DJIA:  42,011

Dock strike, floods, more war … October has begun like a Country and Western song. And we thought September was supposed to be the bad month. If you define a bad day as a 1% decline in the S&P, bad days happen about 10% of the time. For reasons unknown to mere mortals, or even technical analysts, they happen 16% of the time on October’s first trading day, according to SentimenTrader.com. Monday saw a 0.9% S&P decline, let your conscience be your guide here, but a 1% decline that day comes with favorable implications for the remainder of the year. When down 1% or more on October’s first trading day, from the second day to year-end the market is up every time. Whether that includes times of war and pestilence we can’t say, we can say the technical background is supportive here. Even Tuesday with all its bad news saw almost 1800 stocks advance, hardly a down day.

The fact that we got through September, the worst month of the year, and the third week of September, the worst week of the year, should not be completely ignored. Seasonality is never to be taken as an investment plan, and in markets anything over-hyped rarely works. Then, too, these concepts can take on a life of their own.  So ignoring any chance to go down is always a good thing. At a more tangible level, last week saw 70% of NYSE stocks above their 200-day. A level of 60% has produced above average returns, 70% is associated with bull markets. As for the economy as it relates to the market, some 35% of cyclical stocks recently made 12-month new highs, a number associated with better than 85% win rate for the S&P over the next six months.

When they started calling China “uninvestable,” guess we should have known. China stocks now look uninvestable because they’ve run so much. We can’t in any way say we saw the rally coming, but we had noticed a dichotomy between the terrible news out of China and their not so terrible stock patterns. To the extent technical analysis applies, and markets are markets, more than 90% of the stocks are above their 10-day average, stocks above their 50-day have cycled from 15% more than 90%. That’s momentum that should not turn on a dime, and almost remarkably it has not. Even if you think you don’t care about China, if you care about commodities, copper, iron ore, casinos, and so on, you care about China. Importantly as well, China is another tailwind for stocks here.

We always find suspect anything too obvious – it’s already discounted. This would seem true of Defense stocks, but what can we say, the charts are good. If anything, we’re a bit surprised they’re not more stretched. Of course it’s not just about these never-ending conflicts, it’s about Defense as a business. The relevant ETFs here are XAR (158) and ITA (150).  A volatile but interesting chart is AeroVironment (AVAV-201), and then the usual suspects, Raytheon (124) and the like. Our two cents is the conflict has turned more serious if now they can rally even the Oils. Tech took the brunt of Tuesday’s weakness, but Tech/NAZ has been the weak link for some time now. We’re putting this in the category of a rest, and certainly they deserve one. Something like 10 stocks account for 30% of the S&P, Nvidia (123) alone some 6%. A thought is to go with the Equal Weight S&P until the Tech rest is over.

They say the market climbs a wall of worry. Then, too, they also say the market doesn’t like uncertainty. And here we are with plenty of uncertainty about which to worry. There is the election and its outcome/aftermath and there’s the little matter of World War III. Seems best to go with the technical backdrop which for now seems favorable. We say for now not because we anticipate problems, but we’ve noticed things do change. One day they hate China, the next day they can’t get enough of it. Stick with the basics, technically speaking. Down days happen, but up days should see the average stock keep pace with the stock Averages.

Frank D. Gretz

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DJIA:  42,025

Want a Tech stock… NOW?!   NOW, of course, is ServiceNow (919), one of the best acting Techs, especially given what has become a difficult area. While we tend to speak of Tech in an all-encompassing way, there is quite a difference between the Semis and Software.  Granted the Semis are simply correcting after a big run from April, and Software has flatlined since February, but the recent relative change could prove predictive. Meanwhile it’s striking that Nvidia is 6% of the S&P. There’s no magic number but at some point the question becomes who is left to buy? With Nvidia (118) having its troubles of late, it also helps explain why the S&P Equal Weight had outperformed a weighted index. Of course both have outperformed the NAZ.

Outperforming both Semis and Software are the Utilities. While not exactly techy, supplying power to data centers seems Tech enough to lead to a 25% gain this year. And they should be beneficiaries of lower rates though clearly they’re not trading as rate sensitive stocks. REITs, Home Builders, Insurance shares are rate- sensitive and have traded well even before the Fed cut. Meanwhile, even J.P. Morgan managed to shoot itself in the foot last week – you wonder why we don’t like the Banks.  This market has also taken to soap, at least to look at Procter & Gamble (172) and Colgate (102), available at your local Walmart (78) or Costco (901). Coke (71) and Pepsi (175) also are part of the Staples ETF (XLP – 83).  While only a staple to some of us, McDonald’s (294) seems to have righted the ship since July.

