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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DJIA:  34,122

Into every life a little rain must fall.  In the stock market it’s called a correction, in this case a 2% drop in the S&P.  They will tell you it’s because of this, or that, but basically stocks have been stretched, along with investor enthusiasm.  Investor’s intelligence recently showed a move from 0% to 30% in the Bull-Bear spread, a move that typically results in a couple week setback, but little more.  Together with a recent one-year high in the S&P’s favorable implications, the A/D index of S&P components reached a new high as well.  Contrary to what many believe, the average stock tends to drag along the stock averages, both up and down.  Meanwhile, we are now in the seasonally interesting period around the July 4 holiday, with both good and bad implications.  Fortunately, the bad ended with the close June 28, and saw A/D’s days negative 6 of 8 days prior to that.  The favorable period this year extends to the close on July 7.  Historically the market is up some 70% of the time with an average gain around 2.4%, according to SentimenTrader.com.

Last time we mentioned the 21-day weighted moving average in reference to GE (108).  Most of Tech and other extended names, like Tesla (258), Netflix (428), Nvidia (408), XLK (171), and so on, have held their 21-day.  If they can hold even this “trading” moving average amidst the weakness in these stretched and volatile stocks, it seems surprisingly positive.  Tech has borne the brunt of the recent weakness, while Econ-sensitive stocks have come through pretty much unscathed, and look promising, PAVE (31) or components like PH (387), ETN (199), FAST (59), PWR (195) and the like.

Frank D. Gretz

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DJIA:  33,946

Follow the trend … but that’s following the herd.  The trend is pretty clear.  The problem is it’s so clear most are on to it.  They say the crowd is wrong at extremes but right in between.  This may be one of those extremes, if only temporarily.  When it comes to gauging settlement, we typically prefer to look at investor action rather than investor talk.  Put-Call Ratios relate to the former, and they’re back to levels of last March.  When it comes to indicators that use investor surveys, Investors Intelligence has been around forever, and measures the opinion of market letter writers – a drop dead smart group.  Here the spread between bulls and bears has moved from 0% to 30%, a change which typically results in a couple weeks of stall or pullback.  Subsequently, however, the outcome is surprisingly positive, with the market almost always higher a year later.

Meanwhile, while pretty clearly up, the S&P has achieved a milestone of sorts.  It has moved from a one-year low to a one-year high.  This has happened some 25 times since 1948, according to SentimenTrader.com, with only one loss in the six and 12-month period.  Of course, up doesn’t mean straight up, but there were only two drawdowns of 10%.  You might argue this time is different given what most consider a narrow market.  Indeed, fewer than 5% of the S&P stocks are at one-year highs.  Historically this did not significantly change the outcome.  So we can add this to other aspects of the background that have similarly suggested favorable outcomes.  The first quarter, for example, held the December lows, leading to a higher prices April – December some 90% of the time.  And we have seen back-to-back up quarters which, according to Tom Lee of Fundstrat, never happens in bear markets.

Despite what many consider the market’s limited participation, the A/D index for the S&P has reached an all-time high.  Note this is for the S&P components, not all NYSE stocks, which is what we typically reference.  It’s not unusual to see a discrepancy in these numbers, it’s again about progress not perfection.  The NYSE numbers show no important divergence, at least with the DJ, against which we typically measure.  The S&P A/D Index itself has a credible record, leading to an annualized return in the S&P of almost 19% since 1928, according to SentimenTrader.com.  Interestingly, too, of the 23 occurrences there were only three drawdowns of 10% at any point in the next six months.   Contrary to what might seem logical, the average stock tends to drag along the stock averages, both up and down.

Watching the after-hours trades Tuesday night, we couldn’t help but be struck by the juxtaposition of Tesla (265) going by up some 17 points as Cramer stood on the floor of a Ford assembly plant.  To be fair, while no Tesla, both Ford (14) and GM (37) have more than respectable charts, and Tesla has come in a bit since then.  These almost sacred stocks like Tesla, the “Magnificent Seven” or whatever, have been pretty much impervious to market weakness, at least so far.  We hesitate to say corrections here might be healthy, since we never understood why losing money is healthy.  But we know what they mean, and a respite of sorts would do some good.  And a little weakness in the sacred would put a little fear in things, fear creates selling and selling creates a low.  While we consider this a minor selloff, it could take another week or so to be resolved.

The Energy sector is what you might call lurking.  They’re probably not quite ready for prime time, but they’re getting there.  A stock like Vista Energy (24) did break out the other day, but failed to follow through and is, in any case, not exactly an Energy bellwether.  Stocks like Baker Hughes (30) and Halliburton (31) are promising, but still not there.  Meanwhile, NatGas seems particularly interesting, but here the seasonal pattern is unfavorable until almost the end of July.  During this time NatGas is up only some 15% of the time.  Still, seasonals are one thing but not the only thing.  We would pay attention to a breakout in something like UNG (7).  After a little respite, we fully expect Tech to continue as leadership, though we certainly wouldn’t forget those economically sensitive names we went through last time.  We would also note the better action in drug wholesalers like McKesson (417), AmerisourceBergen (188), and Cardinal Health (93).

