Blame Newton… and the technical indicator he called gravity. The spread between the NASDAQ 100, where Tech lives, and its 50-day moving average was recently the widest since 2002. Terms like overbought and oversold are thrown around quite a bit, we prefer stretched, and that’s what it was and pretty much remains. Sure, it could become more stretched, and the index could just go into a trading range while the moving average catches up. Or the index could take a hit. For now, this stretched condition helps explain some of the recent disappointments. It doesn’t leave a lot of room, for example, for even good news to be rewarded. And the good has been anticipated and discounted to the point where anything less is punished. This heads you don’t win, tails you lose, has made it a difficult environment – not bad just difficult.

Roller bearings don’t sound very techy, but become much more so when you realize robots find them helpful. Timken’s (TKR – 137) divisions include Engineered Bearings and Industrial Motion, and the stock’s price action has been quite positive. Another company with exposure here is Applied Industrial Technologies (AIT – 319). This, too, has acted well recently and like Timken has the added appeal of a long-term uptrend, unusual in what would seem the cyclical nature of their business. If you are, indeed, a long-term investor, why buy a stock in a long-term trading range? And even if not a long-term investor, why not have that long-term tailwind at your back. 

Frank D. Gretz

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DJIA: 51,562

It all started with a Big Bang… called AI.  What seems to be keeping the market healthy is the migration or rotation that AI has wrought. The Semis generally were the big beneficiaries for a time, then came the memory chip makers. The recently devised ETF there has almost tripled just since the start of April. Now Software is being viewed through a rosier lens. Even what is old is new again – stocks like IBM (302), HPE (54) and Dell (422).  And there’s Space, which until recently wasn’t even an investment. The loss of participation is any market’s undoing, and for now does not seem a factor. Even the Advance/Decline index is dancing around its highs.

All of this argues for a technical backdrop that remains positive overall. There is, of course, the “then too.” In this case it’s simply any market, especially one where leadership is stretched, is subject to short-term setbacks. The S&P is up seven or eight weeks in a row and the NASDAQ had been up eight or nine days in a row. The market has been amazing in its ability to ignore the ongoing war and closure of the Strait, but something changed Wednesday. While the blame was laid on Tech, we saw it also in Financials as the Swiss giant Partner Group restricted redemptions. That hit teetering names like Blackstone (BX – 119), Carlyle (CG – 44) and KKR (96). As for Tech, the reversal in Marvell (MRVL – 316), Palo Alto’s (PANW – 279) failure to rally on good news, and Broadcom’s (AGVO – 419) hit also marks a change – if it’s the market that makes the news.

Frank D. Gretz

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DJIA: 50,667

There is the possibility of peace in Iran… and there is the possibility there is a Santa Claus. Given the choice, we would put our money on the latter. Yet, that’s what makes this market almost spectacular. It is after all, the market that makes the news. You can say, when it comes to Iran, “deal with it,” and the market has done so. You can say the market doesn’t keep discounting the same news over and over, and the market has not. Still, it is a bit surprising and impressive. Then, too, the technical background is not only far from perfect, one could also say it’s an accident waiting to happen. Glaringly negative is the almost equal number of new highs and new lows last week. And while the averages push to new highs barely more than half of individual stocks are themselves above their 200-day moving average, that is, in uptrends. Historically these divergences eventually cause problems, the keyword being eventually. And of course, the clock has no hands. 

Ground control to Major Tom, as the other Space Oddity rapidly approaches. The UFO ETF (UFO – 68) and the stocks in it haven’t waited, indeed, they have… choose your pun. While we speak of a narrowing market, it is a bit amusing to think that space stocks like SpaceX not long ago were not a thing. The same might be said for Quantum stocks like IONQ (70), or the Bitcoin miners found in the ETF WGMI (69), some of which have turned AI power suppliers. And remember when Caterpillar (CAT – 887) was a tractor company, rather than loved now for the turbine business. Meanwhile, Biotechs would seem out of the way of both war and peace, and somewhat out of favor. The charts are improved, and the group is in a seasonally favorable period through most of July. Advance/decline numbers remain important, but there is a not always obvious market broadening.