Admittedly, the idea of Utilities and soap as leadership versus Nvidia in Microsoft (439) may not seem ideal. Then, too, we are talking about a few weeks, and even these temporary rotations can last a few months.  Things change, rotation happens, it’s not the worst thing. It’s one thing to lose participation without replacing it, but that’s not the case now. In fact, we could argue the tactical backdrop is net better for the change. The A/D Index is at a new high, the names that make that so are far less important than the fact that it’s so. Markets just don’t get into big trouble against this sort of backdrop. Over the years many Tech stocks have gone away, Tech/Growth never goes away. The names may change and from time-to-time extended stocks need a rest.

It’s too early to say they’re back, but Thursday saw a bit of Tech reversion. Then, too, that’s part of what you usually find – down the most turns to up the most on days like Thursday. A pullback in the stocks that have been leading also seems little surprise. It’s hard to judge durability here.  Oil shares finally lifted, Industrials made new highs – things you would expect anticipating a better economy. Then, too, we never saw the economy as worrisome.  Grainger (1030) has a division they call “endless assortment.”  Parker Hannifin (626) is the company Greenspan used as an economic indicator. Both made new highs this week.  Advance-Decline numbers have been positive eight of the last nine days, that Index is at new highs, and 70% of stocks are above their 200-day, that is, in medium term uptrends.    There’s plenty from which to choose.

Of all the times inside information might have been useful, this was not one of them. Even the market itself didn’t seem to know what to do with the rate cut news Wednesday afternoon. The fact of the matter is 25 or 50 didn’t much matter – Wednesday afternoon was just the usual post meeting dance. The real inside information wasn’t inside at all, it was last Friday’s 5-to-1 up day.  That would not have happened had the market been worried about the rate cut. Like any news, it’s not the news but the market’s reaction to the news that matters.  We can’t expect great numbers every day, but the A/Ds should keep pace with the market averages.

Frank D. Gretz

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DJIA:  41,096

Overbought, oversold … not over. Last week’s start to September was surprisingly poor. For the first time in a month, the S&P was down 2% in a day, the Dow and NAZ both dropped 600 points, and everyone’s favorite Tech stock shed more market cap than any one stock in any one day, ever. And this despite a decent technical backdrop.  So, what bell rang that first trading day of September? Or was it just that the calendar turned?   September gets a bad name in part because of September 11 and the Lehman bankruptcy. For sure the month is no prize, but blaming it for last week seems a stretch.

To put this in perspective, you have to go back to July when the Yen carry trade turned toxic. By early August the selling had left the market oversold, while by late August the recovery had left the market overbought. We don’t care for the terms overbought and oversold, which are overused and typically prove meaningless. In this case, however, they serve a purpose. If you put a 10-day moving average on almost anything you have what is called an oscillator, which ranges from stretched up or overbought, to stretched down or oversold. These measures can be as much as 70 – 80% correct at turns, but follow them and you will lose all your money. Bull markets become overbought and stay overbought, leaving you to sell and miss out. Meanwhile, bear markets become oversold and stay oversold, leaving you to buy too soon and really take a hit. The time these oscillators work is perhaps in a market like this, a trading range of sorts, but a trading range within a bull market.

By the end of August, the market once again had become overbought or stretched to the upside, leaving September more excuse than cause of the recent weakness. We could but don’t have to become deeply oversold again, and we would be surprised if we do. But even the anticipated rate cut has been out there so long it should have a little impact. Meanwhile, the election and its outcome for stocks looms, particularly in terms of some groups – note the sharp rally in Solar stocks following the debate. Regardless of the election, already there has been a shift in leadership. This is apparent even in the performance of the S&P versus the NAZ, where the recovery in the latter has lagged, at least so far.

Tech isn’t going away, it never does. Growth will always do well, and almost by definition it will always command a premium.  Then, too, as we’re fond of pointing out, growth is a reference to companies not always their stocks. Tech has had a good year; we can see it going trading range for a while. As for everyone’s favorite, contrary to what Rod Stewart may say, the first cut is not the deepest. Before collapsing 90% in 2000 Cisco (50) first recovered from three 30% corrections. These big uptrends almost always go away, but they don’t do so easily. Wednesday’s rally made that clear. Still, while Nvidia (119) has retaken the 50-day, the group has not. Meanwhile, many defensive names, which are not as defensive as you might think, act well.

The Fed, a couple of wars, the election, you might say there’s a lot going on, including the mystery that is September.  Seems best to stick with the basics, especially since the technical basics seem just fine. The market averages get all the attention, but market analysis would be better served were the attention given to the average stock. When as measured by the A/Ds or stocks above their 200-day, the average stock is performing well – not how markets get in important trouble. It’s when the Averages and the average stock diverge, the Averages outperforming, that there are problems. Down days happen. It’s the bad up days – up in the Averages but flat or down in the A/Ds that cause problems.

Frank D. Gretz

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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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