DJIA:  34,945

So who are you going to believe … Powell or the market?  Just last Thursday afternoon Powell cautioned the Fed may not be through.  The new media spokespeople, Ken and Jamie, echoed the same admonition.  Meanwhile, stocks were up 10–to-1 on Tuesday.  One day is always just that, but it hasn’t been just one day.  Two weeks ago saw five consecutive days of 2-to-1 numbers, and a couple better than five to one.  Those numbers are hard to ignore, impossible to ignore if you know technical history.  Certainly Powell believes they may not be through, and they may not be.  The market believes he’s through, that rates have peaked and inflation as well. Could the market be wrong – it happens.  When it happens, it shows up in price action, unlike what we’re saying now.

Rallies like this often are explained, demeaningly, as short covering.  Who really knows, but by the look of some recent outsized moves in beaten down stocks, this certainly appears to be the case.  Then, too, what decent rally didn’t start with short covering?  And who really is to say? What we think of as short covering may more simply be “sold out” stocks lifting.  Often confused is just why these beaten down stocks lift.  It’s not about some sudden massive new buying interest, it’s because the sellers are done.  It doesn’t take all that much buying to lift prices when sellers are out of the way.  And we’re talking about stocks where there are plenty of losses, which already may have seen their tax loss selling.  In any event, why prices lift is not our concern, it’s the fact they do that matters.

In a market like this, who needs some stinkin’ Utility?  With the Mag 7 all the rage, any discussion of Utility stocks seems out of place.  Perhaps therein lies reason enough for a discussion and, in fact, the stocks have performed well of late.  At the start of October about 60% of Uts hit a 12-month low.  The stocks remain in long-term downtrends but have recovered somewhat.  It has been more than two months since 20% of the stocks have been above their 200-day average – the longest period since 2008.  Over the last 70 years, 17 times the sector went as many sessions with so few stocks in uptrends.  Most preceded medium-term gains, only two lost more than 5% in the next two months according to SentimenTrader.com.  In early October more than 60% of the stocks rose above their 50-day, an encouraging sign.  Also encouraging, Utilities are just one of the rate-sensitive areas benefiting from the apparent peak in rates.

What kind of Middle East war is it that can’t rally oil? Then, too, we’ve often cautioned the stock market is no place for simple logic.  That said, Defense stocks are holding their own or better, to the point of making the relevant ETFs, XAR (124) & ITA (116) look attractive.  General Dynamics (245) still seems one of the best of the household names.  Pharma has had a tough go of it for some time, and this week even Eli Lilly (589) gave way to Tech and the down and outs.  It and Novo Nordisk (100) still look attractive.  Thursday was a disappointing day for a number of stocks, especially Walmart (156) which dragged down most of retail – Macy’s (13) unable to save the day.  There was no better chart Wednesday night than WMT.  It’s enough to make us wonder if we should go back to our old job in the steel mills.  As you know we think price gaps are important, but they are so when they change the prevailing trend.  Certainly Thursday broke Walmart’s short-term trend but it remains more or less in a trading range going back to June.  Long-term the break is a flesh wound.

What’s to become of Tech?  As we sit here in full Y1K compliance, holding our rotary cell phone, it’s a bit beyond us.  Then, too, it’s not Tech, but the Tech stocks we ponder.  Tech is unto itself what the great meteor was to the dinosaur – as we speak, there’s a guy in a garage in California with a better whatever.  The stocks are fine for now, we just wonder who is left to buy.  They go up until they don’t, and that’s when they’re over- loved and over-owned – usually around the time they start giving them names like Nifty-50, dot-coms, maybe even Magnificent Seven?  Meanwhile there is a group of stocks we’ve called the Other Magnificent Seven. Most lack the market-cap to drive the Averages, and therefore live more quiet lives.  With long-term uptrends and good medium-term patterns, they are every bit if not more attractive than the Mag 7.  Names include Cintas (553), Parker Hannifin (426), Visa (249) and some lesser knowns like Motorola Solutions (317).

