From Intangible… to Tangible

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

Click to Download