 10% in the first five months augurs well for the next seven months. Historically there’s a better than 80% win rate after even 5% gains, with the caveat there can be some nasty drawdowns.

The contradiction about this market is that it has been in a momentum correction for almost 3 weeks, though the S&P and NASDAQ made new highs to start the week. The Averages are outperforming the average stock, and that to an even greater extreme on the NAZ.  Last week there were more 12-month new lows than new highs there, and the A/D Index made a new low.  There always has seemed a bias to the downside in these numbers, so we’re not overly concerned.  This is, however, the classic pattern of a market top — the Averages remaining strong while most stocks falter.  Eventually, there isn’t enough liquidity for even the stocks that dominate the Averages.  Fortunately, problems like this evolve over time, enough time you will have stopped worrying about them before they matter.

It’s Nvidia’s (130) world, and the rest are just trying to find a way to play in it.  In this case, the rest of them might well be the FANG stocks, the Nvidia’s of their day.  It’s not that they have fared so badly, it’s just Nvidia has sucked all the air out of the room.  And, of course, there had been that Debbie Downer called Apple (214), which suddenly has come to life. The four names of FANG all are good charts, at or near breakout points. The IYW (150) seems a relevant ETF here, among others.  While it’s easy to think of these as volatile and therefore risky, over the years they almost seem to have taken on some defensive characteristics, especially in market weakness.

Back in 2014 Blackstone bought 1740 Broadway for 605 million, of which they borrowed 300 million against the 26-story building near Columbus Circle – not exactly a bad neighborhood. The building was recently acquired for less than 200 million, according to the New York Times.  Real estate isn’t easy, but these guys are supposed to be the experts – and yet. Stick to trading stocks?  Like any down and out market there have been a few false dawns here, with more likely to come.  A more recent NYT article pointed to the revival in shopping centers where, apparently, pickleball might save the day.  While we have little interest in real estate per se, we do follow the regional banks, especially when they act poorly.  That said, they did have a good day Wednesday on what wasn’t friendly news.

Progress not perfection seemed Powell’s message Wednesday, a message seemingly taken by the market as good enough.  To look at Parker Hannifin (525), a stock Greenspan used as an economic indicator, or even the Transportation Average, the economy more than rates seems worth a worry.  Meanwhile, one day is just that, but a 3-to-1 up day in the A/Ds tells a story more important than the Averages – but no follow through on Thursday.  Speaking of the Averages, clearly the NAZ is where it’s at.  While that’s no great insight, the driver from here could expand from AI makers, Nvidia and other Semis, to AI takers, the FANG stocks.  Also, we shouldn’t forget about Bitcoin, though most days it’s tempting.  Probably the best investment these days – volume.  If these thousand-dollar stocks continue to split 10 for 1, think what it will do for overall volume.  Are commissions still based on shares?

Frank D. Gretz

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DJIA:  39,065

You wish you had more money to invest but you don’t … that’s the top.  Well, if that were true for all of us, that is, when all the money is in, by definition that’s it.  It’s money, that is, liquidity that drives markets.  The question, of course is how do you know when the money is in?  There are a few macro measures but best are those Advance-Decline numbers.  In the short run they are important because the average stock typically leads the stock Averages.  In doing so, however, they also offer an insight into liquidity.  Over the last few weeks there have been only seven or eight days with fewer than 2000 advancing issues, and seven days with more than 3000 advancing issues.  It takes a lot of money to push 2000-3000 stocks higher every day, meaning the liquidity for now is still there.  As it diminishes, so too will the number of advancing issues.

Dow 40,000 is quite a run from Dow 5000, but somehow 5000 seemed more exciting.  In reality, none of these so-called milestone numbers have mattered a whole heck of a lot, except perhaps to the media.  Bloomberg’s John Authers makes the point with which most agree, it’s a strange measure.  Security selection always seems with an eye to the past, like adding Cisco (47) well past its prime.  And, of course, there was the untimely removal of an original Dow stock, GE (165).  Meanwhile, Intel (30) is there with its 133 billion market cap but not Nvidia (1038) with its 2.3 trillion market cap.  To be fair, over the last seven years Apple (187) contributed some 3000 points.  Two other Mag 7 stocks are there, Amazon (181) and Microsoft (427), but underrepresented compared to Goldman Sachs (458) and United Healthcare (517).  If denominated in Gold, the Dow has been flat since it hit 20,000, making its performance more like that of the Equal Weight S&P.