Frank D. Gretz

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DJIA: 33,891

One is nothing but five…that’s something. There are plenty of good one-day rallies. In fact, because of the compression in prices, many of the best one-day rallies come along in bear markets. Putting together five consecutive good days as we did last week, that’s something else. For us, good days are always about the Advance/Declines, not the Averages. A/Ds last week were at least 2-to-1, and two were 5 and 6-to-1. The consistency matters here, but so too does the degree, matching some historically significant levels. This week has been a bit more inconsistent, but this kind of momentum doesn’t turn in a hurry. Rallying bonds of course seems more than coincidence, and there’s the tail wind of November and December. Never something to be relied on, seasonality works best this time of year. Rates have peaked! Don’t believe us, believe those who should know, the rate sensitive stocks – the Financial ETF (XLF-34), the Regional Bank, ETF (KRE-41), and the Homebuilders ETF (XHB-76) have rallied sharply. These measures now are above their 50-day averages, no guarantee but clearly an important change. While a healthy financial sector may be important to the economy, their sheer number makes them important to the technical background. You might say for the market that’s one less worry. There remains, of course, the little problem of war, the problem being it doesn’t remain little. Then, too, it’s hard to worry when Oil seems oblivious. Defense stocks act well enough on their own and seem more than a hedge. Aerovironment (120) and L3Harris (181) are among the many that look attractive. Meet the twins – Adobe (578) and Broadcom (911). What they may have in common funnymentally is above our paygrade and,more importantly, not our interest. The charts we know by the look are Tech, and similar in a couple respects. Since they are twins or so we say, we’ve only displayed ADBE. The recent little breakout aside, the charts here are pretty much that of the monitor in a hospital room – alive, but not ready for release. Another perspective, again equal for both, is the look of a weekly chart. Still trading ranges, but of note here is what happened when they came out of similar patterns in mid-May. The breakouts in those patterns were the starting point for significant moves higher. Rather than the Rorschach test that are the daily charts, the weeklies show the ingredients for a significant moves higher. Remember Peter Lynch? He once upon a time ran Magellan Fund, and so well he became a bit of a pop rock star. For a manager of a mutual fund that size, that was quite a feat. His philosophy/advice was to buy what you know. Of course, he made most of his money in Fannie Mae which you may recall was an obtuse hedge fund no one really knew – and eventually self-destructed. Meanwhile, we were introduced recently to a company called Toast (14). If you’ve dined out at all, in apparently any part of the country, you will be familiar with this point-of-sale product. Doing in-depth fundamental research as is our way, we’ve asked countless waiters about this product. It gets rave reviews. That said, good to remember stocks are not their companies – the stock has been a poor performer. After last week’s rather spectacular numbers, this week’s A/Ds have turned a bit sloppy relative to the Averages, which is always how they should be judged. All things being equal this would be a concern, but all things are not exactly equal, such were the numbers last week. In part the numbers reflect the ongoing weakness in Oil shares, of which there are many and therefore have their impact. And CathieWood’s collection of the down and out can’t be up 18% every week. Still, we don’t make excuses for the numbers. More than the Averages the A/Ds hold the key to the market’s health. Powell said nothing new Thursday, in fact his comments were pretty much those of last week that led to a sharp rally. The weakness seemed a function of the week’s sloppy numbers and should prove temporary.

Frank D. Gretz

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DJIA:  33,839

A bad market … or just another bad October.  Actually, it has been a bad consecutive three months.  Despite that the S&P closed October sporting a gain near 10%.  When this first 10 months are that strong odds are some 70% November will be higher.  Then, too, “sell in May” should’ve been buy in May and sell in August. Probabilities are not certainties.  However, clearly there is a change for the better, and it started with Monday’s rally.  We never trust up openings in down markets, and every up opening last week saw the rally fade. Monday’s rally did not do so, a simple thing but change is important.  The rally has its flaws like the weak Semis and mediocre A/Ds, but lacking a real washout that’s not a surprise.  Then, too, the updraft during the Powell speech was impressive.  The key now is follow through, so far so good.

What we have seen is by no means a washout low.  What looked to be give-up sort of declines in many stocks, certainly was not evident in something like the VIX – at a peak of 23 well short of the 30-35 you might have expected in a washout.  Stocks above their 200-day did fall to the mid-20s, a level that has been reached only 17% of the time since 1928.  Certainly good enough for a low, but not the 17 of the low last October.  What did get pretty washed out was Tech other than the so called Magnificent 7, the Semis especially. The Technology ETF (XLK-170) saw only 3% of its components above their 10-day average.  To that you might say they pretty much got to everything, typical at a low.  The Mag 7 came through this pretty well, particularly Microsoft (348) and in a bit of a surprise, Amazon (138).

