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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DJIA: 49,442

When bad news breaks… good markets fix it. So it goes, good markets make the news. The residual weakness from Monday’s decline was a bit surprising, but not technically harmful. That seems particularly so when weakness is relegated to the averages and not so much to the average stock. And the advanced/decline index recently made a new high, and it typically leads at market downturns. Overall, the backdrop has had a couple of important improvements recently. NYSE stocks above their 200-day average had been stuck in a mediocre 50–60% range pretty much since the April low. It jumped to 65% from 59% last week. Weekly 12-month new highs also moved back to their peak, doubling both on the NYSE in NASDAQ. Healthy markets are about this kind of participation.

Tech is here to stay – you might want to write that down. A recent Barons article pointed out 33% of the S&P is correlated with AI, our news is not new. The big guys make money, though now seem bent on spending it, the others, who knows? The concern isn’t about the money or the multiples, though many argue that’s why there’s no bubble. Either they were born last night or have forgotten the nifty 50, certainly a bubble and certainly stocks that made money. The concern, rather, is who is left to buy? So far so good for most of the Semis, not so good for most of Software. The same might be said even of the MAG 7. There’s the good – Amazon (AMZN – 238) and Google (GOOG – 333), and the not so good – Microsoft (MSFT – 457) and Meta Platforms (META – 621).

On the other side of the ownership spectrum is Oil, at something like 3% of the S&P by market cap. Let us be among the many who will say, with good reason. Pick your term – awash, glut, surfeit – there’s no good reason to buy Oil. Yet there is in a sense the same rationale for not buying Tech – for Tech who is left to buy, for Oil who is left to sell. Granted and for sure, this is no call to arms, so to speak, a time to sell Tech and buy Oil. This is, however, a time to be aware, and possibly prepared. In this somewhat risky world, if something were to go wrong, when it comes to Oil everyone is on the wrong side of the boat. And, by the way, the charts are much improved. When it comes to the mess in Venezuela, rather than the guys who might pony up billions for a return decades away, SLB Ltd (SLB – 47) and Halliburton (HAL – 33) might be a better choice.

While Commodities are at the forefront of our attention these days, a couple of other areas seem worthy of a look. The recent Healthcare conference brought some interesting interviews, among those companies Novo-Nordisk (NVO – 57). Our go to stock here has been Lilly (LLY – 1033), but even Pfizer (PFE – 26) is now applying itself to this area. Hard to forget what happen when they applied themselves to the vaccine. Not a Biotech but related in its way is Thermal Fisher (TMO – 625). After a four-year hiatus, what those technical analysts call a base, the stock has our favorite chart pattern – a spike out of the base and a high-level consolidation. And then there’s the Defense stocks. To look at the ETFs like XAR (289) they are more than a little stretched.  Doubtful this is about Venezuela, more likely worries about Taiwan.

Precious metals have far outstripped stocks since the US election. Silver, especially, has rallied enough to bring about those conspiracy theories. Then, too, when Geopolitical pressures mount, and there are a few, Precious Metals tend to benefit. And now the trade has expanded to most, if not all Commodities. Getting back to the market, and basics, while the averages have been all over the place this week the average stock has not. The advance-decline numbers have been remarkably consistently positive. You might argue better action in the Financials, and there are many, or better action in the Oil shares, of which there are many – how you get to the good numbers doesn’t matter. The A/Ds of course only measure direction, stocks up versus stocks down. In that regard, the breakout in stocks above their 200-day seems an important confirmation.

Frank D. Gretz

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Blow on them… they’ll go up. That’s what happens when stocks are sold out.  At important lows it’s not the buying that matters it’s getting the selling out of the way. We’re thinking of course of the Oil sector, at something like 3% of the S&P by market cap.  They have rallied sharply recently on the news out of Venezuela. That news being the world could soon be awash in even more Oil, which at $60 per barrel may not even be profitable. While the fundamental logic escapes us, the technical logic does not. No one owns them. Another thing going for Oil is pretty basic — it’s a Commodity and Commodities are hot. Tech is not going away, but this could be the year of Commodities more than Semiconductors. It’s early, of course, but a look at FCX (54) versus NVDA (185) makes our point.

