DJIA: 51,232

Thinking outside the box… the technical box. The technical box is where those indicators live, things like advancing versus declining stocks, stocks making new highs versus new lows, stocks above their various moving averages, and that sort of thing. The look there is “buckle up, they’re going down.” That said, we’ve come to think of this market from a historical perspective rather than one strictly by the numbers. Most markets respond eventually to technical parameters, but to borrow from AI, some do escape the sandbox. Nvidia (NVDA – 230) certainly has the look of Cisco (CSCO – 115) back in its day, AI the look of the dotcoms, and the rest of this market, the old economy of 2000 which languished.  No two markets are ever the same, and this one has its dangerously weak side.

If the 1999 scenario were to play out, it’s not as scary as you might think. Indeed, scary was the outcome for sure, and scary was not recognizing the new economy from the old economy as they were called back then.  If you had figured that out, the period leading up to March 2000 was quite profitable. The Semiconductor Index (SMH – 607) just had a 20% correction and now seems back on track – Nvidia just broke out.  Software is better, making XLK (198) with its holdings of Microsoft (MSFT – 523) and Nvidia attractive. This seems the new economy. Meanwhile, rates are hurting sectors like Home Building, while inflation and affordability hurt Staples, the old economy. And no two markets are ever the same?

After that Tech table pounding, have you ever considered buying a Utility stock? In the words of George Carlin, if you’re like me and I know I am, you might rather stick needles in your eyes. That sort of says it all, when opinions are that dire, that seemingly one-sided, could be time to think reversal. We’ve actually come to believe that from time to time we are not a bad indicator when it comes to our own opinions, it’s human nature. And, Utilities are after all Utilities, not exactly cool in the best of times and not exactly risk free in periods of rising rates. Still, sentiment alone is not reason to buy stocks, and washed out can become more washed out. In this case, however, there is some helpful data. Only 5% of Utility stocks are above their 200-day average, leaving a win rate of some 90% one year out, according to Sentimentrader.com.

Comparisons with the dotcoms make most uncomfortable. Yet, many make the comparison as evidence this market is not a bubble. The dotcoms, it’s argued, made no money while most of AI are minting the stuff with no end in sight. All too true, but it misses the point. Bubbles are not about the numbers, they’re about the psychology.  No one is buying AI because the companies make money or because of a P/E ratio. There’s a story and the stocks go up. They’re buying because they expect the price of what they buy today to be higher tomorrow. The trend overrides the reason for the trend. While the dotcom bubble seems fresh in the minds of many, apparently less so is the “Nifty 50” bubble, which led to the 1973-74 bear market. Those Nifty 50 companies made money and sold at what at the time was an unheard of 30 P/E – it didn’t help.  

If a replica of 1999, there’s risk to all that is not Tech. If it’s not 1999, there’s a risk to all. Divergences don’t end well.  It also has been suggested that the divergences can be self-correcting. Hope springs eternal, but that would go against a lot of history. If you look at a chart of stocks above their 200-day average it swings from 70-80% to 20-30%. It doesn’t stop in the middle, so to speak, since once set in motion, downtrends usually end in a more general correction. Unlike market lows, where stocks often make lows together, peaks are a process, stocks peak a few at a time, and that takes a while. Best to look to the strong stocks – typically the last to give it up are the first to make it back.

Frank D. Gretz

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DJIA: 50,927

With the exception of Lawrence Welk… most Semiconductors are acting well again. And they likely hold the key to what the market has in mind. There’s an ETF somewhat pretentiously named Artificial Intelligence Supercycle, symbol AIS (76), which is pretty much SMH (619), which pretty much says it all. And it’s the Semi/AI stocks that drive this increasingly narrow market, and that to the point the numbers, the tangibles, are screaming correction. Oil, rates, war, and inflation argue the same, but where is the correction?  Well, while everyone worries about Oil, Oil companies are doing just fine. Meanwhile, rates are crushing Financial stocks, but they don’t much dominate the averages. It’s Tech that does, leading this to a look of 1999. If that sounds scary it’s not, provided you know what to expect. There was plenty of money to be made in the dotcoms back then – of course, until there wasn’t. The same seems increasingly likely now in the AI stocks. 