When it comes to wars, defense stocks are tricky.  Ukraine was a long time in the offing, and the stocks saw little reaction.  The 9/11 attack was sudden, as was October 7, and therefore a big reaction.  Stocks discount, but they’re not psychic.  They didn’t see coming 9/11 or 10/7.  After 9/11 defense stocks rallied, but then faded.  Then, too, 9/11 was more an event than a war, the war came later.  Here we have an event turned into war, but for stocks still more event than war.  Defense stocks had their initial surge and so far are holding up and more. Technically speaking, most of these stocks gapped higher, which should hold if they are indeed going higher.  These are good charts but we look at them not so much in terms of the current situation but what might be forthcoming.

What kind of war is it that can’t rally Oil?  The US Oil Fund is some 5% below its 9/27 peak.  While that’s the commodity, stocks have more or less followed, in some cases for their own reasons.  Among those reasons were the mega deals announced by Exxon (109) and Chevron (149), weakening the stocks and the ETFs that hold them.  We rarely buy weakness and don’t recommend it, and we don’t like to buy stocks under their 50-day average.  All that aside, Chevron at its recent low was some 12% below its 50-day, which for Chevron is about a lifetime.  Different stocks relate differently to moving averages like the 50-day, so 12% here is nothing relative to stocks more volatile.  Keep in mind too, the 50-day often acts as support and resistance for stocks, some more than others.

The Fed meeting was the nothing burger everyone had expected, and Powell’s little diatribe the same.  Typically, the market waits until the speech is done before doing whatever it is going to do.  Wednesday saw the rally start before that, when it seemed satisfied he wasn’t going to get in the way.  The backdrop here was more impressive than the rally itself, but Thursday’s better than 7-to-1 up day was impressive all around.   Obviously just about everything lifted, rate sensitive shares on the hope bonds have peaked.  The downtrodden, so to speak, were particularly big winners, hinting of short covering.  Then, too, what good rally didn’t start with short covering?  If you found last week’s mention of Verizon (36) a little too staid, kick it up a notch with IBM (147) – the patterns are the same.

Frank D. Gretz

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DJIA:  32,784

War is Hell … the bond market not much better. It’s hard to talk about markets considering the suffering in the Middle East, but both have had their impact on stocks.  We just don’t recall a time when for bonds it has been so much so.  The week started with the 10-Year teetering around 5% for the first time since the summer of 2007.   Just when all seemed lost, stepping up to save the day was not the Fed but Bill Ackman – well, covering a short position.  Credit where credit is due, but this hardly seems the rationale.  Consider Ackman’s Pershing Square has some $18 billion under management versus the $24 trillion value of the Treasury market.  Such is the rate concern these days that the relief rally in bonds briefly lifted stocks.  Of course, as Bloomberg’s John Authers points out, the risk is that rates will keep rising until they break something, which only then will cause them to fall.

If not breaking, Financials certainly are bending.  And not just the Regional Banks, which look more broken than bended.  Weak too have been the credit card guys like Capital One (90) and Discover (81), and the same day lenders – what could go wrong there?  Or look at Blackstone (92), not exactly in the above category, but with its own recent downside gap.  In this market there’s pretty much no place to hide, for Financials it seems particularly so.  In terms of making a low this isn’t such a bad thing.  If you’re reading this, you have been through this kind of market before and know the feeling – pretty much one of the nausea.  This sort of feeling probably tells you as much as the VIX which so far is only around 20, while a number closer to 30 seems more likely for a low.

Price gaps as you know are one of our favorite chart patterns.  The textbook says these come in different varieties with somewhat different implications.  For now suffice it to say stocks tend to follow through in the direction of a gap be it up or down.  There have been several gaps recently, perhaps none more noteworthy than last week’s gap in Netflix (404), one which historically at least makes our point.  A gap occurs when the low in a stock is some two or more percent above the previous day’s high.  Last Thursday NFLX opened 17% higher, the 15th time it had done so by 15% or more. After a few days of consolidation, the stock moved higher over the next 15 sessions, at a win rate of some 80% or more, according to SentimenTrader.com.  Of course, Russian roulette has the same win rate, but with considerably more risk.

