DJIA:  34,500

So far September is living up to its reputation – it’s the year’s worst month.  A bit of a surprise given last week’s positive action, and this September actually has a couple positive aspects.  A down August is often followed by a good September and pre-election years also favors more positive outcomes.  Try though you might, it’s hard not to think it’s Tech’s world.  Everyone couldn’t wait for the pullback in Nvidia (462), and now what?  Apple (178) is “own it don’t trade it” until China bans the iPhone.  The market is in another little correction phase, and as always and forever – news follows price.   Need now is for the market to start ignoring some bad news, like Apple’s and rates, and to get back to a pattern of positive A/Ds.  Meanwhile, Tech is just fine when it comes to what we call “retro Tech” like IBM (148), Oracle (125), Cisco (57), and best of all recently, Dell (69).

Frank D. Gretz

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DJIA:  34,721

It’s about stocks … more than the stock averages.  While the focus is always on the market averages, typically it’s the average stock that tells the story.  When they began to diverge even a bit back in July, it set the stage for the recent little correction.  It has been easy to call the recent weakness a bull market correction, but you never know.  When the S&P has spent close to 100 days above its 50-day average, the first break is just that – a bull market correction and only about 6%.  When last week’s numbers saw close to 50% of stocks at a 30-day low but only 4% at a 12-month low, that says correction in an uptrend.  Relatively muted selling is one thing, needed is a revival in buying, making this past week a good one.

Beginning in the second week of July the market hit a real dry spell – eight consecutive days of negative A/Ds, 10 of 11 in all.  Downtrends happen, the real damage technically was when three of those days saw the market averages higher. This sort of divergent action can go on, but it never ends well.  This pattern changed last week when finally there was a buying interest, a day with almost 4-to-1 up.  One up day will never make a difference and, indeed, some of the best up days have occurred in bear markets.  That day, however, was followed by a couple of days with 3-to-1 up and Tuesdays surprising 5-to-1 up day.  This makes the correction likely over, though the usual caveats apply.

We have suggested Nvidia’s (494) “sell on the news day” was not a complete surprise, though you never like to see the market ignore good news.  In this case it seemed not that expectations were too high, rather enthusiasm was too high.  It was the euphoria that needed to be corrected, and the surprise weakness seems to have done so.  Now that the dust has settled, what remains is a technically good pattern, and Tech generally has improved.  What have been good charts all along, however, have been those stocks like Quanta (210), Roper (499) and Ingersoll Rand (70), among others.  The group with the greatest number of stocks above their 200-day is Oil, though no one seems to care.  And when was the last time you thought about Uranium (24)?  Meanwhile, Retail is weak to the point of being worrisome.  Banks are another problem, but one that’s known.

Too big to fail, but too big to be saved.  That’s how the Chinese real estate market has been described.  Then, too, there isn’t much anywhere about China that can be construed as positive.  According to the Bloomberg database of news articles, there has never been a week with more negative articles dating back a decade.  Not surprisingly the Shanghai Composite hit new lows recently, accompanied by extreme oversold readings.  Oversold doesn’t mean over, but similar past readings have resulted in a rebound.  China always seems able to stimulate its way out of these problems, though doing so always becomes more difficult. We’re not fans here, but we would point out that the charts of individual charts are not as bad as you might think – they’re trading ranges.  Like it or not China matters, problems in China rarely stay in China.

Not long ago we wrote the odds of getting a good Tech report was slim to none.  Now that seems to have changed, not just with Nvidia but even this week with the DJ component Salesforce (221), OKTA (84) and CrowdStrike (163).  The favorable responses here could be about the reports per se, but we tend to think it’s about the market – in this case it’s the market that made the news.  At the very least, the market isn’t ignoring good news, another sign the correction is likely over.  This and the change in the A/Ds argue for higher prices.  It is a seasonally weak period, but something you hear almost too often.  Moreover, it’s not such a big deal in pre-election years.  It may not be straight up, but up provided we stay away from those bad up days – up in the Averages but with poor A/Ds.