Price gaps refer to the empty space on a bar chart, left when the low price one day is well above the high price of the previous day, and vice versa.  Most stocks trade actively enough we can say it takes a lot of buying or selling to cause gaps, making them important.  Indeed, we find prices subsequently tend to follow in the direction of gaps.  Nothing is perfect and there are some recognizable exceptions, one being this week’s downside gap in Palo Alto (311).  The stock had a downside gap that was quite extreme last February that quickly reversed only to die at the 50-day.  The gap this week is what you might call the good kind, it didn’t break the 50-day.  Gaps that don’t change an uptrend, as is the case here, typically are just normal corrections, and likely a buying opportunity.

The 200-day moving average seems a good definition of a medium-term trend.  For the market as a whole, 73% of stocks are above this average, 70% is thought to indicate a bull market.  When it comes to stock selection, clearly there’s a lot to choose from.  Indeed, we can’t quite recall a time when Tech and Commodities were both performing well, let alone together with Utilities.  So it’s not just AI, and even when it comes to AI it’s the many associated stocks that have also performed well.  These include the Electric providers, like Constellation (221) and Vistra (96), as well as names, like Quanta (277) and Eaton (338). Meanwhile, despite what seems a fixation on Tech, even Staples like Colgate (94) act well.

The earnings heard around the world.  Earnings for Nvidia were the easy part.  They were good and everyone and their brother knew they would be.  With a good chart, there is no reason to expect a poor reaction.  Still, it’s never about the news, rather how the market reacts to the news.  The stock has been consolidating for 2 ½ months, and if anything should be ready for another run.  Meanwhile, after all the praise we heaped on those A/D numbers, the last few days have turned a little sloppy.  Weak down days are not the problem, worry about the weak up days.  The S&P has seen more than 20 new highs in the first hundred days of trading.  A feat often followed by weakness in a very short term, but strength always over the next six months.

Frank D. Gretz

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DJIA:  39,869

Be careful what you wish for … the troops have been leading the generals.  Everyone complained about the narrow market, but it had its advantages.  When it was just the FANG stocks, and just Nvidia (943) and friends, at least you knew what you wanted to buy.  FANG and the Semis seem to be coming out of their stall, but there has been almost a surfeit of riches, and hence the good A/D numbers. This has included Staples and Utilities, making some uncomfortable.  The belief there is that when staid sectors lead, the rally is not to be trusted.  This narrative doesn’t hold up historically, especially when like now many areas are participating.  And as we’ve noted, Utilities have become pretty techy of late.

In tennis, when you get your racket back early good things happen.  In the stock market, when the average stock leads the stock Averages good things happen.  The A/D Index has been sitting at a new high for a while, now the Averages are there as well.  Since April 18 there have been only six days on the NYSE with more declining than advancing issues. Most dramatic were the three consecutive days at the start of May which saw advances 3-to-1versus declines. Typically you see numbers like that coming off of a washout sort of low, when stocks are stretched to the downside.  That was not the case this time, and all the better. When the S&P has been above its 200-day and there were three consecutive 3-to-1 up days, markets were higher in every case three and six months later, according to SentimenTrader.com.

So, when someone tells you they’re very bearish, you in turn might say so you don’t own any stocks. They in turn would likely retort, well I am in this or that and so on. That’s when you say – so you’re not really bearish, if you were, you would not own any or many stocks.  If this little discourse were quantifiable, it would be called a passive sentiment indicator.  Typically surveys measure people’s opinions, not their actions.  These have their value, but also suffer from the problem of knowing when to be contrary.  In good markets, investors do become bullish, it’s normal.  It’s the extremes that matter.  Meanwhile, we find transactional measures more helpful.  There is one called the ROBO P/C Ratio, or retail options to buy, to open indicator. In the little 5% correction, this measure showed bottom equivalent bearishness.

Biotechs have had a tough go of it for some time.  Hope springs eternal, as most of us remember all of the good times.  With some 500 names even in our database, we know once started a run can be a bit contagious. Recently Amgen (315) has turned into an interesting chart, with its own gap a week or so ago.  It also has one of those orderly, consistent long-term uptrends, surprising for a Biotech.  From early May through the end of July Biotechs also are in a seasonally favorable period.  Meanwhile, of course, AI remains the market’s focus. Even here, however, interest has spread to supporting names like Quanta Services (264), Vertiv (97), Eaton (330) and even Copper companies like Freeport (52).  For what it’s worth, we don’t think the MEME revival is the worst thing.  Speculation in moderation is part of good markets.