Investor psychology is tricky, and sometimes almost amusing.  Take Nvidia (403).  Back at the end of August it was a must own, have to have it stock, with everyone just hoping for the elusive pullback.  Now that the pullback looks more like a bottomless decline, it’s hard to buy.  Granted it’s a different market than back then, the war, rates, and so on, but still.  Meanwhile, Verizon (34) is a hard stock to buy mainly because it’s Verizon.  It’s one thing to lose money in a cool stock like NVDA but sort of embarrassing to lose money in a stock like Verizon.  And even if you make money, are you going to belly-up to the bar and brag about it?  What’s cool is making money however you do it.  Verizon has been kicked around long enough you might think whoever wanted to sell it has done so.  The stock has a turn, including a gap higher the other day.

There are lows of the garden variety, and there are lows of the washout variety.  Stocks above their 200-day average already are around the mid-20s, close to the garden variety low of March.  Washout variety lows like last October saw a number around 17%.  And even March saw a VIX around 30, October around 35.  Financials as you know are many, and therefore impact the A/D Index.  Long ago we were told that’s why the A/D Index works – Financials are important.  The A/D Index has significantly underperformed relative to the Averages themselves, opposite of a bull market.  Against this pattern It seems increasingly likely the market will see a washout sort of low. Plenty of things could provoke that, the unknowns associated with the war, another spike in rates, it’s hard to say.  Then, too, it could be the Magnificent Seven themselves that do it.

Frank D. Gretz

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DJIA:  33,414

Sure it’s the end of the world … could it be discounted?  So it might seem to look at the market’s resilience.  It’s not just the Middle East, last week’s numbers weren’t exactly market friendly.  Yet for the most part things have held together pretty well – ignoring bad news being a good sign, if you believe it’s the market that makes the news.  More quantifiable, the A/Ds have been positive 6 of the last 10 days.  And while a bit of a backhanded compliment, there have been no what we call bad up-days.  When the market goes down, bad A/Ds are to be expected, it’s those up-days with poor A/Ds that cause problems.  Meanwhile, since the end of July the market has been in what the textbook would call a correction in an uptrend – a correction that has held the 200-day in terms of the S&P.  What’s needed is a little upside momentum, a push through the 50-day around 4400.

The market may make the news, but the news these days has made for some considerable volatility, and then there’s the bond market, pretty much responsible to the minute for Tuesday’s good start and poor finish.  If war and rates were not bothersome enough, then there’s China.  Markets are always rife with cross currents of sorts, this one perhaps more so than most.  We continue to think Staples are worth a look, oversold doesn’t mean over, but in this case they are historically so.  Aerospace/Defense shares have their obvious appeal, as well as the appeal of good charts.  Oil also seems a hedge of sorts.

Is Gold the new Bitcoin?  And if so, is that a good thing?  Both have seemed a good hedge only against making money.  To be fair Gold has regained a pulse of sorts, but it’s hard not to be skeptical.  We like a market that can ignore the chance to go down, we don’t like that Gold has ignored many chances to go up.  However, it has shown a better than typical response to recent events.  And to look at the usual suspects like the ETFs, GDX (30) and GDXJ (35), they are at least back above their 50-day averages.  Bitcoin has been worse than Gold, though it did come to life on the false rumor that a cash ETF was about to be approved.  There is already an ETF based on futures, and with the backing of Blackrock, a former Bitcoin denier, approval eventually seems likely.  A clear beneficiary here is Grayscale (22).

We place a good deal of emphasis on Advance-Decline numbers, that is, what the average stock is doing.  It’s always relative, of course, relative to what the stock averages are doing. Even daily it’s not good to see the two out of sync.  Down days in the Averages the A/Ds likely will be down as well.  Up-days in the Averages the A/Ds should be positive as well.  When they’re not, when there’s what we call a bad up-day it leads to problems, often sooner than later.  While we argue down days and negative A/Ds happen, there is a caveat.  And it comes about when as this last week you see a couple of outsized negative A/D numbers relative to the Averages.  This leads to divergences that are difficult to correct, and divergences eventually lead to weakness in the Averages. The timing here is unknown, but with fewer stocks participating, it speaks to a difficult market in any event.