Frank D. Gretz

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Trend isn’t just your friend … it’s your nearest, dearest, bestest buddy.  Look at what trend has done for Tesla (256).  When it recently got on one, it stayed on one 13 days through Wednesday, without so much as one down day.  Consider, too, Tesla isn’t exactly known for a lack of volatility.  Sure the market’s new dynamics has played a role, but not even Nvidia (427) can match Tesla here.  There is, however, another and more mundane stock that is perhaps our favorite example of a consistent uptrend.  Those of us who trade, and a measure favored by IBD, know the weighted 21-day moving average.  The weighting here simply means day 21 counts for 21 times as much as day one.  It is as they say, a very fast-moving average, one which very closely hugs the price action.  Since the start of the year, GE has gone from 65 to 105 without falling below its 21-day weighted moving average.

Meanwhile, the backdrop seems to be filling in the bull market blanks.  Forever it seems it has been “don’t fight the Fed.”  Now if not over, the fight seems close to over, and the Fed won to look at recent CPI and PPI numbers.  Of course, only the Fed would remain data dependent while the data they depend on is old news.  You would think they’ve never heard of the lagged effects of monetary policy but hey, nobody’s perfect.  So that just leaves the looming recession standing in the way here.  And while well-advertised, it doesn’t mean it won’t happen.  We just think there will be no significant downturn, and we say that after consulting with the charts of Grainger (744), Cintas (492), Ingersoll Rand (65), Lincoln Electric (196), Eaton (197), and Parker Hannifin (374) – the latter was used by Greenspan as an economic indicator.  These economically sensitive stocks are at or are near all-time highs.  We doubt this would be the case if we were facing a severe downturn.

The bear market was itself unconventional, perhaps helping to explain why many are uncomfortable with this new uptrend/bull market.  When it comes to the bear market, even its low seems misunderstood.  Most call October the low, true enough if you’re talking about the market averages.  When it comes to the market in terms of the average stock, the low was last June.  Last June was a washout low, October was what they call a secondary low, a low with less selling pressure.  In turn, that has left the recovery a bit disjointed, and complicated by ongoing rotation.  And then, of course, there was the setback of the banking crisis.  The NAZ/Tech breakout in mid-May and the S&P breakout a few weeks later were the game changers.  You might argue this is when the real uptrend/bull market began. Even now, however, we still have not completely come out of what has been three or four months of base building.  Stocks above the 200-day, for example, are still only just about 50%, well below the 70% level of February.

The VIX (14), or Volatility Index is always a bit controversial, often misunderstood, and taken by many to be pretty much useless.  The latter, in this case, often have a point.  When it comes to market weakness, volatility as measured by the VIX rises out of fear, fear creates selling, and selling eventually creates a market low.  However, there is no magic number to the rise needed for such a low, rather it’s a peak and subsequent decline in the VIX that signals the panic/selling is out of the way.  A low VIX, in turn, seems often to stay low without consequence.  Indeed, the VIX currently is at a two-year low as the S&P makes higher highs.  Contrary to popular thinking, multiyear lows in the VIX tend to occur in bull markets, not in bear markets.  Except for August 2000, every two- year low in the VIX occurred in a bull market, suggesting that at the very least the VIX is not a worry.

They didn’t see inflation coming, what makes anyone think they’ll see it going. The Fed does seem determined however, probably out of fear of being wrong twice – it’s called human nature.  Fortunately, the market sees things differently.  Even the Fed induced market bashing Wednesday saw 1700 stocks advance, not bad for any day.  And Thursday’s better than 3-to-1 up day wasn’t exactly the “weak rally” about which we forever worry.  The numbers, of course, speak to a broadening market.  Note the breakout in the Russell despite its 17% weighting in Regional Banks.  One group that would further help here is Energy, which had a good day Thursday – especially Nat Gas.   But most stocks are at least lifting, and why not.  After all, they stopped going down a year ago and since have just been base building.  We don’t like to sound more bullish on the way up, but in this case things have become more bullish.

Frank D. Gretz

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DJIA:  33,833

Turn your back… and it’s a new bull market!?  So they say, they being those who believe a 20% rally in the S&P makes it so. Fine with us, though it doesn’t quite feel like a new bull market.  To feel it, you probably have to be in what someone aptly called the Magnificent Seven, and probably little else. Even if you were in uptrends like McDonald’s (286) or Microsoft (325), they never seem to go together. It’s like Superman, why is it you never see Superman and Clark Kent together? And who amongst us is without sin, that is, a few clunkers.  So the S&P has been tough to match, much like the 80s when few owned enough Microsoft to keep up. Apple (181) these days is a 7% position in the S&P, so to speak, while most funds can’t hold a 7% position in anything.  Whatever you choose to call this market, Friday’s rally says they want to go higher.

