DJIA: 45,960

This time is different… it will take two to TACO. After wildly inconsistent announcements it’s tempting to ignore the president, but for many reasons that’s hard to do. It does seem clear he is ready to end the war and avoid an escalation, despite the armada headed that way. That’s obviously a positive and the market is doing its best to buy in.  And to quote Marco Papic of BCA Research: “the reality is that he’s reached his constraints and he’s becoming aware of them.” Perhaps that’s what is keeping the hope alive. In this case, however, there is the other side. While most of us, even the Russians, believe in this lifetime, the Iranians believe in the next. It is hard to TACO against a motivated opponent that has the leverage of the Strait.  As usual, predicting is a waste of time, and even the market’s story is a bit confusing. The market is trying to believe, those oil stocks not so much.

We used to say Semis good, Software bad. While still the case, now you sort of have to say which Semis? One that caught our attention recently is AMD (204), hardly a new name and thought of as a competitor to Nvidia (NVDA – 171). It’s a tough market for even the best of Tech, and if this does end in a washout little will be immune. What we like about AMD was the upside gap on Wednesday, a move which at least then changed the trend by moving above the 50-day. Price gaps are a technical pattern, and perhaps more than any other are about pure buying or selling. Given the market there seems no rush to buy but it’s worth a look. ARM Holdings (ARM – 155) recently had a similar pattern, as did Dell Technologies (DELL – 176).

Trump’s announcement Monday to delay the escalation was viewed by Markets as a step toward making a deal. That was Monday, Wednesday and Thursday were different.  Prediction markets, which were right about the start of this conflict, give no better than a 50-50 chance of a cease-fire by the end of next month. In other words, they’re not feeling it in their bones.

Frank D. Gretz

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DJIA: 46,021

TACO… or Proper Burger?  It seems we’re in it to win it, and not just say we did.  Of course, it would be hard to say we won when some little piece of water remains out of control. Then, too, you never know. Meanwhile, markets are no longer bending, they are showing real deterioration in terms of A/Ds and expanding new lows. We are not sure that a washout with its 90% down-days is in the offing. There are all those oil stocks and all those Utilities still acting well, and a number of Staples still hold together. The latter, however, have turned down together with a few of the sacred like Micron (MU – 444). As for Micron, it’s never good to see good news ignored – it’s the market that makes the news. On the positive side, getting around to everything is part of making a tradable low. A spike in the VIX (24), seeing a drop in stocks above the 50- and 200-day averages to 20-30% would also be a positive.

We are not brave enough to be negative on Nvidia (NVDA – 179), and besides that we’re not negative on Nvidia. Like Micron however, it did a good job of ignoring the good news of “Nvidia day”. As we like to point out, stocks are not their companies. Nvidia is a great company, who is left buy the stock? Meanwhile, Oil stocks have shown you what under-owned and under-loved stocks can do.

Micron always holds a place in our heart for a lesson learned. Quite some time ago, back when we actually knew what we were doing, we decided to short the stock around $90. As much as the toppy chart, we had figured out the shortage in DRAMs was more about the resulting double and triple ordering. We lost a little money a few times in that trade and decided to stop sticking needles in our eyes. We did, however, go back when the stock was around 30, selling at about four times earnings and growing at 30% in their latest quarter. We recall covering the stock in the mid-teens. The lesson learned – it’s easier to follow trends than to pick tops.

Frank D. Gretz

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DJIA: 46,678

Mission accomplished or… mission impossible? Poor George W believed the former, and we know how that worked out. We doubt anyone believes it this time. Yet the plan seems to be unfolding – declare victory and walk away. Fortunately, the real world doesn’t always matter to the world of stocks. Stocks adjust, they learn to live with war, they discount both the good and the bad. Monday’s market was a good example, when only a modest down opening was a bit of a surprise. The afternoon reversal in both Oil and stocks, perhaps even more so. All along this market has seemed to be counting on a short war, counting on the pain making it one. Time for that favorite phrase – only time will tell. It tells, but for us that leaves too much room to be contrary.