Tuesday’s PPI could have taken the market lower; Wednesday’s CPI need not have taken the market much higher.  The rationale seems simple – the market makes the news, and in this case the market wanted to go higher.  So what do we expect from here?  To go by the history of three consecutive 3-to-1up days, or the five consecutive months higher in the Averages, we should see another six months of on balance higher prices. Important, of course, is that we continue with what got us here, respectable action in the average stock.  Stocks peak before the Averages.  Meanwhile, we wouldn’t lose track of Bitcoin here.

Frank D. Gretz

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DJIA:  39,387

Utilities … they’re not your father’s Oldsmobile. We should know, we have a Jetstar 88, one of those things you don’t so much park, you dock.  We also took heed of fundamental colleagues and sold some Constellation Energy (216). The thinking there was a lack of earnings growth, similar in retrospect to the thinking about Amazon (190) a few years back.  Perhaps therein lies the tale of big winners – it’s not the growth you see it’s the concept that will lead to the growth.  The earnings come later.  The concept here, of course, is that Electricity is a growth business.  Then there is the technical side, at the heart of which is supply and demand. How many Utilities do you own?

Admittedly, it’s a bit concerning when the market starts to find stocks because they fit a story or theme.  Amazon is doing well, let’s buy the Containerboard stocks – that sort of thing.  In this case, of course, it’s about AI.  What isn’t?  Did you know GPUs use twice the power of CPUs?  Even if you don’t know what GPUs or CPUs are, it could be reason enough to buy Utilities.  Just imagine the power demand when we get to KPUs.  The Utility ETF (XLU – 71) is almost a little stretched, but what big uptrend didn’t start that way?  And not all of XLU is Techy.  There’s plenty of granny stuff there.  The stocks that stand out are Constellation Energy and Vistra (93).  The latter on a monthly chart looks more Techy than Tech.

There is a negative out there that only we may be aware of, suggesting ours is a Keener insight than we realized, or more likely it’s not all that important.  As you likely know we pay considerable attention to price gaps, and loosely track them on a daily basis.  A gap occurs when the opening price one day is well above or below the price of the previous day.  In our less than scientific analysis we’ve noticed considerably more downside gaps lately than those to the upside.  Given price tends to follow in the direction of gaps, this could be a problem.  However, the bigger problem in this might be the reason for the gaps.  Of course, it’s always news of some sort – often an analyst call.  For the most part, however, they follow earnings reports.  The overall numbers say most companies aren’t missing their estimates, price gaps suggest otherwise.  Meanwhile, no harm no foul.  The overall market backdrop seems fine.

In a reasonable confirmation of the uptrend’s resumption, the major stock averages now are all back above their 50-day average.  It seems worth noting, however, the Software ETF (IGV – 81) is not.  And it’s not just Microsoft (412) or Salesforce (275).  The FANG names have been better, but they’re not exactly running even a few weeks off the low.  Meanwhile, with their respective gaps, 3M (97) and DuPont (79) – when was the last time you thought about buying that name – are acting quite well.  If we wanted to, and we don’t, it’s too soon to be negative on Tech.  We don’t even think of this so much as rotation as we do expansion. Advance/Decline numbers remain a positive aspect of the overall background.  In the selloff we saw some bad down days – it happens.  In the rebound we’ve seen three consecutive days of 3-to-1 up – good, not bad up days.

A good rally, or a great rally, time will tell to coin a phrase.  Certainly, this lift from a 5% correction has its credentials.  There were those washout numbers on the downside, followed by impressive numbers on the upside – not classic, but likely close enough.  Perspective also seems important here.  Following five consecutive months of higher prices, history shows a better than 80% chance of being higher six months from now.  Seems there’s something about having that five months of momentum at your back.  As always, it’s about the average stock, the A/Ds more than the Averages.

Frank D. Gretz

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DJIA:  38,085

We have 5% … do we hear 10%?  It had looked like a 5% correction might do it, then the bottom fell out of the Metaverse.  We’re not quite sure how much this might change things, but we expect not much.  Over the years there have been plenty of 5% corrections that have led to little more.  A couple of things come into play here, including the six straight months without even a 2% correction.  Big momentum is hard to kill.  The length of the 5% correction at less than 15 days also argues for little more – quick is better.  Finally, odds are for less when above the 200-day.  And while brief, we did see some real selling in the three days of 90% down volume.  It’s complicated, but we don’t see that Meta (441) will change things dramatically.

