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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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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