Biden warns don’t mess with Israel!  What about messing with Taiwan?  Who was thinking about Gaza a week ago?  We haven’t even mentioned Iran – clearly there’s a lot going on.  Contrary to the norm, this sort of news can make the market – the unknown, unknowns. Little wonder the S&P finds itself backing off of the 50-day and teetering in its recent range.  Then, too, this seems as much about the other war, the bond market war.  The 10-year Treasury Yield is now back above its level on the eve of the Hamas attacks.  What happened to the flight to quality?  The prevailing fear of many, recently articulated by Paul Tudor Jones, is that investors will grow leery of US deficits, and demand higher yields.  That’s called a buyers’ strike, and still higher yields.

Frank D. Gretz

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Market lows … they’re about the sellers not the buyers. Most think lows are made when the buyers step up. To the contrary, it doesn’t take all that much buying when the sellers are out of the way. No selling and prices move up as in a vacuum of sorts. And when are the sellers out of the way? There are a couple of ways to analyze that, and both seemed at play last Friday. Going into Friday the S&P was down only some 8%, while most stocks were down much more. Indeed, by the end of last week stocks above their 200-day had dropped from 38% to 30%, and that included Friday’s upside reversal. For the 200-day, that’s quite a weekly drop, enough to perhaps suggest much of the selling was out-of-the-way. By comparison, the declines in March and again in May saw this number around 36 – 37%. Being down a lot of course doesn’t mean they have to go up. Last October the number was around 17%.

The other part of determining if the selling is out-of-the-way is pretty simple – have they stopped going down and started going up. Here we will make the point we always make about news like Friday’s Jobs number. It’s never about the news, it’s about what the market does with the news. Bad news and the market goes down, that’s what you would expect it to do, you learn nothing. Friday’s news was worse than bad, but after a down opening the market reversed higher. You never know, but you have to say that seemed a market that didn’t want to go down, a market that didn’t in fact go down because the sellers were out of the way? Not only did it not go down, it turned into a decent day to the upside – 3-to-1 up. Monday seemed less dramatic despite the horrible news and its far-reaching market implications, yet the market again managed to reverse higher.

With the market under some pressure recently, you might have expected defensive stocks to come to the fore. That has not been the case, rather just the opposite. To some extent the bond market seems at blame, especially when it comes to the Utilities. Staples have been under pressure as well, even prior to the obesity drug concerns. Meanwhile, the McClellan Summation Index for Staples, a measure of supply and demand, is near the worst levels in history, a level from which it tends to rebound. SentimenTrader.com shows one-year gains of 20% following such extremes. Interesting too, Staples have one of the highest ratios of Put/Call buying in a decade. At the same time corporate insiders have been buying shares and lessening their selling, pushing the Buy/Sell Ratio to one of the highest levels in more than a decade.
The stock market is a place where simple logic doesn’t work – Staples being yet another example. And for all the fuss over earnings, being in the right place always seems more important, though for sure that’s a movable feast. For now, the right place seems Tech generally, but most of FANG+ specifically. They seem and act like the new defensive stocks, giving up little in market weakness. And if higher rates were the problem, it too may now be a tailwind. Defense stocks have had a run, but Cyber stocks have seemed surprisingly dormant for a while. Perhaps no longer to look at names like Palo Alto (261) and CrowdStrike (188). We mentioned United Health (526) last time, noting the appeal of having the group as a whole acting well.

The devil is dancing in the Middle East. The question is how far? Yet the market had seemed to be taking it in stride, along with a less than friendly Jobs number, PPI, CPI and even the auction on Wednesday. This changed with Thursday’s auction when the market abruptly tanked. Are rates still that important, was the auction that much of a surprise? Or could it simply be the market being the market. The low last Friday and subsequent rally, though impressive made a setback likely. We believe they’re going up; we don’t believe straight up. The low last Friday is one thing, a new big uptrend another. The latter takes time, some backing and filling, call it what you like. On a very short-term basis, even when the Averages were up Thursday the A/Ds were negative – always something to note. One day is just that, but consecutive days of 2-to-1 up this week were impressive.