After last week, of course, it’s less about the S&P and more about the NASDAQ.  AI’s poster child Nvidia (826) took quite a hit, as did Super Micro (787).  We’ve noted the suspect volume pattern in the latter, more than the former, but the patterns are similar.  Both have bounced, but now comes the hard part.  The outlook for Tech is now more difficult too because of what is happening with yields.  Treasury yields across-the-board are at three-month highs, a change from which they tend to move higher still.  This is a good backdrop for defensive shares for growth not so much – as you will recall from just a couple of years ago.  Another non-winner here is Homebuilding, where the stocks show signs of peaking.  There are two important measures of housing, Permits and Starts.  When one is positive, either one, that’s good for the stocks.  When like now both are negative, it’s not good for the stocks.

When it comes to the stock market, we strongly believe what we all know isn’t worth knowing.  Call it discounted, priced-in, whatever.  Of course, there are no objective measures here.  In the case of Tesla (170), certainly the problems were well advertised, and the price down significantly.  Still, you never know.  It’s more instinct than anything.  Having the wind at your back certainly helps.  Wednesday’s market didn’t hurt.  For Tesla, the rally may be a start, but it’s just that. The stock faces the problem similar to Nvidia and Super Micro, a falling 50-day around 175.  For Tesla that should prove formidable resistance, as it did in February.  Meanwhile, GM’s (46) little correction held its 50-day and the stock actually gapped higher a few days ago.

Texas Instruments (175) gapped higher Wednesday, does anyone care?  It’s all about Nvidia and its pal Super Micro.  Both had tough weeks last week, damaging to their charts.  After sharp breaks, in this case below their respective 50-day averages, those averages turn to resistance.  A saying among those technical types is that the stocks then typically rally to kiss the 50-day goodbye – that is they stop at resistance and resume the downtrends. Then, too, it’s always possible they blow right through resistance, but certainly it’s something to consider.  If you liken the break in these stocks to that of Cisco (48) in 2000, it’s possible.  However, Cisco’s initial break was followed by a several month trading range – then the real break. These big uptrends don’t die in a hurry.

Some things are hard to explain.  Meta cuts costs the stock goes up.  Meta invests in its future the stock goes down.  And what does all that have to do with Microsoft (399) – sympathetic weakness, psychological common ground.  Of course, there is the practical common ground of being in the same ETFs.  Buy or sell one you get them all.  We see these as a big part of Tech’s success, and on days like Thursday it’s vice versa.  We suspect one day these passive ETFs will become a big problem but, of course, what day?  Meanwhile, we think we saw Superman and Clark Kent together.  At least that’s an image we conjure up whenever we see both Gold and Bitcoin rally together.  After a little setback Gold is back to acting well.  Bitcoin didn’t rally going into last weekend’s halving, but the ETFs are acting reasonably well.

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DJIA: 37,775

The stealth correction… stealthy no more. Three better than 4-to-1 down volume days make this clear. Of course, we might have continued to skate by had it not been for a war or two. Technically strong markets often can get away with a surprising amount of bad news, technically weak markets, not so much. Just how weakened the market had become under the surface showed up in several ways, particularly those numbers on the NASDAQ. Fifty-two-week lows there jumped to 365 from 230 the previous week. That’s a pretty big number given the market is down just a few percent. Clearly the Averages were masking some considerable underlying weakness, not unusual even at temporary peaks. The picture on the NYSE isn’t quite so dramatic. New highs there contracted but remain comfortably above the level of new lows. A problem here, however, is within the S&P 500 Index itself where more components reached a 52-week low versus those reaching a 52-week high. It has been a stretch of some six months since that has happened and of course, is another sign of deterioration masked by the S&P itself. SentimenTrader.com points out some interesting numbers here – when new highs in the S&P outnumber new lows, the annualized return is 12%, and when vice versa it’s -1%. It comes down to a very simple principle in technical analysis, healthy markets are in sync, stocks move together. Fortunately, the A/D Index recently made a new high, no divergence there. An unusual aspect of the recent weakness has been the volume pattern. We have seen three days with heavy down volume without an intervening day of heavy up volume. On the surface this might seem terrible, rising, volume and poor A/Ds – real selling. However, you need to keep in mind that it’s selling and not buying that makes lows. Prices rise when the selling is out of the way. What is surprising is that this sort of washout selling should come just a few percent down from the recent peak. We suppose Middle East concerns have played some role here, but the numbers are surprising. Somewhat backing up this sort of panic selling is the VIX, which has jumped from less than 13 to more than 19 – the October low saw 22-23, by way of perspective. So, we’re seeing numbers more often seen near the end of a decline, surprising but encouraging? When markets correct and even the good go down, it’s an opportunity to look at charts with a little different perspective. Celsius (70) seems a candidate here, one admittedly not so interesting from a daily perspective. Meanwhile, even a weekly perspective is quite different – a selloff down to a substantial base or support. The real story here, however, comes from a monthly chart, which needs little explanation. A big winner turned a bit ragged of late is Super Micro (928), trying to hold onto the 50-day. More worrisome than the price action is the volume pattern, one showing declining volume along each of the price peaks. The 800 area clearly seems important. Here too, however, a different perspective is more optimistic. To look at a weekly chart, the overall action seems no more than a consolidation in the uptrend. Perspective seems important here in terms of the overall market. It has been a remarkable six months, including a number of unusual streaks. In this first little drawdown of the year a number of those streaks have ended, but their implications remain intact. Protracted momentum rarely leads to important price declines. This period should prove important for Tech earnings – the market rise owes much to the Mag Seven, where reporting has begun. Even these stocks have slipped a bit from their recent holding patterns, so earnings could prove important or, as Barron’s John Authers puts it, they have taken on the aura of a macro event. Meanwhile, a number of replacements have come to the rescue – pretty much anything in the ground. We know, of course, it’s hard to replace Tech.