Frank D. Gretz

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                                                                                                                                    DJIA: 50,286

Bad up days, good down days… miss the time when most days most stocks went up. We whined last time about the bad up days — those days up in the averages, but not up in the average stock. Monday we saw the opposite, a particularly bad day in the averages, but a decent day in the average stock. We’re not going to tell you Monday was fun, losing money never is but overall, it set up a healthier environment. When the average stock and the A/Ds are positive, the averages will take care of themselves. Participation is the key to healthy markets, and of late it has been in decline. New highs outnumber new lows, but the spread has significantly narrowed, suggesting fractured participation. More worrisome is the drop in stocks above their 200-day to less than 50% while the S&P dances around its highs, well above its own 200-day.  That’s quite a divergence.

If Tuesday wasn’t any fun, Wednesday was. Not only was it a good day, it was a technically good day, not one of those bad up days.  Indeed, it has been an ongoing positive characteristic of this market that bad days are not followed by technically bad days. When we have seen advance/decline numbers one sided down as we did Tuesday, we might have seen flat or minimally positive numbers in an ensuing rally. Wednesday’s numbers were almost 3–to–1 up. If that changes, that’s the time to worry. One day of course, it’s just that. Many of the best one-day rallies have come in bear markets, not that this is a bear market. If Wednesday was the start of a real positive change, the key is follow-through.   Meanwhile, surprise – Nvidia (NVDA – 220) beat. The news didn’t seem to help Thursday.  Then, too, such has been the pattern.

Home Depot (HD – 314) has had a tough time of it, down some 25% just since early February. This is one of those long-term uptrend charts which has turned into a four-year trading range. The weakness does seem surprising given strength in shares of Costco (COST – 1051). Then, too, the answer seems to lie pretty clearly in the 30-year. Note those patterns are pretty much the same, and is pretty much true for anything in the home building arena. If trying to predict the direction of the stocks, time might best be spent predicting the direction of TLT. We suppose that’s what they mean when they say rates matter.

It’s Tech’s world still, and it’s those Tech earnings that leave most in a happy place. When it comes to accounting, we defer to our professional, who, when hired, went through a rigorous process. Part of that was coming up with the sum of 2+2. The correct answer, of course, is how much do you want it to be? From last week’s Sohn conference came a few other accounting questions, more subtle, you’ll be glad to know. When the Semis sell, they book a profit. When the hyperscalers or whomever buy, it’s a five year or whatever write-off. Nothing illegal, but a bit of a distortion.  One side wins, the other side doesn’t lose much — somehow that doesn’t sound like real life. Also at the conference, someone pointed to the history of Semiconductor orders. They never slow down, they collapse. As even we have pointed out, the industry historically is famous for double- and triple-ordering.

The market has its divergences. Those can cause short-term problems, more often the effects come around over time. For now, the practical problem of those divergences seems the good have been too good – they’re stretched. The rest have been the rest, though the improvement in Software, including Microsoft (MSFT – 419) and in whatever IBM (253) is these days, is encouraging. While peace no longer seems at hand, the market has learned to deal with it as should the rest of us. Thursday’s turnaround was impressive, especially in the A/Ds and perhaps all the more doing so without Nvidia. It has become a market of stocks, even more than just the cliché. This suggests a trading range of sorts rather than a trend. Hey, it’s summer!

Frank D. Gretz

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DJIA: 50,064

Those bad up days, bad… but oh so enticing. A bad up day is when the averages are up, but most stocks are not.  Participation is the key to a healthy market, and when lacking markets get into trouble. That was a picture on Monday, and so too was the enticing part. The stocks that performed well performed well.  There was plenty of money to be made, despite not having a very technically healthy day. Monday reminded us of a very old Wall Street story about a clock that was not very helpful. There was a wonderful party, everyone was having a great time, and everyone knew the party would end — but the clock had no hands. What we call bad up days have been rare of late, and one or two certainly won’t kill a market like this one. Indeed, lead times are unknowable and can be lengthy.   Still, lagging participation will lead to problems.