To look at the S&P, or even the NASDAQ 100, the period from October to year end was one of consolidation. It didn’t quite feel that way even during the very positive late December period when winners were sold. As has been the case for much of the time since April, something came along to fill the void, namely the Healthcare and Financial stocks. They call it rotation, provided something does come along. Otherwise, they call it a top. Some have worried of the lack of a momentum surge and we have noted the 50–60% of stocks above their 200-day misses the mark of most bull markets. We have chosen to write this off due to an unusual degree of rotation. Time will tell, to coin a phrase.

Frank D. Gretz

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DJIA: 48,063

“If Santa Claus should fail to call… bears will come to Broad and Wall.” We’ve always liked that little ditty, though its history when it comes to the Santa Claus rally is a bit dubious. A better ditty this year might be from the Doors, “Strange days have found us.”  Selling the winners at year end is a bit of a surprise, carving up some sectors a surprise as well. Granted Semis have outperformed Software for some time, now even a Semi like Micron (MU – 285) is outperforming AMD (214). Meanwhile, Nvidia (NVDA – 187) and Palantir (PLTR – 178) leaders of the pack, or should we say cult, still look right. The “Mag 7” might better be called the “Mixed 7” with Google (GOOG – 314) and Amazon (AMZN – 231) seemingly preferred. That said, even here it has been a year of rotation. Healthcare and Financials have helped hold things together, and seem likely to continue to do so. Recently some Retail has picked up, particularly discounters like DG (133) and DLTR (123). Lagging remains Energy though Exxon (XOM – 120) is making new highs. As we said, strange days.

Exxon aside, Oil and the stocks are swimming upstream. Still, at only around 3% of the S&P by market cap, they are worth keeping an eye on, as it would not take much buying to push prices higher. And, in general, we like commodities and think Oil could join the crowd. For the market overall, it’s holding its own technically. Stocks above their 200-day moving average at 60% remain in the 50–60 range which has prevailed most of the year. Most bull markets see 70% or more, we’ve excused the shortfall as part of rotation. Disappointing of late, however, has been some poor A/D numbers —Not what we would have expected this time of year.

Frank D. Gretz

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Seasonal patterns can be important… when the technical background agrees with them. The odds of the market being up the last two weeks of December are 75% – it doesn’t get much better than that. Stocks above their 200-day average are close to 60%, near the upper end of the range most of this year. We’d rather 70% more in keeping with most bull markets, but this market has compensated with rotation. So, the odds of the so-called “Santa Claus rally” and even a “January effect” seem good. The latter is the tendency for the down and out to rally at year end. While it does not quite fit the pattern, Nokia (NOK -7) is down a bit and pretty much forgotten. And it has formed a base just above its 50-day average. Meanwhile, in keeping with the season, if you have been a little you know what, you might get ahead of the curve and at least pick a Coal stock with a good chart, Alpha Metallurgical Resources (AMR – 209).

Frank D. Gretz

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DJIA: 47,952

Who are you going to believe, market history… or your eyes? December is a good month for stocks, really! Yet here at mid-month, advancing stocks have outnumbered declining stocks only three of 12 days. And this is the time of year when the average stock typically outperforms while the winners often lag. Then, too, when it comes to December the term crosscurrents can’t be overused. And we recall plenty of Decembers that had their struggles somewhere along the line. And all things being equal the overall technical background supports strength regardless of the month. Even the Russell 2000, a measure of secondary stocks made a new high.

NYSE stocks above their 200-day have often looked worrisome, stuck as they are in the 50–60% range while the averages made new highs. Fortunately, it has been worrisome, but without consequence. The explanation seems to lie in what has characterized this market for some time, rotation. When markets lose participation, as this one has, we have seen something come along to replace what has been lost. Not long ago the Healthcare stocks including Biotech came to life, and even more recently a number of Retailers. Even more surprisingly, Autos like Ford Motor (F – 13) and General Motors (GM – 81) are acting well and Airlines very well. Gold already has had a good year, but also has a high win rate these last two weeks of December.