Frank Gretz

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DJIA:  33,119

Rates, rates, rates … we hear they’re going up.  In fact, that’s all you hear.  Having reached the mainstream media, perhaps it will do what talk of $100 Oil did for Oil.  The yield on the 10-year Treasury has reached an extreme, or has it?  In any event, it’s hard to argue this has been anything but bad for stocks and most of the commodities.  We had thought the market could live with higher rates, of course that was when the market was acting like it could live with higher rates.  It has since become less technically healthy and remains so.  You would think those Regional Banks would be a particular concern, given what happened in March when rates were not even this high.  Not surprisingly the charts there are not so wonderful.  It may not be the level, but the abrupt change in rates that causes something to break.  We wonder if rates had anything to do with the hit to Oil recently or look at American Express (147).  It’s not unusual to find out only later who is vulnerable, who was swimming without their suit as Buffet likes to say.

We had looked at this weakness as your garden-variety correction, a correction in an uptrend.  After all, on the whole this year has shown some impressive momentum, the kind that doesn’t turn easily or quickly.  In terms of the Averages, it still falls in that category.  However, the intensity of the selling, if that’s the term for it, makes it look possibly different.  In terms of the A/Ds the market fell for nine consecutive days through September 27, and likely 4 of 6 through Thursday.  Two of this week’s down days were 5.6-to-1 and 4.6-to-1, not exactly garden-variety selling.  Mercifully, the A/Ds were respectable in Wednesday’s rally.  These numbers are a bit worse than those in the March weakness, then too it may be too soon to say.  At issue here is a garden-variety decline versus something more severe.  The former is a gradual move to a sold-out turn, the latter a more violent one.  More days like Wednesday would argue for the former.

For all of the market’s problems, there are a few stocks/areas that are interesting.  In corrections, the good guys stand out, if only because they either stop going down or never went down.  The most obvious here is Nvidia (447), interesting in the sense it arguably got the correction going.  You might recall – good news and the stock reversed lower back at the end of August.  That it has been holding the last couple of weeks, against a weak market for Tech, seems interesting.  It’s toying with the 50-day, while a move above it would be positive for it and the market.  A kindred spirit here is Super Micro (288), which is already above its 50-day, at least for now.  Then there’s Tesla (260) which failed a couple weeks ago, after we praised the pattern, now again above the 50-day.  And finally, there’s United Health (516), which because of some violent moves always seems difficult.  It’s back to recent highs and with the group seemingly behind it, impressive in this market.      

IBD will tell you as much as 75% of the movement of any stock is a function of the market’s overall trend. We couldn’t agree more, and that’s why we got into this business. We noticed our wonderful stock picks somehow did better in good markets.  They seemed to go up and down with the market, which made us think this market thing might be worth looking into.  To get to some point here, given the recent A/Ds, 75% might be a little light.  This tide has sunk most ships.  To us the market is about the A/D numbers.  Easy to be a good trader on those 5-to-1 up days versus those 5-to-1 down days.  We’re happy with 2-to-1 up days.  Easy to be a good trader when 70% of stocks are above their 200-day, that is, in uptrends versus 30% now.  As per the above, there are some things to look at here, but it’s best to have that market wind at your back.

If we had a brother at the Labor Department, and knew ahead of time the Jobs number, we pretty much wouldn’t care, especially this month.  After all, in this environment what is a good number?  A bad number, that is one good for the market, means the Fed can stop raising because the world is coming to an end.  A bad number, the economy is still humming along, but the Fed will keep tightening.  Then too, thinking what we’ve already been through, a little more selling could put in a low.  Keep in mind, it’s selling not buying that makes lows. When the selling this out-of-the-way, you don’t need much buying to lift prices.  We’re not predicting the number and we’re not predicting the outcome. The real point is it’s not about the news.  It’s about the market’s reaction to the news. The best outcome might be a number the market shouldn’t like, but it rallies anyway.