Earlier this year when the AI love-in began, Microsoft (MSFT – 513) was thought a beneficiary, then not, and now again. While we dare not tread funnymentally, we can and do say it is one of the better charts around. Tracking the Mag 7 these days also has included tracking the SO-SO 3 OR 4. On top of that, they shuffle. That said, the MAGS ETF (72) itself looks attractive, consolidating above an important breakout a week or so ago. Then there’s the other Tech, Biotech. We generally prefer to just go with the ETFs here, and the XBI (155) thinking the smaller names to be the more likely acquired. However, in this case we somewhat prefer the cap-weighted IBB (206).

Frank D. Gretz

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DJIA: 51,350

There is no good news or bad news… that the market does not make it so. AI is about to be restricted, data centers are akin to homeless shelters, diesel is at record highs, meaning food prices won’t be far behind, and the war has no end. Yet Monday saw the Dow up 800 points and the NASDAQ 100 up 350. Analysis has its intangibles. It’s hard to call them indicators, but they do indicate. That the market can ignore what seems an onslaught of bad news and hold together would seem to indicate it wants to go higher. However, there are the tangibles, the market numbers, which are poor – only 42% of NYSE stocks are above their 200-day, while new lows outnumbered new highs by 4 to 1 last week.  If there’s a reason to lean to the intangibles, and we do, it’s the overall look of late 1999–2000 when the leaders continued higher against a technical background similar to this one. If there’s reason to look for more weakness now, it’s rates and their effect on the worsening market numbers. Reading the above is why you want a one arm technical analyst – no on the one hand, or on the other hand.

The idea that the market makes the news recently might apply to crypto. Depending on who you asked, the Clarity Act was of some importance. Yet, when it failed to pass, the stocks barely flinched. The iShares Trust Bitcoin ETF (IBIT – 48) had an impressive breakout in mid-August, and seems to have resolved a four-week consolidation. It had its chance to go down and did not. Whatever you may think of Bitcoin, it has become unique. Bubbles come and go, once gone they stay gone. It took 25 years for Cisco (CSCO – 107) to get back to its peak and it was one of the few dotcoms to do so. Bitcoin has had at least five drawdowns in excess of 80% and has gone back to new highs each time. 

Frank D. Gretz

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DJIA: 51,778

Sure it’s the end of the world… but is it discounted? While one of our favorite quips, of late it has taken on a tinge of reality. As Barron’s cleverly put it, we’ve gone from FOMO to FOBE – fear of being extinct. And to look at the VanEck Semiconductor ETF (SMH – 561), down some 20% just since June, we have done some discounting. While not exactly an existential problem for the Semis, unknowns always are a problem for stocks. And asking Musk, Altman, and Amodei to play nice together is what Bloomberg’s John Authers equates to the “prisoner’s dilemma” – a reference to the game theory experiment of placing rational actors in a position where they may fail to cooperate even when doing so would be in their mutual interest. Meanwhile, there’s more to life than its ending, at least when it comes to the stock market. Rising rates have had their effect on Financial stocks, particularly wreaking havoc on market numbers. The A/Ds are a decent proxy for the average stock, and in turn the overall health of the market. That look is not a good one.

So Warsh stood up to Trump, but not to the Bond market? With seemingly little choice, there was little surprise, leaving the market’s sell-off Wednesday itself a bit of a surprise. But there are those algos set in motion by the 2-year or who knows what, and often reverse course the next day. Meanwhile, Monday’s nearly 5% gain in the iShares Software ETF (IGV – 106) showed that some investors believe a slowdown in AI development could be a boom for those most threatened by it. And the chart appears to back that up, with IGV far outperforming SMH since late July. Keep in mind that when it comes to IGV versus SMH, rotation is too good a word. It’s more like a daily flip-flop. Last time we touched on investing versus trading, to that point you might also look at long-term charts of TMO (659) and DE (686).