For some time just saying “the market” has seemed almost irrelevant. There has been the market we all know, the one which dominates the Dow and the S&P. Then there’s Tech, where even though the NASDAQ 100 has held together pretty well, new highs there are around 300 but new lows are almost double that. Perhaps not a big deal for now, but over time the bad tend to drive down the good. The problem as well is that in addition to weak Tech, much of the weakness is in Financials as well, never a good sign. To be fair, while all of this can be called potential or eventual bigger problems for the market, in the meantime it’s simply harder to make money.

One of our favorite cartoons depicts a character saying: sure, it’s the end of the world, but is it discounted? The market will discount today’s problems and will do so long before those problems end. As to when, there’s obviously no easy answer, but there are guides. The market will likely see stocks above their 50- and 200-day moving averages in the 20-30% range. The recent spike in the Volatility Index, the VIX (27) is another positive ― fear/panic is a good sign in that it results in selling, and selling not buying makes lows. A more subtle change of late has been some stabilization in Software which led the overall weakness. On the other side, getting around to everything is another sign of an end phase.

Oracle (ORCL – 159) is a name we typically try to like, being the fan of retro that we are. The chart, however, is making that a bit of a challenge. Then, too, the chart did not hint of the stock’s 10% gap higher on Wednesday. At that, however, the move only took the stock back to a declining 50-day average, the 50-day being our definition of good and evil. And, as the AI build-out has come into question, those involved are not exactly acting as they once were. Meanwhile, keeping with the retro theme, when did you last look at Nokia (NOK – 8)? We hate to tread fundamentally, but while we all know power has become a constraint for AI, apparently there’s a question whether today’s internet infrastructure can deliver next generation AI to consumers. Toward that end, Nokia apparently has partnered with a little company called Nvidia (NVDA – 183).

We had thought this conflict might prove a one of for Defense stocks, but given the unknown factor something more durable for Oil. So far that has proven true, though even when it comes to Oil/Energy it has pretty much been just Oil. We are surprised some of the Oil Service or Oil Equipment stocks haven’t done better and that may be yet to come. For now, however, best to stick with what’s working, XLE (58) or XOP (167) and those stocks. You have to like Defense over the long-term, but for now our favorite might be Palantir (PLTR – 154) after its 40% correction, and again trading like a Defense stock. Keeping in mind what we said about Oracle, the stock currently is up against its 50-day moving average in the 155-160 area.

Frank D. Gretz

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DJIA: 47,955

The smell of Napalm in the morning… how many mornings? Our less than scientific take on consensus is pretty much the worst is over. This, of course, was abetted by an obscure story Wednesday that in the midst of burying their leader and seemingly without one, Iran was looking for a deal. If you are of a certain age, that being old, you will recall that during the Vietnam War there were a number of rallies when “peace was at hand,” all before we went crawling out of there. We are skeptical but hopeful and more to the point, numbers Wednesday were hopeful as well. Then, too, Thursday showed one day is just that.

The overriding problem we see is the distinction between anticipated and discounted. When Russia invaded Ukraine stocks rallied sharply. The event was anticipated, and the weakness before the event meant it was discounted. Iran was anticipated – prediction markets gave it a 70% probability and oil hit $70/barrel for no good reason. However, stocks had not sold off to discount the event.

A couple of obvious winners in this have been Oil and Defense stocks. We would not chase Defense, but we would chase Oil. The Defense stock story is pretty well known, Oil is yet unknown and therefore with potential. Generally, we like Commodities and Staples, but there are plenty of good stocks.  Unlike last year, most of them are not Tech.

Frank D. Gretz

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DJIA: 49,499

The market… a term almost no longer relevant. Were this the market we used to know, we could say the technical background is really pretty good. The S&P is only a few percent from its high, while more importantly, stocks above the 200-day are in the mid-60s, new highs are healthy, and the A/D index just made a new high. All of this, however, misses the point of plenty of rot, major deterioration in Financial stocks, and a new curse called AI. Barron’s shows NYSE new highs last week at 400 versus 100 new lows. And it shows NASDAQ new highs at the same 400 while new lows were an almost astounding 500. It’s tempting to think, so what? History shows the bad, especially at these numbers, drag down the good.