Frank D. Gretz

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DJIA:  34,099

If it’s a low … is it an uptrend?  They may seem the same, but they are not always so.  By historical standards a low should be close – bull market corrections typically fall in the 6% range.  The S&P has taken out its 50-day, as have most of the Averages, but this says little more than we are in a correction phase.  What does seem consequential is that the S&P had remained above its 50-day for close to 100 days. This sort of trend doesn’t happen in bear markets.  When the trend does end, on average the correction again tends to be about 6%.  We don’t really like data like this because often there’s “always something.”  Suffice it to say for now the weakness seems normal, if there is such a thing.  The rub comes in the new uptrend.  After breaking the 50-day sorting things out typically takes a month or so, new highs usually come a couple months later.  Even market lows can be a process.  

Banking may be a fine profession, it’s the bankers that give us trouble.  If not lending to Third World countries, or to see-through office buildings, they’re trying to rig LIBOR.  For now it’s the Regionals that are between a rock and a hard place.  They’re caught in the equivalent strategy of buying High, selling Low, and making it up on volume – a strategy we’ve tried with stocks from time to time.  Of course it’s not like rising rates were a big secret, and isn’t rate stuff what banks do?  What is done is done but not without some implications for the overall market.  There are a lot of banks and that has implications for market breadth, that is, the A/D Index.  It also helps explain why the Russell 2000, what we call love among the rejects, acts as badly as it does.  It’s 20% Regionals.

One non-reject in the Russell happens to be its largest holding, Super Micro Computer (263).  By our calculation, back in early August SMCI had outperformed Nvidia (472) year-to-date, then came the collapse – a 50-point downside gap, followed by an additional 50-point decline.  In Tech land, things sometimes change fast.  And things seem to be changing yet again. You can argue the overall uptrend was never threatened, and it was a much-needed correction, as they like to say.  What seems important in the here and now is the stock has re-taken the 50-day.  Buying stocks in overall or long-term uptrends is best.  When they correct, however, you never know.  Best to buy some if you must, and the rest when they retake the 50-day.

Tech gets all the attention, rightly so since they are what got us here, bull market-wise.  It is a bit ironic, however, that with the exception of Nvidia few Techs have been above their 50-day recently.  Meanwhile, the seemingly forgotten Oil shares have cycled from fewer than 15% above their 200-day to more than 90%.  This kind of momentum change has resulted in higher prices more than 80% of the time.  Then there are the unscathed, the stocks which have come through the correction with little or no damage.  Everyone likes to buy bargains, but often the stocks that give up little are those that lead in the next phase of rally.  We’re thinking here of stocks like Quanta (201), Eaton (221), Ingersoll (68) and Roper (489).  In Tech, Arista (179) has a pattern we particularly like – gap up and a high-level consolidation.

That Thursday was a “sell on the news day” was not completely surprising.  If more than just that it would be surprising, and not good.  We’ve been waiting for the market to ignore bad news, and there have been hopeful signs.  For sure, good markets don’t ignore good news.  Wednesday’s 3-to-1 up day, the first in more than a month, also was encouraging.  However, one day is just that, what is needed is a pattern of better A/Ds, especially on those days when the Averages are up.  Stocks aren’t cheap, rates are rising and Powell’s speech at this time last year took the market down some 19%.  A recovery is not guaranteed, but despite Thursday seems likely.  The S&P’s duration above the 50-day suggests this remains a bull market correction.

Frank D. Gretz

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DJIA:  34,413

The correction has been more than expected – or perhaps just different than expected.  While just a few percent in the S&P, it has hit the seemingly unstoppable Tech the hardest.  Best to be wary when they start giving things a name – one-decision stocks, dot-com’s, Magnificent Seven.  What’s done is done – now a couple things need to change.  Good markets ignore bad news, this market has ignored some market friendly news – the Jobs number, and more recently the CPI.  The market has to start ignoring bad news.  More importantly, the spate of recent days with the Dow up and the A/D’s flat or down needs to not only change, it needs to reverse.  More than any level in the Averages, what’s needed is a sign of a buying interest, a couple of days with 3-to-1 up.