Bad up days like Monday and bad down days like Tuesday thankfully are rare. This is not to say, however, there are not a few disturbances in the force. Stocks above their 200-day moving average have stalled in the mid-50s range, despite an S&P average that is some 8% above its own 50-day. A bit more worrisome is a spike in new lows, further reflecting a market dichotomy. None of this is terminal, but there is a short-term loss of momentum in stocks which differs from the message of the averages. Most worrisome might be the look of the 30-year, the technical term for which is UGLY.  Meanwhile, stocks like HUT8 Corp. (HUT – 109) have changed stripes a bit, instead of powering bitcoin they now power the AI build out.

Frank D. Gretz

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DJIA: 49,597

So, who are you going to believe… your thinking or your eyes? Oil is up some 50%, Fed cuts unlikely, and inflation looming. Yet the market remains on its AI high. Amidst all this blessed are the technical analysts, pity the poor funnymental guys. It’s not easy to explain. This does remind us all the more of the Vietnam period, when every other week peace was at hand. Then disappointment was met with lower prices. Now good news seems rewarded and bad news is punished less and less. You might even say the market seems to be making the news. Then, too, that’s what markets do. The AI high may not last, but there’s more to the rally than AI and that’s what makes it healthy. In good markets there will always be the better than good, they’re called leaders. Important, however, is adequate participation – the A/Ds have to keep pace. The 2-to-1 up numbers Wednesday were evidence of just that.

One thing that makes this threat of peace a bit more credible is Oil’s reaction. Previously it had ignored such news, but this time has been different. Oil and the stocks are not those of old. Like Gold, which rallied sharply on the news, Oil seems something to be positioned rather than traded. Meanwhile, unless Newton got that gravity thing all wrong, it could be time to sell some Semis and hope you’re wrong, as we like to say. It doesn’t have the momentum of the Semis, but the MAG7 ETF (MAGS – 69) has shaped up rather well. Meanwhile, Software (IGV – 91) is the big laggard, but even there a move above 90 would leave it much improved. What we call the power builders, Quanta Services (PWR – 751), GE Vernova (GEV – 1046) and the like, are good charts to the point of being almost as stretched a the Semis. Communications stocks from NOK (12) to VOD (16) act well, as does the more controversial Blackberry (BB – 6). Nuclear and even the Quantum stocks also seem revived. Leaves you with the feeling there’s more to the market than just Lawrence Welk and the other semi-conductors.

Frank Gretz

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DJIA: 49,652

It’s Biblical… the geek shall inherit the Earth. And, apparently, space as well. The geek of the week at least last week were the Semis, what’s new? Indeed, the SMH (507) of late gives new meaning to the uselessness of terms like overbought and oversold, those measures known as mean reverting. Studies have found them as much as 80% accurate, the catch being they’re likely to lose 80% of your money. Using the spread between SMH and its 50-day moving average as a guide, buying oversold was a bit early, but lucky it didn’t become worse. The real disaster here was selling early when the ETF became “overbought.” Extreme overbought levels are a good sign as that kind of momentum tends to persist.

Rather than waiting for those mean-reverting measures to live up to their name, best to look to trend-following measures which, as the name suggests, keep you on the right side of good and evil. Choose your poison, as they say, pretty standard here is a 50-day moving average. The SMH recently was some 20% above that 50-day, more than a little stretched by historical standards. Again, a good sign as strength begets strength, but nothing goes straight up. We are certainly not negative on Semiconductors, and if so unlikely brave enough to put it in print. There is a point, though, where Nvidia (NVDA – 200) meets Newton. Who knows where or when, but the Magnificent Seven ETF (MAGS – 66)might offer a bit of a template. 

Oil stocks have performed well for obvious reasons, but the nature or depth of the strength seems to have changed. From the knee-jerk reaction buy Exxon (XOM – 155) and Chevron (CVX – 193) the strength has broadened to secondary Producers and more recently to the Oil Equipment names. We have called Transocean (RIG – 7) the canary in the oil patch in the sense that when even that goes, you know, the move is indeed broad. This seems positive and suggests, dare we say it, something fundamental rather than just knee-jerk. The other important change relates to the intangible we have observed in the market itself, the ability to ignore bad news. At the start of all of this any hint of peace sent Oil stocks lower, while recently not so much. 