Last Friday’s was a surprisingly good rally, and in ways that were more subtle than most realize. The Dow, for example, rose 700 points, both impressive and not very subtle. Consider, though, the Dow has lagged the NAZ and S&P, making its rally a bit more impressive. Similarly, Friday’s 5-to-1 A/D numbers are not unheard of, but they typically come along after a washout sort of selloff.  There was more concern than fear about the debt ceiling, and certainly no real weakness. The QCHA is a number from the old Quotron system, which measures how much stocks are up, not just whether they’re up like the A/Ds. Friday was the best day since January, meaning stocks were not just 5-to-1 up, they were up a lot.  A number of years ago we used that number in a piece and got a call from Barron’s asking where they could find it.  We both had a good laugh when we said – Barron’s. 

Not only were the Friday moves in some individual stocks dramatic, they also seemed technically important.  A 17-point move in Caterpillar (234), for example, is an outsized move for that stock.  More importantly, it also moved the stock above its 50-day moving average for the first time since mid-March.  Similarly, without wanting to be demeaning of our four-legged friends, Dupont (70) has been among them.  Here, too, its five- point rally on Friday lifted the stock above its 50-day.  Then there are the Regional Banks, a group we had begun to think of as investment shorts, especially in light of the Treasury’s required financing.  The Regional Bank Index (KRE-44) on Friday also moved above its 50-day.  Meanwhile, there were a myriad of Econ-sensitive stocks, already with decent patterns, that performed well – names like Cintas (483), Eaton (188), Fastenal (54), and Parker Hannifin (356).  And who knew AI was so dependent on welding – to look at Lincoln Electric (191), you might think so.

What has been a narrow market has not gone unnoticed.  And things noticed usually don’t matter, or at least they’re not the market’s undoing.  Now things seem to have gone a step further, where some are arguing narrow markets don’t matter.  While we have heard, but not read the arguments here, we’re sure they have their data.  Then, too, there’s your data, there’s my data, and there’s the undisputed data.  Unfortunately, there’s no undisputed data here, the real issue may lie in time frames.  Back in 2018 the Dow moved to successive new highs in three days, while the A/Ds were negative each of those days.  The market subsequently abruptly fell 20% into the end of December.  In 1987 the A/D Index peaked in March, and subsequently showed a pattern of negative divergences against the Averages.  While the latter continued to move higher, it didn’t matter until October – then came the Crash.  Divergences matter, sometimes not until they matter.

While we haven’t exactly embraced the Cathie Wood/ARK concept, there are a couple of the ETFs that cover some stocks we like. The ARK Autonomous Technology ETF (ARKQ-53) has a 15% position in Tesla (235), along with Nvidia (385) as one of its top 10 holdings.  When it comes to stocks like NVDA, our rule of thumb is the first time you think it’s over, you’re wrong, and so too the second time.  Typically, there’s no third time. Momentum like this doesn’t go away easily or quickly.  Not to dismiss the market’s seeming broadening, Tech is leadership, but as Wednesday made clear, there will be setbacks.  Meanwhile, stocks above the 200-day have improved to 51%, but here it’s progress not perfection.  And don’t forget those A/Ds, it’s not just the Averages that will keep this going, you have to have the average stock as well.

Frank D. Gretz

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DJIA:  33,061

Party like it’s 1999! That is to say, party like you own Tech, and little else. Back then you could put dot-com behind your name and it made it worth another 20%. The same is true now if you’re anything AI-ish. The latter is the new, New Economy.  Meanwhile, the Old Economy stocks are pretty much everything else. Hence, it’s an S&P Index hovering around its highs with fewer than 40% of stocks in uptrends, that is, above their 200-day.  This is anything but a healthy backdrop, technically speaking. While this will last until it doesn’t – you can’t underestimate momentum. The Semis had their best day ever last Thursday, gaining some 11%. When they have gained 5% or more in a day, they’re higher a month later more than 70% of the time, according to SentimenTrader.com. Back in 2000, it took a peak in the dot-coms to get the rest of the market going again, by then the rest had become sold out. On the plus side, with better than 3-to-1 A/Ds, Thursday was a surprisingly good day.

Speaking of Tech, it wasn’t a pretty picture after hours for those reporting on Wednesday. We don’t like to see downside gaps, but we find their significance less when they don’t change an overall uptrend. You might want to look to Snowflake (167) as a guide here.

Frank Gretz

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