Frank D. Gretz

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DJIA: 52,064

September is a bit like that famous Mae West line… except when it’s bad it’s badder. Over the last hundred years, but who’s counting, September is the only down month. The good news, however, it’s not down all that much more than up. Hope springs eternal, but a deteriorated technical background is less hopeful. While blame for the weakness is laid on the price of Oil, it seems more about the price of money. This in turn has its impact both economically and, in this case, technically – there are many rate-sensitive stocks. The deterioration shows up most dramatically in 12-month new highs/new lows, which last week saw NYSE new lows almost double the number of new highs – this against market averages dancing around their highs. Divergences such as this are the equivalent of cancer when it comes to the stock market.

Key in tennis is get your racket back early and follow through. The market doesn’t have a racket, and this market doesn’t follow through. Somewhat consoling is that it doesn’t much follow through in either direction. The Semis look done, then rally, Software just the opposite and then over again. Meta (META – 644) goes from existential risk to best in class, FANGwise. Biotechs being biotechs have binary outcomes – best to stick with the ETFs IBD (23) or XBI (157), rather than Amgen (AMGN – 383) whose chart had been a good one. Meanwhile, Commodities still makes sense, and not complicated – GDXJ (124) or CVX (213). Everyone likes to talk about long-term investing, show us the long-term investments. For now, there seems some money to be made in Commodities, but they’re the last in line as a long-term investment. Stocks already in long-term uptrends seem a place to start, stocks like Microsoft (MSFT – 492) and Coca-Cola (KO – 88).

Frank D. Gretz

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DJIA: 53,686

War is hell… rising rates worse. Markets learn to deal with conflicts, higher rates not so much. Always asked, when do those rates matter? Wake up and smell the coffee, or in this case the Russell 2000. A measure of secondary stocks, it is also a measure of more than a few Financial stocks. Granted it’s not the worst chart, but if change is important, it’s another first to worst. Despite this important change, the Macro look isn’t all that bad – the A/Ds remain near their highs, stocks above the 200-day also have held together. At a Micro level, the individual charts themselves, failed breakouts are more common. If you can’t trust a chart like Eaton (ETN – 397), you have to have a problem trusting other good charts.

Of more concern, and potentially much more, are the Semiconductors. To look at a chart of SMH, it’s below the 50-day but not seriously so – only a week or so away from being positive again. The ETF, however, doesn’t tell the story of the poor pattern in most of the individual stocks, though an important exception is Nvidia (NVDA – 229). Its recent EPS beat, who didn’t see that coming, was met with a rally rather than the usual selloff. The catch, and for reasons known only to the gods, it’s the day after the report that is predictive of three-month outcomes. The down day that it was offers only a 50-50 win rate, while an up day is close to 90%. So even this good report might not help the group. Then, too, if Tech you must, there’s always Software – as the song says, let it Snow (SNOW – 357).

Frank D. Gretz

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DJIA: 53,569

How’s your memory when it comes to the periodic table… only those atomic numbers 29 and 47? That’s not bad but there’s more to the positive look to Commodities than just Silver and Gold. There’s Lithium, Copper, Molybdenum, Platinum and Uranium. Naturally, we come at this by way of the charts, while veteran commodities strategist Jeff Currie argues factors at play represent the hallmark of a structural commodity bull market. Overall, of course, this is more of the same – rotation. And rolling leadership gathers no divergences. Lose some Tech stocks, gain some Commodity stocks. Lose some Electrification stocks, gain some Food stocks. This has different impacts on the market averages, but in terms of the market’s overall technical health it seems a zero-sum game. Meanwhile, while not great, that technical health seems good enough.

The real concern here seems bonds. The worry, of course, is that those bonds have a way of affecting stocks, particularly Financial stocks. And there has been some sign of that – the Regional Bank ETF (KRE – 74) is below its 50-day and Utilities are in a bit of a freefall. Bessent’s former mentor Stanley Druckenmiller wrote in the WSJ that his intervention won’t work – not exactly a maybe. Our favorite comment here, however, was that of James Carville. He once said if he were to be reincarnated, he wanted to come back as the bond market – the bond market scares everybody. Indeed, it eventually scares stocks.