Frank D. Gretz

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DJIA:  35,176

It’s like playing Russian Roulette with an automatic weapon.  That’s the look of these Tech stocks when they report.  If you believe, as we do, the market makes the news, this isn’t exactly what you’d like to see.  Then, too, it’s hard to be surprised they should be vulnerable.  Even Nvidia (424) broached it’s 50-day on Wednesday, a level perhaps too obvious.  For Tech overall, it has cycled from an oversold to overbought level in terms of its 200-day, but to a degree which suggests higher prices into year-end.  The caveat is first a pause like we’re seeing now. Meanwhile, stocks like Eaton (217) and Emerson (96) are consolidating after gapping higher.  United Rentals (482) looks particularly positive, and don’t forget Oil.

Frank D. Gretz

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DJIA:  35,215

Sometimes it’s not about what the market does … it’s about what the market doesn’t do.  These days most stocks go up, and that has been key to the uptrend’s longevity.  Last Thursday was an exception, when despite the Meta (313) news most stocks reversed to close lower by a margin of almost 3-to-1.  We would not have been surprised to see some follow-through the next day, despite the benign inflation number.  Instead, the market retraced most of the previous day’s loss, including in the A/D numbers.  After Thursday’s poor action, Friday easily could’ve seen what we call a weak rally – up in the Averages but poor breadth.  While this speaks to the market’s strength, we may be in for another health check this week.  Tuesday’s positive Dow against A/Ds that were 2-to-1 to the downside is not what you like to see.

Divergences between the DJIA and the A/Ds lead to problems/corrections.  They can but don’t usually happen overnight.  In late 2018 The Dow saw three consecutive days of higher highs against three days of negative A/Ds, and the market quickly fell 20%.  For some reason they like to compare this market to 87, though technically they’re completely different. In 87 the A/Ds peaked in March, and there was a pattern of higher highs in the Dow against a pattern of lower highs in the A/Ds going into the October Crash.  Divergences mean markets have narrowed.  Markets narrow when there’s less sideline cash/buying power.  When that happens the large-cap stocks that dominate the Averages are the last to give it up, which offers hope for the laggards.  You know what they say about hope as an investment strategy.  While all of this is a sort of playbook for a market top, the market recently has broadened, and has too much momentum for important problems.

The upside momentum we have seen in this market brings to mind a trading system which has worked particularly well recently.  The system calls for being long or short at the start of each month, depending on whether the S&P the previous month was up or down, respectively.  Recently that would have meant going long at the end of March and capturing some 500 S&P points by the end of July.  While the system does work, it’s unusual to have the S&P up for five consecutive months.  And to the point of momentum, all streaks end but this kind of momentum doesn’t go away in a hurry.  Another way you might have captured this momentum run is through moving averages. The S&P crossed above its 50-day moving average in early April and has remained above it ever since.  A word of warning about “systems,” they all have their flaws, mainly whipsaws.  And then there’s human nature.  There are good trading systems, but few good systems traders.

Sentiment or investor psychology is often taken just as contrary thinking.  While there is a big part of that in these indicators, that’s very much an oversimplification.  A Wall Street Journal article recently cited an array of indicators suggesting sentiment is over the top.  Those include the AAII Survey, the University of Michigan Survey, P/C Ratios and a disappearing VIX.  How should we put it, investors aren’t stupid.  They would have to be to not be bullish/positive in a market like this.  Our favorite quip about this is that investors are wrong at extremes, but right in between.  So just what is an extreme?  It’s when you’re sitting there wishing you had more money to invest, but you don’t.  Chances are you’re not alone, and tops are about the money.   When it comes to surveys we prefer Investors Intelligence, which is a measure of those drop-dead smart market letter writers.  The record here is a jump often results in a temporary pullback, but then a higher market more than 90% of the time.  

