Mission Accomplished… Or Mission Impossible?

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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