Frank D. Gretz

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DJIA:  38,596

April showers … bring May flowers.  That loosely also works as a market forecast.  Given the technical background, we admit to surprise at almost any weakness.  And, of course, we don’t get the logic they should go down because they’re up a lot.  Uptrends differ, but to look at the S&P and its 21-day average, few have been more orderly.  Where there are excesses they have calmed of late, while several dormant sectors have picked up, Gold, Copper, Uranium, Oil, “things” generally – see XME (61), the Metals and Mining ETF.  The strong economy seems the excuse for the recent weakness, but excuse seems the operative term.  The overall momentum says weakness should prove temporary.

Following five consecutive monthly gains simple logic suggests some give back should be expected.  Of course, you might have said that after three or four months, maybe even two.  More importantly, best to keep in mind the stock market is a place where simple logic rarely works.  In this case, that seems true again.  Following five consecutive months of gains in the S&P, a buy-and-hold strategy over the next nine months saw a 90% win rate, according to SentimenTrader.com.  Momentum, especially big momentum, is a wonderful thing.  A slightly different take here is the gain of 20% or more from a 100-day low with 10 or more days of 80% volume in advancing stocks.  Again, returns were exceptional. 

It’s an AI World, but there are many guests that live in it.  We wondered what was behind the move in Copper – China of course always comes to mind, but seemed unlikely this time around.  Turns out, there is somehow a lot of Copper in AI.  To look at the chart of Lincoln Electric (247), we used to joke there was a lot of welding involved.  An area that does make sense is Electric Power, especially unregulated nuclear power provided by Constellation Energy (183).  Bitcoin also uses a bit we understand.  Nuclear in turn helps explain why those frustrating Uranium stocks have picked up again.  And then there’s Dell (127), now touted as an AI Infrastructure play.  Meanwhile, for now Nvidia (859) is on break.

Fool us once, fool us twice, fool us three times and you must be United Healthcare (455). If you’re there, you know what we mean.  United Healthcare, with the possible exception of Molina (375), and the rest of the insurers have been disappointing.  Hospitals are too crowded, not crowded enough.  There always seems something.  Now we find out this is a regulated industry, why don’t we just buy a Utility.  The stock’s redeeming quality is its still reasonably intact long-term chart, but here we prefer something with an even better long-term chart like McKesson (535). The Healthcare ETF (XLV-142) has close to an 9% position in UNH, making it problematic. Then too, you also get an 11% dose of Eli Lilly (768).

It’s hard to understand the market’s fixation on when the Fed will ease. It’s not as though the economy and corporate earnings are not going well, the economy perhaps too well.  And there’s actually some history to suggest you sell on rate cut news.  In any event, Powell recently stuck to the script, rate cuts are on their way.  Gold seems to believe it, but there are many scripts Gold has failed to follow.  Similarly, best not to overthink or think at all about the strength in Oil – lest you ponder whether World War III has already begun.  Let’s opt for the more mundane explanation of supply and demand – under-loved and under-owned.  Meanwhile, after a couple of weak down days, Thursday’s downside reversal caused some damage, dropping the S&P below its 21-day average.  Now that the market is somewhat stretched to the downside, it will be important to see if the market can respond.

Frank D. Gretz

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