So when you catch a Sovereign downgrade you’re supposed to sell all your Tech?  Or was Tech a bit over-loved and looking for an excuse to correct?  Before this spate of weakness, did you notice how the rally ran in the shorts?  The shorts in this case were not just stocks like TUP (4) and TDOC (26), the shorts included every negative Strategist.  That’s the market, doing what he does best – confounding the most number of people.  Things change, nowhere more than in Bonds and the Dollar – not a good thing.  While not exactly a scientific survey, our take is there have been more surprises down than up, including among the good charts.  That’s not good for job security – in this case our own.  The Market has dug itself into a bit of a hole in terms of the poor recent A/Ds, so we’re likely in this correction phase for a while.

Frank D. Gretz

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DJIA:  35,282

Two months … but who’s counting.  The market hasn’t suffered a 1% down day in two months. That’s quite a streak though by no means the longest.  It’s the kind of streak that doesn’t happen in bear markets.  Still, when the streak ends you have to wonder if the abyss awaits.  Despite what you might think or fear, history suggests otherwise.  It’s that momentum thing again – big uptrends don’t turn on a dime.  At play here, too, is what they call the market’s broadening.  And it’s not just semantics, it is broadening rather than rotation – we’ve expanded without leaving a lot behind.  The improvement in Staples and Financials are the prime examples here, both broad areas.  It’s a tough call to be negative on Tech, not one we are brave enough to make, or believe should be made.  That said, Tech stocks have come a long way and now there are opportunities elsewhere.

To make clear our thinking on Tech, there’s momentum here that won’t easily go away.  We’re thinking of a stall more than real weakness.  More than 90% of Tech shares are above their 50 and 200-day averages, having cycled from less than 7%.  This kind of change has produced good returns over the next six and 12 months for both Tech and the S&P, according to SentimenTrader.com.  The recent action here has become a bit more ragged, including Wednesday’s surprising weakness in Microsoft (331).  Meanwhile, while most may not realize it, stocks like Walmart (159) and Costco (562) are in their own long-term uptrends and arguably are acting better than most of Tech recently.  These are among the top 10 holdings in the Staples ETF (XLP-75), together with Coke (62) and Pepsi (189) which also are acting well and similarly have long-term uptrends.  As we suggested above, a problem for Tech might be it’s no longer Tech and Tech only acting well, you now have options.

So you say you always believed in the Meta-verse, or was it Facebook?  Left for dead late last year, Meta Platforms (312) as it’s now known, has tripled.  If Meta was on the giveth side, Microsoft was a bit on the taketh this week, but in the case of the latter, you have to wonder for how long.  The stock is dabbling with its 50-day, as it did a couple of weeks ago, and again back in April.  Were it to break, which seems unlikely, it would be a change of some concern.  Meanwhile, Google (129) had its own upside gap – guess FANG isn’t going away this week.  On the other side of Tech, both Costco and Walmart are bumping up against all-time highs, together with the likes of Cintas (505), Grainger (725) and Parker Hannifin (397) – strange bedfellows you might say.  And these days there’s the much improved commodity complex – Steel, Copper, and of course, Oil.  The China news may have helped, but these have been improving for some time.

Volume is important, both for the overall market and for individual stocks.  For the latter volume often precedes price, while a rally without volume is suspect.  Stock volume is pretty straightforward, what you see on the screen usually will do.  It’s a different story when it comes to the overall market where one might ask whose volume or what volume?  We use SPY volume which seems a reasonably straightforward and consistent gauge.  Most important is what side is volume on, so to speak.  We look at an A/D Index calculated only on those days when volume is higher than the prior day.  In theory volume should rise on up days and fall on down days, and over the years this Index has been helpful.   This measure turned decisively higher at the end of May.  Meanwhile, have you noticed stocks rarely split anymore?  If every $200+ stock were to split, think what that would do for volume overall.