Frank D. Gretz

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DJIA:  33,666

When the market creates divergences, those divergences cause problems.  The timing, of course, can be elusive, but the longer they persist typically the greater the problem.  The most typical of these divergences is between the stock Averages and what we call the average stock. The S&P, for example, even now is a few percent above its 200-day average, while fewer than 40% of its component stocks are above their own 200-day.  Semis recently hit a two-month low for the first time in a year, while the NASDAQ’s rally was accompanied by a doubling in 12-month lows.  Getting out of this correction will take a change in this pattern to one with better overall A/Ds and improvement in stocks above their 200-day.  And it will take time.  The A/Ds were up all day Thursday.  It’s just a start, but a start.

Uranium prices hit a 12 year high recently, offering hope to the nuclear hopeful.  In part you can blame or thank Russia – gas prices spiked and Uranium prices followed after the Ukraine invasion.  Fukushima, of course, had brought a halt to many projects, leaving the Uranium market over-supplied for more than a decade, according to the Financial Times.  Now there is an effort by some countries to extend the life of existing reactors as they contemplate new ones.  All these factors are at play in the recent price rise.  Like most things these days, there is an ETF for Uranium (URA-28), Cameco (41) is 26%.

Frank D. Gretz

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DJIA:  34,070

Higher for longer … probably not a reference to stock prices.  Did we miss something Wednesday, did the Fed actually raise rates?  Were Powell’s comments really new or that much of a surprise?  It’s tempting to say the market overreacted, but so it goes in weak markets.  If not bad the news is taken as such. While it has been a bit higher and a bit lower, the S&P is where it was in June, what we call a trading range.  And the Index has held 5% or more above its 200-day for several months.  S&P components, however, have been telling a different story with fewer than 60% above their own 200-day.  By way of perspective, when the S&P is 5% above its 200-day a median of 80% of components are above their own 200-day, according to SentimenTrader.com.  For all NYSE stocks, fewer than 50% are above their 200-day.  These are not bell-ringing negatives, and typically drag on for a time.  All of these divergences, however, leave the market vulnerable.

Meanwhile, the NASDAQ has had its own technical issues.  Over the last few weeks, the NAZ 100 had moved higher, while the percentage of stocks within that index at a 12-month low more than doubled.  Of late the large caps have masked much of the weakness, and this seems particularly true of the Semis.  While the focus has been on Nvidia (410) and a few others, and while the Semiconductor Index has held together, much like the NDX weakness among the rank and file has been rather pervasive.  Look at Taiwan Semi (85), which started the recent weakness.  The much-vaunted Arm (52) IPO struck us as a real bell ringing event.  Already down more than 20% from its high a few days ago, the company does more business in China than Apple (174).

We know Tech stocks don’t like rising rates, but it looks like the regional banks may be getting jammed again as well.  Regionals are 20% or so of the Russell 2000, and that’s now below its 200-day.  Hardly the same picture but the Econ-sensitive stocks like Parker Hanafin (382) have begun to roll over. Then there’s the weakness in retail and the credit card lenders.  It’s enough to make you think what soft landing?  The FANG and FANG+ stocks haven’t exactly been immune to the weakness but have held together reasonably well – sort of in their own world when the world isn’t such a happy place.  Impressive amidst Wednesday’s mess was the breakout in IBM (147).  Oil and oil stocks have gotten out of sync recently, with the latter the weaker – not usually a good sign.  That said, something seems good for refiners like Valero (146).

Are the Utilities so bad they’re good?  The XLU (63) is down about 12% over the last year, out of favor along with other safe stocks like food and beverage shares.  Higher rates also have made utility dividends less relatively attractive.  A recent Barron’s article also pointed out the companies are adding clean energy plants faster than they’re retiring the old ones, allowing them to grow their rate base and, hence, their profits. Unimpressed by the positives, 90% of the components of the XLU reached a 12-month low recently.  This backdrop has led to higher prices for XLU over the next 6 to 12 months, according to SentimenTrader.com.  It also seems interesting and surprising that there has been a spike in Put buying here.

The Fed’s “hawkish pause” no doubt was intended to curb the market’s enthusiasm.  Something was different this time, however, at least for now it seems to have worked.   Powell often talks hawkish, but the market typically sees through him, betting he will buckle at the first sign of trouble.  Looking at the Fed funds futures, the Fed market as it were, the possibility of another hike this year isn’t taken seriously.  The reason stocks may have

taken Powell more seriously this time is that the market is in a relatively weaker technical position.  Remember, too, at play here are the debt ceiling and the auto strike.  Selling on the Fed news may be an excuse to get out ahead of these other problems.  In any event, what’s needed is better numbers from the average stock, those A/Ds and those stocks above their 200-day.