In a world where Tech rules, Food and other Staples are a hard sell stock wise. They have underperformed for so long almost anything looks like up. And let’s face it, Food stocks just aren’t cool. You may belly up to the bar and order a Coke, but you’re not likely to brag about your Coke stock. Yet it just made a new high. We strongly suggest you look at charts of companies like Coca Cola (KO – 89), JM Smucker (SJM – 132), General Mills (GIS – 40), Conagra (CAG – 16), and Church & Dwight (CHD – 102). This is not about the knee jerk buy defensive stocks when Tech goes down. These stocks are in uptrends, not just bouncing. Sometimes you have to ask yourself, do you want to be cool, or do you want to make money?

Predictions are hard, especially those made in advance. Indeed, it has been said the best predictors are the best guessers. Observations are less difficult and often lead to helpful insights. Here are a few observations about Nvidia and as of this writing its still upcoming earnings report. Nvidia (NVDA – 228) will beat, God forbid it doesn’t. It’s then all about what the market does with the news. For the most part, the stock peaks on the news and goes dormant for a time. This, too, could be another case of what we all know being priced in. Evidence that we all know might be the recent seven straight days of decline going into Wednesday. Interesting here too is the juxtaposition of the 50-day. The VanEck Semiconductor ETF (SMH – 573) and most of the Semis have turned back from their rallies to the 50-day. Nvidia, however, has now come down to the 50-day. Seems a decent set up for a rally on the news. Worst case if not, it’s back for more trading range.

For Nvidia, so far so good. Once again, a known outcome – sell on the news – seems to have been discounted. The question now is what else can Nvidia do for us, that is, for a faltering semiconductor group. Big uptrends like those of the Semis don’t die easily. Their last go at the 50-day failed completely, the next should be more successful – or else.  If you’re not wedded here there seem easier things to do, the aforementioned Commodity stocks, and some of the Staples, or if Tech you must, the Software stocks. Meanwhile, last week saw more new lows than new highs on NYSE, a real technical warning. As much as we dislike making excuses for the numbers, this seems about the rotation – losing many of the former leaders, picking up many of the former laggards. Still, that’s why the technical background is not great, but good enough.

Frank D. Gretz

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DJIA: 52,759

Just say yes to drugs… especially those of the Biotechs. It’s two for one, you can make money and live to spend it. And it’s just possible the Wednesday rally might pull us out of a dreaded technical condition, they call it August.  Of course, the rotation is nothing new, but when most Oil stocks act better than most Semis, you can’t help but laugh, or is it cry? The Semis have a problem with the 50-day, or what we think of as a thermos. The thermos keeps things hot or cold – how does it know? In similar fashion, the 50-day stops declines or in this case rallies – see the SMH (563) or most of the Semis. After big rallies most of the stocks are in big corrections, but big uptrends don’t die easily. They will rally back but then there’s the head game of sell, buy more or do nothing. Stay tuned.

Pain relief also came Wednesday in the form of a bond rally. If you haven’t been worried about the chart there either you  haven’t been looking, or like us you’ve been waiting for damage in the Financials – yet to happen.  Not quite sure why the rally was so helpful to the precious metals and Copper, but we will take it. If the latter is indeed an AI play, it acts better than the rest of them. Meanwhile, the MAG 7 has been considerably less so lately, do in part to META (546) and its particular world of hurt. We dare not walk on the dark side of funnymentals, so we will simply report, in this case from the New York Times. The net profit for the MAG 7 was derived primarily from investments, without which second quarter profit would have been flat. Over 70% of Google’s (GOOGL – 341) income came from investments, primarily SpaceX (SPCX – 134), and 65% of Amazon’s (AMZN – 260) net income came from its stake Anthropic. These are investment companies?

Frank D. Gretz

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DJIA: 53,840

That week-old buy list… rip it up. It’s not that the names are necessarily wrong, it’s dated. How many Oil stocks are on the list, let alone Gold stocks? Every market has its periods of rotation, this market seems to have them on steroids. We still favor the Invesco Equal-Weight S&P 500 ETF (RSP – 223) over the S&P 500 Index (SPX – 7799), and the iShares Tech-Software ETF (IGV – 106) over the VanEck Semiconductor ETF (SMH – 589), but last week it didn’t much matter – the week was that good. The Advance/Decline Index is at new highs, 60% of NYSE stocks are above their 200-day, and 70% for the large-cap dominated S&P itself. While large caps rule the averages, the RSP and A/Ds say there’s more to this market.     