While the Fed meeting was a snooze, we are always interested in what Powell has to say.  In this case he repeated numerous times that any further raises in rates will depend on incoming data.  We find it fascinating that even we know monetary policy acts with a considerable lag, yet policy depends on the whimsy of some number du jour?  Still the market hangs on this stuff. Fortunately Fed speak doesn’t usually matter for more than a day, and “don’t fight the Fed” has been about as useful as “sell in May.”  The market tells the story and the average stock tells the market story.  Talk has centered on the Dow’s winning streak going into Thursday, but the streak in the A/D numbers has been just as good.  Tops occur when markets lose participation as the money runs out – little sign of that so far.  Despite the performance by Meta, many stocks reversed early on Thursday, including Microsoft.  With Thursday the market may be in need of a little more correction.

Frank D. Gretz

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DJIA:  35,225

Who needs Nvidia (455) … when you’ve got good old Microsoft (347).  On Tuesday MSFT showed NVDA how AI is done, and in the process moved to an all-time high.   The move came after the company announced pricing for its new AI subscription service – making money from AI, what a novel idea.  It’s not so much that this market is resilient, it’s more that it’s inventive.  While everyone worries about good stuff like earnings and rates, along comes AI to take everyone’s mind off of that.   Earnings so far haven’t been as bad as predicted, and the look of those Econ-sensitive stocks is reassuring.  New to the positive side is the recent hit to the dollar, typically good for the NAZ and the Russell.  The real positive, however, remains the technical background.  The stock market and the economy are two different things.  The stock market is sometimes hallucinatory, but it’s usually anticipatory.  What’s important here is what most stocks are doing, and for now most days they go higher.

Suddenly everyone has noticed the market is broadening.  Then, too, you have to ask relative to when?   We see this as pretty much a function of the impressive move in the energy complex –mindful that there are many stocks here – and the stabilization in the banks – again, many stocks here.  Getting back to time frames, to look at the Russell (1966) or the Equal Weight S&P (154), while much better, they’re only back to their February peaks.  Mind you we’re not complaining, for now we’ll take progress over perfection as we have become fond of saying in this market.  More important in many ways is the number of stocks above their 200-day, a good proxy for stocks not just going up, but going up enough to be in uptrends.  There was a rather dramatic jump last week to 63% versus only 50% the prior week.  It also remains below its February peak, but there’s that progress thing again.  Another important aspect of these numbers – 70% historically has said bull market.

Gold it seems has little to do with anything.  It certainly hasn’t proven an inflation hedge, or a hedge of any sort against the war in Ukraine – what did those oligarchs do with all their money?  Where there is some rhyme or reason is the correlation between the dollar and Gold, among other things.  And, indeed, the dollar has turned weak– recently dropping 3% in just five days to its lowest level of the year.  Weakness here typically begets even more weakness.  Pretty much tick for tick with the dollar, Gold shares have improved with most now above their 50-day averages.  This would include the ETFs, GDX (31) and GDXJ (38).  Gold also has seasonality going for it.  Between early July and early October gold is up some 63% of the time, with the average gain outstripping the average loss, according to SentimenTrader.com.

Gold may be in its own world, but that is not to say other commodities haven’t come to life as well.  We’re thinking here of the basics like Copper (COPX-40) and Steel (SLX-67), XME (52) is illustrative as well.  This seems another indication economies are not in such bad shape.  Of course, we contend that shows up foremost in stocks that would seem sensitive here.  You know most of them by now, but the PAVE ETF (32) covers them pretty well.  To look at Lincoln Electric (210), who knew AI entailed that much welding?  To judge by the ETF, PHO (58), one of the best acting commodities is water.  And Bitcoin has excelled of late, helped by the seal of approval from your good friends at Blackrock.   If overcoming adversity tells a story, so far so good for Bitcoin.