Tech of course, and Software specifically has been much of the cause of the expansion in new lows. For some time now, however, Financials have played an important role here, as evidenced by the weakness in the XLF ETF (XLF – 53). Some have blamed the possible credit card rate limitations, we doubt it. No one is going to lend at 10% to those who are borrowing at 20%. Those poor folks will be borrowing at 30% – those unintended consequences. The market likely sniffed out the problems now coming to the fore in private equity. And, though not clear, the unplanned halving in Bitcoin has to be causing problems somewhere. Finally, there is what we have come to call the curse of AI. It’s certainly disrupted the Insurance Brokers like AJ Gallagher (AJG – 225), Aon (AON – 330) and Willis Towers Watson (WTW – 308), as well as Schwab (SCHW – 98), Morgan Stanley (MS – 178), and the card companies.

There always seems to be “a number” ― a number held in great anticipation and importance. In this case, of course, it is and has been for some time the Nvidia (NVDA – 185) number. There was a time when the number was that of Intel (INTC – 46), and at the risk of an unfortunate comparison, back in 2000 it was, of course, Cisco (CSCO – 78). The number, by the way, does not have to be corporate, if you are of a certain age, that being old, you remember when money supply drove the market. Meanwhile, as the report is being dissected over and over as though it’s the Dead Sea Scrolls, where is the surprise? Nvidia is a great company, the great company reported great numbers. Did they mention their stock typically goes dormant after good numbers, did they allude to worries regarding a Ponzi scheme? Numbers are just that. It’s the market’s reaction to the numbers that matters.

The curse part of AI has been both surprising and surprisingly devastating to many stocks. AI was thought to change the world, and for the world of stocks it has. IBM (242) struggled even before Monday’s more than 10% decline, a hit without tangible news like earnings. Whether the market’s reaction here to the AI threat was justified doesn’t really matter, even when wrong we’ve noticed the market doesn’t give you your money back, at least not the next day. We bring this up for its similarity to the beating taken by Insurance Brokers. And there is a similarity. To look AJ Gallagher, the drop a couple of weeks ago took the stock some 20% below its 50-day moving average. It has been pretty much the same for IBM. The difference is that AJG had what seemed wash-out volume. IBM just a couple of similar days. Time will tell.

Like getting your racket back early, good things happen when most days most stocks go up. Then, too, healthy markets need Tech, and healthy markets need the Financials. The former is a house divided, the latter is a real worry. There’s still plenty that’s good in Commodities, and there’s still plenty that’s good in Staples. And there’s plenty that’s good in Energy and Infrastructure. There’s little wonder, therefore, the advance/decline numbers have held together. The bad, however, have their way of dragging down the good.  It’s no time to become complacent. Should the overall A/D numbers turn bad, that would not be a good sign. And, as we are seeing, mid–February to mid–March is a tough time even in good markets.

Frank D. Gretz

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A bull market somewhere… but not everywhere. The cliché used to be it’s a market of “stocks”. To look at the Equal Weight S&P stocks act well. And to look at stocks above their 200-day moving average, new highs and advance/declines, market numbers say all is well. Those numbers, however, are pretty much NYSE numbers. The NASDAQ is a different story — weekly new highs there barely outnumber new lows. Sectors too vary, with weakness in not all but much of Tech. There are concerns not all those committing billions to AI infrastructure will reap returns — true for even the Mag 7, until now treated as inevitable AI winners. Then there are the good in Tech, most Semis for example, yet there’s more good in Utilities, Soda, Soap, Staples/defensive issues generally. Commodities and Infrastructure also seem attractive.