Gold has been in a correction, but most importantly it’s a correction in an overall uptrend. For GLD (399) a move below 360 would challenge that, but the recent strength makes that doubtful anytime soon. As for the strength, obviously inflation remains stubborn, but that hasn’t always been a driver for Gold. And, indeed, during the Great Depression Gold did well, and that was a deflationary period. Then there is the Central Bank buying, up some 60% in the second quarter versus a year ago. Not that long ago, however, Central Bank buying was something you wanted to fade. And, if so important, why was Gold down in the second quarter? There are always explanations for these moves in Gold, but Gold is a bit of a mystery. At least the positive chart is not.

While Gold is thought of as a hedge, as per the above, we are not sure of what. Meanwhile, particularly given the recent resiliency and given the times, it may be Oil that is the better hedge. The charts work here from Exxon (XOM – 159) to Transocean (RIG – 6). In terms of supply and demand, at only around 3% of the S&P, Energy isn’t exactly over-owned. A little different story might be Copper, which we have tended to think of as a China story. There is that, but there’s also an AI story. Copper is required for power distribution, cooling systems, servers and plain old wiring. In total, the metal is said to account for approximately 6% of total data center capital expenditures. And Freeport (FCX – 67) is bumping up against its highs.

If we had a list of our investment beliefs, foremost might be the idea that what we all know isn’t worth knowing. What we all know isn’t worth knowing because it’s priced in, discounted as they say. We alluded to this last time in regard to earnings per se, versus the far more important surprise in earnings. It came to mind again this week regarding SpaceX (SPCX – 141), a stock with too little history to offer a technical comment. We couldn’t help but muse, however, that the company’s first lock-up period ended August 6, pretty much the day of the recent low. It would seem the anticipatory selling made that low possible.  You might also recall anticipatory selling made possible a market low the day Russia invaded Ukraine.

While we harbor concerns about many aspects of this market, for now they are just concerns. One, of course, is the Bond chart. How can that not be a worry, crowding out by AI demand? Yet, worry has not shown up in the reality of any impact on Financial stocks, which should be the proverbial canary. Even the KKRs act well again. And as Financials are numerous, they have an impact on our favorite indicator, the A/Ds – so far so good. Meanwhile, among the charts on the other side are two of our favorite technical patterns – those being stocks which almost from out of the depths, blow through the 50-day, consolidate and seem ready to go again. In this case, those would be LMT (598) and TEVA (37).

Frank D. Gretz

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DJIA: 53,885

Those Software stocks… they’re kickin. So said the friendly homeless man as we walked to the Wellington Shields limo, sometimes referred to as the Lexington Avenue subway. While some time ago, we recall that moment and our deer-in-the-headlights reaction, now that Software has begun to kick again. You might think this is on the back of the positive MSFT (500) numbers, but the improvement had been in place for a while. Somewhat ironically, most of the Software names were down on the day of the report, almost as though MSFT buying had drawn money from the rest. The software renaissance also represents a dramatic flip in the markets love/hate feelings when it comes to Software versus the Semis. The Software ETF, IGV (100) recently bottomed June 25, and the Semiconductor ETF, SMH (572) peaked June 22. More of the market’s obsession with rotation, though the net leaves the overall backdrop still healthy.

Sell on the news is a familiar Wall Street adage. It happens and it can be a very short-term phenomenon, or can be a sign things are as good as it gets. We suspect some of the latter is at play in the case of the Semis, a real worry if you know the double and triple ordering history here. It certainly wasn’t at play in the case of Microsoft and more recently Palantir (PLTR – 156), both of which had underperformed going into their news. They say earnings drive stock prices, and over the long run good companies, good being those that grow earnings, do outperform. In lesser time frames, however, it’s not about earnings per se, it’s the surprise in earnings that drives prices, as per Microsoft and Palantir. In the stock market, what we all know pretty much isn’t worth knowing. Meanwhile, GLD (390) is above the 50-Day.

Frank D. Gretz

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