Have you noticed the reluctance on the part of most to call this a bull market?  That’s possibly explained by the inverted yield curve, the hawkish Fed and earnings worries.  There’s the fear some other shoe is about to drop.  Meanwhile, it certainly acts like a bull market, though one which has evolved in an unusual way.  Most would tell you the low was last October, and true enough for the averages.  For most stocks, however, the low was last May-June.  At a typical bear market most stocks make their lows together, not so this time.  Consequently, the uptrend has evolved differently.  And then there was the banking mishap in March, which also served to confuse things.  They say bull markets climb a wall of worry.  And they say bull markets don’t give you a good chance to buy.  That sounds a lot like this market, though Thursday did remind you even bull markets have their corrections.

Frank D. Gretz

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DJIA:  34,395

It is said the prophet enters every undertaking with fear and trepidation … and so is always successful.  The market, however, seems not to worry while the rest of us do.  Seems a propitious backdrop.  The CPI threw the market a bone on Wednesday, but more often than not news has been more against it than for it.  Then, too, we would be the first to say markets make the news.  Bless their heart, the Fed is nothing if not persistent in it’s hammering.  Yet, the uptrend has been amazingly persistent, not just in terms of the market averages, but the average stock as well.  We had expressed some concern about Regional Banks and by extension Commercial Real Estate.  For now the stocks have so far overcome even that fear.  Granted stocks are not cheap, when are they ever in any uptrend like this?  When the trend changes that’s when not cheap matters. 

The market often defies simple logic, in this case by ignoring gravity of sorts.  The market seems at peace with the world, or at least resigned to whatever discomfort it sees.  It’s easy to be concerned with rates and earnings, but why if the market itself is not.  If you define a pullback by a decline from a 20-day high, there have been no pullbacks larger than 5% or even 3% since March.  The current streak of some 70 days since the last 3% pullback ranks in the top 7% of all streaks since 1928, according to SentimenTrader.com.  While the mere recognition of this may cause you some concern, history seems to suggest otherwise.  A distinction has to be made between markets that are trading at a multiyear high, versus a one-year high.  In the case of the former, extreme confidence seems to set in, resulting in poor returns.  However, that doesn’t seem to happen when stocks are trading at a one-year high as the S&P then has a history of continuing to rise.

The real news in the last week hasn’t been AI, it’s been OI-H (326) – that is, Oil.  Many of these stocks have been improving for some time, but last Friday they didn’t just break out they blew out.  A distinction needs to be made here between Oil and Oil Service/Drillers.  It’s the Schlumbergers (57) more than the Exxons (105) that had the big moves. Here again, more evidence of broadening participation.  Meanwhile, what’s wrong with those econ-sensitive stocks?  How can they be bumping up against their highs when there’s a looming recession?  It would seem the answer might be what recession?  Parker Hannifin (399) and Fastenal (57) are but two of the many.  FAST makes nuts and bolts – very techy, techy.  PAVE (32) is an ETF that covers several of these names.

Meanwhile, they’re really killing Tech.  It must have been about four or five weeks since stocks like Nvidia (460) and Adobe (517) made new highs – what a drubbing!  We mention these two names because to look at the charts you wouldn’t know one from the other.  The weekly charts show a spike-like move higher a few weeks ago, followed by a four-week consolidation.  You might want to write this down – stocks don’t go straight up.  Rather, this is about as good as it gets – a spike up and a high-level consolidation.  Another way to think of stocks like this is the good stocks, like good markets don’t give you a good chance to buy.  Hence their shallow corrections. Conceptually speaking, when it comes to stocks like these the first time you think they’re done, you’re wrong.  The second time you think they’re done, you’re wrong again.  By the third time you don’t even think it, let alone say it out loud.

Back in the last bull market we used to say most days most stocks go up, and it seems so now.  We understand the narrow market argument, we just don’t think it’s the negative many try to make it.  To some extent the market can always be considered narrow – there’s the leadership stocks, and the rest.  Granted things are a bit extreme this time but there’s an important mitigating factor.  The rest of the market is at least going up – look at the A/D numbers.  It would be a different story if were Tech and only Tech, and the rest were going down.  That’s simply not the case.  The breakout in Oil Service stocks is an important change, which obviously suggests participation is broadening.  In terms of performance the market has been narrow, in terms of participation it has not.

