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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
PLEASE NOTE: Unless otherwise stated, the firm and any affiliated person or entity 1) either does not own any, or owns less than 1%, of the outstanding shares of any public company mentioned, 2) does not receive, and has not within the past 12 months received, investment banking compensation or other compensation from any public company mentioned, and 3) does not expect within the next three months to receive investment banking compensation or other compensation from any public company mentioned. The firm does not currently make markets in any public securities.
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