Prediction market bettors now put the odds of an Iranian attack at 70%, Brent Crude is touching $70, the military buildup in the region is intense. Yet stocks seem to stay calm and carry on. In some ways this is a good thing – the market makes the news. Then, too, Iran’s ability to deliver a major Oil Shock seems worth owning a few Oil stocks. And to look at the charts, they seem worth owning in any event.

Frank D. Gretz

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DJIA: 49,452

Last Thursday the world was ending… Monday saw new highs. More specifically, Thursday afternoon Software and Bitcoin looked about to waterfall – Bitcoin did just that after hours. So, Friday’s up open was a “bit” of a surprise. They say never buy an up opening in a bear market. Up 1200 DJ points Friday seems another sign this is no bear market, at least for the market as a whole. Software has a bear market look, yet even the recent bad days often saw positive advance/declines. And by Monday we were already at new highs in the Dow and the Equal Weight S&P. Argue this is fluky, but it is no fluke. Rather, another testament to expanding participation is always a good thing.

Bad days happen, and despite Thursday’s action, the worst could be over. The most important question now is not whether to be in, but where to be in. Even when it comes to the averages, is it the Dow or is it the S&P, is it the S&P or the Equal Weight S&P, or the Russell 2000. The Dow, The Equal Weight S&P, and the Russell have the edge for now — meaning you want to be light Tech or Tech selective at the least — Semis versus Software. Tech isn’t going away, and you can quote that, but we doubt this year’s Tech will do as well as last year’s Tech. For one reason, there’s too much elsewhere that acts well. If you doubt the Commodity trade, you might look at Chicago Merc (CME – 302).

Leadership often changes during a correction. While the recent weakness hardly qualifies as a correction, a new strength in Staples/defensive stocks seems apparent. It’s tempting, especially for Tech lovers, to call this a Pavlovian response to the weakness in Tech. We have all seen this many times, we all know it doesn’t last. Unless, of course, this time is different – words which have cost investors untold fortunes. We think it just may be different this time. If you look at XLP (89), or any of the myriad of names in this ETF, Food, Retail, Tobacco, the charts are not those of just a bounce. There is a real change. There’s little wonder the Equal Weight S&P is performing well, it’s not just about Tech underperforming. And when we look at Walmart (WMT – 134), we can’t help but muse, here’s a stock as of a couple of days ago, which had no holders underwater. In other words, a stock in favor, and in a long-term uptrend.

If you are not worried about something, you’re probably not taking this business seriously. In this case, we worry about Bitcoin, not Bitcoin itself, we have no position. Rather, we worry about those who do. Someone out there, perhaps many, could be having a problem that becomes a problem for the rest of us. Gold took a hit recently, but until Thursday seemed on its way back. Bitcoin can’t lift – not a good sign. Adding to our worry, such as it is, what is suddenly wrong with the financial ETF XLF (52)? We understand Robinhood (HOOD – 71) is just a Bitcoin derivative, but who else might suddenly be exposed, to borrow from Warren.

We read and later saw, “an unprecedented number of AI firms are advertising during the Super Bowl.” Hard to forget not that long ago the line would have read Dotcoms. They called that a bubble, but maybe there’s instead a Super Bowl curse. While most of those companies are no longer with us, the cream of the crop Cisco (CSCO – 75) still is. And, after some 25 years, you recently broke even, giving new meaning to long-term investing. Meanwhile, despite Thursday’s weakness, the chart isn’t all that bad. Downside gaps usually are not a good thing, but when they don’t change the trend, they often are. By the way, the other Sysco (SYY – 90) looks better.

Frank D. Gretz

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DJIA: 48,909

There was no bubble in AI… apparently there was one in Software. It was not that long ago the fear was that AI would displace workers. Now the fear is AI will displace the entire Software industry. To look at Software stocks, suddenly the idea of an AI bubble seems less relevant. It is as though the stocks, large and small, have sprung an unstoppable leak. And markets being markets, Software weakness is leading to even more general weakness in Tech.  The good news about the bad news, it gets people to sell. What not long ago may have been thought of as a buying opportunity now seems less appetizing. Weakness itself can be a reason to sell – no one likes that drip of losing money every day. However, couple that with a reason to sell, the end of Software as we know it, then you get selling. Where is the good news? It’s selling not buying that makes lows.