Frank D. Gretz

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DJIA: 48,704

December is a month rife with crosscurrents… unlike the rest of them? December does have more than its fair share of reasons for confusion, among them the tendency for the worst to turn to first in anticipation of the “January effect.” And leaders often tend to underperform. If there is a confusing side, there is a positive one as well. December is a good month for the averages, and in years following an election they are some three times more likely to go up and three times as much. While just probabilities, the recent action seems to back this up. The bit of a breadth surge seen at the end of November likely cleared the air following some weakness, and set the stage for year end.

A recent Bloomberg piece described Target (TGT – 97) as having gone from first to worst. Knowing retail generally to be a laggard, we were surprised to see the Target chart wasn’t bad. Speaking of not bad charts, when did you last look at Kohl’s (KSS – 24) with a recent gap and now a high-level consolidation. And there’s Macy’s (M – 24). Of a different sort, discounters like Dollar General (DG – 133) and Dollar Tree (DLTR – 130) were the market stars last week, now a little stretched but certainly worth a look on weakness. Change like this doesn’t go away in a hurry. Apparel retailers like Gap Inc. (GAP – 27) and Abercrombie & Fitch (ANF – 110) also look attractive. We’ve wondered too, what does it mean when after decades Walmart goes NASDAQ versus NYSE? Possibly a recognition that it’s more Tech than Retail?

Frank D. Gretz

DJIA: 47,851

Every dog will have its day… even the Russell 2000. Obviously we’re not fans here, having unkindly referred to it as love among the rejects. The Russell is comprised of companies not growing and therefore not able to move on to the grown-up indexes. And then there are all those Financials, making it a bit of a proxy for rates. That’s not a bad thing as an indicator, but not exactly a gauge for growth. They call it a measure of secondary stock behavior, and from time to time it is. Last month it was especially so. While Tech stocks played the role of drama queen, the Russell managed an unusual and very bullish reversal pattern, going from a one-month low to a one-month high, in a remarkable 10 days. Doing so bodes well for upcoming months. Overall, this looks more like a shift than any dramatic change in leadership. Interesting, though, the S&P Pure Growth ETF versus the Pure Value ETF does say change.

The good news about the Russell is good news all around, in that these reversals are positive for the S&P as well. For the Russell, however, the added kicker is “tis the season,” with already some signs of a January effect come early. Keep in mind the averages hardly tell the whole story here of stocks which over the year have come and gone, so to speak. Bitcoin itself, Bitcoin Miners, the Quantum stocks, all battered and looking for some relief. As for market leadership, Tech, the Mag7, Nvidia (NVDA – 183) and Palantir (PLTR – 178) are just fine, just in need of a little rest.  What has separated out a bit are a few Techs like Applied Materials (AMAT – 269) and ASML (1110), the guys that made the stuff to make the stuff. Back in mid-November AMAT gapped down on bad news only to close unchanged on the day. That sort of action always gets our attention.

In a sense, it’s rotation that has kept this market alive and well, technically speaking. The good part recently has been the strength in Healthcare altogether, and Biotech particularly. And there’s a lot there, big and small, good for market breadth and the averages. The dark side of the rotational market has been the weakness in Energy, not so much Oil and Gas energy, AI energy from Utilities to Uranium. And to look at stocks like Nuscale (SMR – 23), OKLO (112) or ETFs like URNM (60) and NLR (139), rotation is a euphemism. These could be candidates for yearend strength. Unlike others, Vertiv (VRT – 183) and Comfort Systems (FIX – 1005) do act well, and are an integral part of the AI story. Another might be Bloom Energy (BE – 118), down from its recent high, but dancing around its 50-day moving average, better than most. A close above Monday’s high around 115 should mean a resumption of the uptrend. Also, we noticed the pattern similar to MongoDB (MDB – 397) before its recent gap higher.