Frank D. Gretz

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DJIA:  33,922

What gets downgraded most days, goes up most days … and is not Ford (15) or GM (39)?  It’s that other car, battery, AI, autonomous driving, etc. company.  Talk about the fickle finger of Funnymental analysis, with its holy grail of value, Tesla (277) is overvalued and Nvidia (421) is not?  As we have suggested many times, stocks and markets sell at fair value twice – once on the way higher, and once on the way lower.  The trick is to figure out whether they’re on their way to becoming more overvalued or more undervalued.  The figuring out is called following the trend.  We trade so we use the weighted 21-day we’ve referred to recently.  For those of you who don’t mind waiting for instant coffee, the 50-day is probably best.  While for the moment we’re praising Tesla, we’re fully aware the stock did sell for 400 back in late 2021.  That’s why discipline is often more valuable than thinking.     

Does the market make the news, or does the news make the market.  Technicians, of course, hold it’s the former.  In good markets, there is no bad news.  When the news is bad, in good markets it’s construed as good, or just simply ignored.  This market has been a good example as it continues to ignore the Fed’s berating, at least until Thursday.  The real point is that it’s not the news per se, it’s how the market reacts to the news.  When it comes to individual stocks, we don’t really care about earnings, but we do care how stocks react to those earnings.  An interesting example recently was FedEx (248) back on June 20, when the company apparently disappointed.  The stock did react temporarily, only to quickly move back to its high and break out.  Because of its Rorschach test like long-term pattern, the stock has never been one of our favorites.  That said, the pattern we just described, the fakeout move to the downside and subsequent breakout, is pretty much money in the bank.

Sell in May and go away?  That worked fine provided you were back June 1 when the S&P broke out.  Seasonal tendencies are but one of the things to consider in analyzing markets, certainly not the most important.  Most important, of course, is basic supply and demand – the trend.  Like many aspects of market analysis often there’s a message when markets don’t follow the probabilities, sell in May being a perfect example.  We’re also intrigued by the seasonal probabilities of natural gas, which from now until almost the end of July show only a 15% chance of advancing.  The average loss during this period is more than twice the gain.  Nonetheless, the ETF here, UNG (7) is basing and would break out above 8.  It also seems encouraging that a couple of related stocks like Southwestern Energy (6) and Comstock Resources (11) are acting better.         

So, where’s the worry?   Sticking with the technical stuff, we’re a bit surprised by the lag in stocks above their 200-day, a measure of trend as well as direction.  The numbers here will vary depending on the database – all NYSE stocks versus S&P components showing 53% to about 63%.  The real issue here, however, is these numbers are well below the 74% of last February.  Given the improvement in the S&P Equal Weight and the Russell 2000, the divergence seems surprising.  Of course, it likely lies in the poor behavior in banking shares back in March.  Throw in Energy, and you have a lot of issues below their February levels.  We hesitate to make excuses for the numbers, but we will at least as long as the A/D Index continues to show improvement.  In other words, for now we’ll take progress over perfection.

The key to a healthy market is participation.  During the recent 2% setback A/Ds were negative for five consecutive days.  Weakness happens, weakness doesn’t kill uptrends.  What kills uptrends, at least eventually, is weak rallies.  Since that little setback, A/Ds turned positive for six consecutive days through Tuesday.  It didn’t necessarily have to be that way; those numbers could’ve turned flat or at least mixed – it could’ve been a weak rally.  We will see a weak rally eventually and it will be a warning, but sufficient unto the day is the evil thereof.  We can see the numbers actually getting better along with stocks above their 200-day with a little more improvement from the banks and energy.  Thursday’s weakness was nasty but again, weakness happens, it’s the recovery that will be important.  Meanwhile, the Bitcoin stocks have had a good week as have some names in Quantum Computing.

Frank D. Gretz

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