For all the hoopla over Wednesday night’s earnings, you might call it a tie. In terms of job security Amazon (AMZN – 265) and Alphabet (GOOG – 382), that is, the good charts outperformed the lesser META (612) and MSFT (408).  The MAG Seven ETF seemed to reflect this, opening pretty much unchanged. Perhaps more significantly, the ETF reflects an important positive change. Following a peak back in November and real weakness starting in January, like most of Tech it turned late last month.  And like most of Tech the turn was quite dynamic, barely hesitating at the 50-day.  In keeping with the idea, nothing goes straight up, it is in a minor hesitation or what they call a flag pattern. If indeed it comes out of this to the upside, as we think likely, it should extend the advance. SMH is yet to consolidate in similar fashion but should it, MAGS could prove a template of sorts.

We have viewed the war as a two-part problem. The fury part, possibly including boots on the ground, and the economic part. The Strait of Hormuz remains closed, and Brent hit $120, the highest yet and the Fed seemed to get it as well. At its start the war was supposed to end in a matter of days, Polymarket now puts the Strait reopening at only 50-50 by the end of June.  Oil and the S&P had traded inversely at the start of this, but no longer.   Sure earnings are good, but still. Seems best not to overthink this, rather to stick with the technical basics. Wednesday was not a pretty day looking of course at the better than 2-to-1 down numbers. Bad down days happen even in good markets. It’s the bad up days, up in the averages with poor A/Ds that are the worry. Thursday saw good A/Ds in the rally, but it’s important to keep track here.

Frank D. Gretz

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DJIA: 49,310

FOMO on steroids thanks to TACO… it’s perfectly clear. What does it say when you can define a market in anagrams? At least they haven’t gotten around to CAPE. That would be Shiller’s Cyclically Adjusted Price-to-Earnings Ratio, where both elevated yields and valuations offer a worrisome picture. More friendly is the market trend with the S&P now back on the good side of the 200-day. And despite less than settling news, the VIX is back below 20, a more calm and stock-friendly level. Always important is participation. The averages were down all day on Monday while the advance/decline numbers were positive all day. Granted that’s unusual, and thanks to strength in the multitude of Financial and Oil shares, but how you get there doesn’t much matter. It’s simply important that the average stock gets there.

We have alluded to the market’s ability to ignore bad news, calling the “failure to fail” a positive sign. We are not completely convinced, but something similar could be happening in terms of the Oil stocks. With peace such as it is at hand, we’ve noticed much of the Oil sector doesn’t seem to believe it, or doesn’t seem to care. In other words, the stocks have held together surprisingly well. The non-caring, of course, has to do with the non-ownership here. If you don’t own them, why would you care, and you’re not about to swap your Nvidia (NVDA – 200) for Exxon Mobil (XOM – 151). Meanwhile, it’s still Tech’s world, but don’t tell that to GE Vernova (GEV – 1149) Wednesday, Caterpillar (CAT – 835) Thursday or Bloom Energy (BE – 238) last week. Quanta Services (PWR – 634) is another of these power builders that looks attractive.

Frank D. Gretz

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DJIA: 48,579

From intangible… to tangible. The market had shown an ability to ignore bad news, a failure to fail as we call it. While not quantifiable, we have always found it a hopeful sign and in this case it seems so. Last week and this one so far have signs that indeed are quantifiable. How well rallies begin usually says a lot. For the NASDAQ 100, stocks above their 10-day average have cycled from less than 30% to more than 70%, a change with very positive implications. The drop in the VIX or CBOE Volatility Index is another positive sign. Everyone thinks a spike there is important and it is, but its subsequent decline says the panic is over. A spike in various put/call ratios also is indicative of a panic now passed. And, more basically, the S&P is back on the good side of its 200-day moving average.

Most impressive in all of this was Monday’s market. Up 300 with 2-to-1 advancing issues is always a good day. Doing so after negative news and a 500-point down opening seems particularly impressive. It had both the intangible of ignoring bad news, and the tangible of good numbers. Given the ongoing poor news background, it almost seems difficult to explain. Yet, it is in its way quite simple. The market is a discounting mechanism and when the market discounts something it doesn’t usually keep doing so. That said, we don’t want to get too far ahead here. Based on our vast military experience as a wheel and track vehicle mechanic in the 7^th Regiment on Park Avenue, we wonder if we may not yet see boots on the ground. That would likely cause another downside jolt but also another buying opportunity.