In terms of big Pharma, Eli Lilly (LLY – 1013) already seems the leader. We know of price targets some 500 points higher, and the chart does support that. The rub, of course, is when? The stock currently is roughly 150 points above even its 50-day moving average. Stocks all have their own character, extended for one as measured by this or that differs from another. The aforementioned BE was at one point more than 50% above its 50-day when it corrected, but again stocks differ. Important too, corrections come in two forms – weakness, and consolidations. Stocks can simply stall out until the relevant moving average catches up, so to speak. This may not be the best entry point, but it seems a stock you could consider.

November wasn’t fun but as the saying goes, all is well that ends well. And November ended well, with five consecutive positive days in the advance-decline numbers, a couple of which were quite impressive. This followed five of six down days, suggesting we may have seen a bit of a washout. As always the key is follow through – so far so good. Down days like Monday happen, worry more about the bad up days, when the average stock lags the stock averages. Long ago what piqued our interest in technical versus funnymental analysis is quite simple. We noticed when the overall market went up our stocks went up and vice versa. IBD like other studies holds that up to 70% of the movement in individual stocks is a function of the market’s overall trend. Certainly it has been a good year for the market, for groups it has seemed more the movable feast, even within Tech. Now comes December with its usual crosscurrents, likely more lift in the downtrodden.

Frank D. Gretz

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DJIA: 47,427

When good news is bad news… that’s bad news. Nvidia (NVDA – 180) reported good news last week, rallied sharply only to reverse when the market decided the news was too good. Too good meaning there’s too much spending on AI, the market’s new worry. And. so it goes, news doesn’t make the market, the market makes the news. Not that long ago the market would have taken the news as good and gone with it. Just as you don’t step in the same river twice, this isn’t the same market and Tech is a much more over-owned Tech. Tricky now is the damage in many cases, leaving recent strength the look of a bounce rather than a new uptrend. Admittedly it’s early to say, and recently the market has done well in Tech’s absence.

Seasonally this is a positive time of year, and through December 3 we are in the midst of one of the most positive nine-day periods of the year. Leadership is a bit confused, rather than bifurcated it’s more trifurcated. Tech like Broadcom (AVGO – 398) and Google (GOOG – 320) holding up, Nvidia and Oracle (ORCL – 205) not so much. Financials act better, even Regional Banks, likely on the lookout for a rate cut. For sure, Biotech and Healthcare generally are the leaders, and here there are many. The overall background, however, is not auspicious, with half of the NYSE stocks below their 200-day, that is, in downtrends. The recent A/D numbers suggest we could just go on like this, in this seasonally positive time of year.

Frank D. Gretz

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DJIA: 45,752

On the way to Bubbleville … fundamentals got in the way?  Suddenly, the premise of Hyper-scalers have become Hyper-spenders, and a source of concern. Like prophets in their own town, bubble peaks are rarely recognized, and certainly not on a fundamental basis. Bubbles are a phenomenon of supply and demand. They will tell you Nvidia (NVDA – 181) is cheap, which does have some meaning. Then, too, is that a good thing – does the market know something we don’t? More importantly is supply and demand – who is left to buy?  Don’t mistake fundamentals, cheap or not, with a bull market. Even more important is the market’s trend. Fundamentals do not kill bull markets. Worry more about the average stock.

Thursday’s reversal was a surprise, so too is the recent strength in Pharma/Healthcare. To tout our profession, it’s about demand versus supply as much as anything. So, how much Pharma/Healthcare do you own, especially versus what you own in AI? And, of course, how much Colgate (CL – 79) or Procter & Gamble (PG – 148) do you own? Back in 2000, Philip Morris (PM – 156) and cigarettes didn’t become cool; they rallied because the selling was done. Done because everyone wanted the New Economy dot-coms. Always hard to see it when you’re in it, but markets always are about supply and demand.

Frank D. Gretz

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