Frank D. Gretz

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DJIA:  34,907

Stuck inside of Mobile… with the Memphis blues again.  While that Dylan lyric would seem to have little to do with the stock market, that word “stuck” brought it to mind.  It pretty much says it all when it comes to our view of the market these days.  The major averages are on or just above their 50-day averages.  Our preferred look at the market, stocks above the 200-day average, has hovered around 50% since the start of August.  Granted 70% or more here is a good figure, but 50% or less means half of all stocks on the NYSE are in downtrends.  Meanwhile, the Russell is below its 50-day and teetering on its 200-day.  Regional banks, 20% of that Index, are well below the 200 and look about to break again, leaving you to wonder if there’s a message there.  The momentum measures we follow had turned marginally positive in late August, but since have rolled over again.  They don’t usually change so quickly, but you know what Keynes used to say.

In Isaacson’s biography of Elon Musk, he recounts a meeting between Musk and Bill Gates.  Musk’s first question to Gates was whether he was still short Tesla (276).  He was and apparently went on to explain why, but our point is there are different opinions about Tesla, even among reasonable and smart people.  For our part, we’re just here to talk about a chart pattern we like, and for now that happens to be Tesla’s.  Price gaps are one of our favorite technical patterns, yes they are technical patterns, and yes Tesla has one.  They happen when the low price of one day is enough above the high price of the previous day, that on a bar chart a gap appears.  Technical analysis is an analysis of supply and demand, and what could be more indicative of demand than enough buying to cause a price gap?  In the case of Tesla’s gap Monday, it also took the stock back above is 50-day average.  Some consolidation would not be unusual, and the stock now needs to hold above the gap and the 50-day.

To continue this impromptu tutorial on price gaps, how about that Oracle (114) – a good chart until Tuesday’s downside gap of more than 10%.  Yet another reason this isn’t coming to you from the Côte d’Azur.  Prices usually follow in the direction of price gaps, whether they be up or down.  The exception is when the gap does not change the overall trend.  In the case of Oracle, it pretty much continues in an overall trading range going back to mid-June, and the stock remains above its 200-day average.  Oracle was among those stocks we mentioned last time, calling them the “retro Techs.”  To Dell (71), IBM (147) and Cisco (56) we might have added Intel (39).  While everyone frets over Nvidia (456), ironically it’s Intel, and even Micron (72) that have performed the best. When it comes to Nvidia, the chart it’s still fine, but like the market stalled.  We wonder too, if the Arm offering may have siphoned off a little Semi money.

A new concern this week was the poor action in what we have called Econ-sensitive stocks like Parker Hanafin (395) and Eaton (222) – the latter having dropped 20 points in two days.  It is the largest holding in PAVE which now has taken out a couple of support levels and the 50-day.  We have used these stocks as an argument against a recession, and if that’s changing so too would our recession opinion.  Meanwhile, the case for recession has always seemed to lie in the consumer, based on the action in retail and lenders like Capital One (102).  A couple of bad days doesn’t mean it’s time to panic, but it’s certainly time to pay attention.  In another somewhat retro move, some of the FANG+ names are back on track.  Most of these, Tesla being a prime example, seem in their own world rather than market sensitive, perhaps the perfect thing for a stuck market.

After last week’s spate of selling, this week’s CPI and PPI could have been taken as good or bad.  If the market makes the news, the market’s lack of reaction offered little insight.  And after a worrisome Wednesday, Thursday’s strength was a welcome relief, not so much for the strength of the Averages as the 3-to-1 A/Ds.  One day is just that – what’s needed is more evidence upside momentum has been regained, that is, more days like Thursday.   It’s an interesting overall backdrop.  Despite the inverted yield curve, a contraction in money supply and declines in leading economic indicators, most have turned optimistic – soft landing, and so forth. Goethe said the intelligent man finds everything ridiculous, or is the market just doing it’s discounting thing.

Frank D. Gretz

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