The recent daily pattern may be the strangest we’ve seen in sometime. To look at the stocks we typically follow, it looks pretty much like the end of the world. Yet advance/decline numbers have been positive most days. There is, of course, a dramatic shift to Staples or defensive stocks, but how many soap stocks are there? When it comes to these stocks, we think there’s more to them than just the typical knee-jerk, sell Tech buy defensive reaction. The stocks have long been out of favor which, technically speaking, means under owned. To look at XLP (87), there’s more to that chart than just a bounce. Similarly, the better action in Oil seems more about it being only 3% of the S&P rather than worries about Iran. If the latter were the case, it’s not showing in Defense stocks. Meanwhile, the recent look has been one of getting to everything, what you typically see at the end of a decline.

Frank D. Gretz

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When both Cisco (CSCO – 78) and Sysco (SYY – 84) are acting well… it’s hard to call the market narrow. You can argue Tech is mixed, the Semis versus Software, but when it comes to the guys who make the stuff that makes the stuff, ASML (1455), KLAC (1685) or AMAT (341), there is blowout sort of strength. Similarly, when it comes to the guys who dig the stuff that make the stuff, the Metals and Miners, XME (127), there’s blowout strength as well. So, with this seeming across-the-board strength, how is it we’ve seen the A/Ds falter a bit? The typical answer is the Financial stocks, owing to their number, and to look at the Financial ETF (XLF – 54) this does seem the case. Again, typically this could be a concern, but in this case seems a reflection of rate regulation. Then, too, it is best not to make excuses for the numbers.

With stocks above their 200-day in the mid-60s, and yet to show deterioration, the overall background still seems sound. The Financials could become worrisome, but there’s also evidence in Staples of expanding participation. Sure, Microsoft (MSFT – 434) is disappointing as is most of Software, that’s not new but it has brought the message to the fore. Yet for every Microsoft, there’s a META (738) or IBM (309). Meanwhile, back in 1929 a 10% position in Homestake Mining, equivalent today to Newmont Corp. (NEM – 127), made up for any losses. The interesting thing there is that the 20s and 30s were a period of deflation rather than inflation. What drives Gold now – dollar weakness, geopolitical uncertainty, China’s Taiwan threat, is not clear. After its run Gold is a bit hard to buy, but less hard to ride.

Frank D. Gretz

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DJIA: 49,384

If you are light on most Tech, have a little Healthcare, Commodities and especially Precious Metals… Life is good. Life was good last year if you were pretty much all-in on Tech, especially of the AI variety. The moral to the story of course, things change. The further moral seems it’s not if you’re in the market, but where you are in. IBD argues that at least 70% of a stock’s movement is the function of the overall market trend.  We would argue another 70% is about group or sector behavior – don’t mention that math to our eighth-grade nun.  What they loosely call secondary stocks have been the winners of late, see IWM, or IJT, or even the Equal Weight S&P. If you’re buying the ETFs themselves, this is good to know. Meanwhile, if you’re not buying an entire index, there are distinctions to be made. Certainly not all large caps are bad, certainly not all small caps are good.

An excellent example here might be Semiconductors versus Software. There are not many bad Semis, large or small, and there are not many good Software stocks, large or small.  An even more obvious example is the Gold stocks. Both large and small are performing well. And we’re seeing more and more improvement in Industrial Metals. Even Oil has greatly improved, perhaps mainly because it is another Commodity. Participation is the key to a healthy market, and participation has improved even in the last couple of weeks. Advancing issues versus those declining are better, stocks above their 50-day average are now in the upper 60s, no longer stuck in the 50–60 range. Part of this too is about an improvement in Staples like Colgate (CL – 86) and, finally, Costco (COST – 976). As for the news flow of late, remember it’s the market that makes the news.

Frank D. Gretz

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