 Meanwhile, it’s Tech’s world―the rest seem just visiting. That was the look at the end of last week. Interestingly, a stock like Broadcom (AVGO – 399) was one of the worst of those charts a couple of weeks ago, and now is among the best. The group is not just good, it seems to be improving. The dark side of Tech, the Software stocks, had their best day in some time on Monday. Down the most often turns to up the most but still, that move seems a pleasant surprise. When even the bad stop going down, that’s not bad. To keep some perspective, Oil stocks are unlikely yet over loved or over owned. And after their quick 15% drop from a one-year high, historically they’ve proven a buy.  And these days, Oil is a bit of a hedge.

Have you seen the UFO? Not the one you see after a couple of martinis, the Procure Space ETF (UFO – 55).  Space is hot and has been for a while, but another obvious push could come from the SpaceX IPO. We understand EchoStar (SATS – 133) participates there and just recently, Amazon (AMZN – 250) and Globalstar (GSAT – 80) cut a deal. Most of the charts here are good, as you might imagine just from a look at the UFO chart itself. We still like the Power Builders like GE Vernova (GEV – 979), and Bloom Energy (BE – 210) lived up to its name Tuesday on another deal with Oracle (ORCL – 179). Power is not the only issue facing AI. There also seems to be a communications problem. Apparently 5G is a few Gs short of what is needed. We have liked Nokia (NOK – 10) for a while, and to name drop, they have a deal with Nvidia (NVDA – 198). Ericsson (ERIC – 12) also looks good.

We have thought of all of this as a two-part problem. The first being the fury, both in terms of the war and the market. That seems discounted. The second is the economic consequences, yet unknown but surely consequential. Also, we start here with rich P/Es and high yields, not a positive combination. The market’s recovery has been impressive. It might be explained by a combination of FOMO and TACO, to drive our compliance guy nuts. The “fear of missing out” in this case is on steroids. It follows last year’s post Liberation Day rally when “Trump always chickens out.” That’s a memory that’s hard to forget. The stock market these days is much different from those most remember. They like to call it momentum, but think of it as extrapolation — what happened today will happen tomorrow.

Frank D. Gretz

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There’s technical data… and technical intangibles. Both matter, and in this market, it was the latter that caught our attention. How could things look so dire, yet the market hold together? How could this news-driven market suddenly seem to ignore bad news? And to be clear, the market has done more than just hold together. Being up 160 Dow points Monday―the day before oblivion―is one thing. Being up with a plurality of advancing stocks is another. The intangible here is what we used to call “the failure to fail.” This market had every reason to go down, yet did not. We know tomorrow is another day, but this seems worthy of note. It’s hard to say all the bad has been discounted, but maybe at least the fury part? When the market ignores bad news, it’s good to remember ― it’s the market that makes the news.

The conflict and its consequences are just that, a two-part problem. It reminds us of first aid training from the Boy Scouts or the army, is there a difference? First, you start the breathing and then stop the bleeding, in this case stop the fighting. Then you treat the wound and treat for shock, in this case the consequences of the fighting. If the fighting is indeed over, what does that mean for the shortage of jet fuel? And what does that mean, in turn, for Airline earnings?   Stocks sell at fair value, whatever that is, once on their way to more overvalued, and again on their way in turn to more undervalued. It’s the trend counts.

Up some 1300 Dow points with 5-to-1 advance/decline numbers, it’s hard to call Wednesday a bad day, and we won’t.  Literally, however, the day was over in the first five minutes, the rest spent flatlining.  Both the S&P and NASDAQ 100 went nowhere all day and closed slightly lower. Even the Semis, where some stocks had impressive moves, on the whole simply flatlined. It’s not to say this is necessarily bad, it is to say this is the way it is in these news driven markets. The money is being made at night rather than during the day. For a long-term investor, of course, who cares when the money is made as long as it’s being made. They say never buy an up opening in a bad market, apparently it’s even hard to buy an up opening in a good market.

Frank D. Gretz

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