After the close (6:05 p.m.) I'm re-establishing Index shorts (and working on a scale higher):

*  (SPY)  $507.12

*  (QQQ)  $429.91

I am going out on the limb and say after a modest jump at the opening (Spoos +16 handles and Nasdaq futures +84 handles ) we close down tomorrow.

New buy DraftKings  (DKNG)  beat on top line — the shares should rally.

More tomorrow.

Thanks for reading my Diary today.

Enjoy the evening.

Be safe. 

I added to my Apple  (AAPL)  short at $185 and am now medium sized.

As of 4:37 p.m.:

I doubled my Apple  (AAPL)  short at $180.

- NYSE volume 491M shares, 16% above its one-month average

- Nasdaq volume 3.95B shares, 1% below its one-month average

- VIX drops 4.61% to 14.68

Breadth

Nasdaq 100 heat Map

View larger here.

S&P 500 Sectors

I am going into Apple's  (AAPL)  earnings with a continued small short position.

Added to  (XLF)  short ($40.44).

View larger here.

I have initiated a starter position in  (VVV) .

More on this name next week.

As an aside, typical Wall Street "know it all."

Everyone out saying today they knew Starbucks was vulnerable to demand elasticity.

Where were they at $110/share?

Last sale: $74.48

I have no edge into  (DKNG) 's EPS release tonite.

I am actually hopeful that they miss so I can get larger.

On cue, the opposition to cannabis rescheduling grows.

This is consistent with one of our bullet points yesterday (see boldface):

Why I Sold All of My Cannabis Holdings on Yesterday's Sharp Climb Higher

• Schedule III does not necessarily resolve uplisting issues.
• Schedule III does not resolve institutional ownership and custody issues.
• So, a further rally in cannabis stocks will be dependent on follow thru of interest by retail investors (who have been consistently burned by purchasing strength over the last 3-5 years).
• An excise tax may be instituted to offset the loss of tax revenues from the elimination of 280e.
• The notice/review/lawsuits issues during the estimated six month comment period could get contentious.
• If Schedule III is not finalized before year end there could be renewed concerns that a new Administration will try to turn back the decision.
• Some portion of the benefit of elimination of 280e may inure to the benefit of consumer (in terms of lower weed prices).
• The total addressable market for cannabis is materially less than consensus expectations.
• State silos create diseconomies of scale.
• State dispensary limitations in popular/large states is a headwind to consumer branding and market penetration opportunities.
• Accounting standards for the cannabis sector are aggressive/weak.
• Managements are still not ready for prime time players.- arguably, their operating and forecasting skills are not yet keenly developed.
• Accumulated debt and non payment of taxes represent a heavy load for companies not delivering returns anywhere near their cost of capital.

BY DOUG KASS MAY 1, 2024 10:15 AM EDT

The chart of JP Morgan  (JPM)  is starting to rollover - reminiscent of  (MSFT)  recently?

I am back short  (XLF)  on today's lift.

I just got out of my second research meeting.

Getting my sea legs back.

It doesn't appear that I missed much.

From Peter:

Initial claims remained low at 208k, 3k below expectations and unchanged with the week before. Continuing claims totaled 1.774mm, 16k under the estimate and also unchanged with the week before.

The bottom line here remains the same and on the hiring side, read what Challenger's April jobs data said today.

"U.S. employers announced plans to hire 9,802 workers in April, the lowest total for the month since 9,322 hiring plans were announced in April 2013. For the year, employers have announced plans to hire 46,597 workers, the lowest total in the first four months of the year since 2016, when 38,445 hiring plans were recorded."

Similar though to the low levels of initial claims, "U.S.-based employers announced 64,789 cuts in April, a 28% decrease from the 90,309 cuts announced one month prior. It is down 3.3% from the 66,995 cuts announced in the same month in 2023, according to a report released Thursday from global outplacement and business and executive coaching firm Challenger, Gray & Christmas, Inc. So far this year, companies have announced 322,043 job cuts, down 4.6% from the 337,411 announced through April last year."

Q1 productivity was about as expected when including the revisions to Q4. As I like to look at this on a y/o/y basis, productivity gains were 2.9% vs 2.7% in Q4 and 2.3% in Q3.

On the unit labor cost side, they rose 1.8% y/o/y vs 2.4% in Q4 and 1.9% in the quarter before.

Bottom line, productivity has definitely improved over the past 4 quarters but follows 5 quarters in a row of negative prints. I thus think it remains to be seen where it settles out at. For perspective, productivity averaged 2% in the 20 years leading into Covid and stretching that out to the 40 years before Covid hit, the average was 1.9%. So around 2% should be the baseline from which we measure US productivity trends.

View larger here.

From Peter:

The succinct summation of Powell's comments: their bias is to ease but just not yet and now they are more equally balancing the unemployment rate with their inflation focus in determining when. If more tightening is needed, they will most likely effect it by just keeping rates at current levels for longer, not by hiking further. They will shrink the shrinkage of their balance sheet but likely extend out the process of QT longer than otherwise.

About an hour after Powell was done talking, the Japanese intervened again, maybe thinking that the slight US yield drop gave them another window, and the yen spiked, though there was no official confirmation of that, similar to the first one. Masato Kanda, the vice minister for international affairs told Bloomberg News, "I have nothing to say now on whether we intervened in the foreign currency market. We will disclose intervention data at the end of this month."

It seemed that the first intervention cost them about $35b and yesterday was about $23b based on daily account data. I'll say this, unless the BoJ raises rates and/or the Federal Reserve cuts rates, the Japanese are throwing a lot of money down the drain if they think FX intervention is going to work sustainably.

Intraday Yen

I heard a really interesting perspective on the consumer from my friend Neely Tamminga on a Twitter (X) Spaces I was doing yesterday. Via her consumer surveys and insights she helped to explain why a Domino's Pizza and Chipotle are doing better than McDonald's or Starbucks. When a consumer needs to commit $10 for a meal, they feel like they can squeeze out two meals with a pizza pie and a bowl/burrito with that $10 while $10 will only get you one meal at a McDonald's and Starbucks. This is the extent at which many consumers are budgeting their money.

Again, when reading the following earnings comments, it all continues to sound like one big very mixed bag.

Doordash is showing again how difficult it is to make money in delivery but from a user perspective, they are still seeing strong top line growth.

"In general, we're not seeing the signs of strain on the consumer, but I think it perhaps has something to do with the segment that we operate in, which is digital and delivery. I do understand that there are some headwinds that certain merchants face when it comes to in-store traffic. But when it comes to all things digital, we're actually not seeing, I think, those same signs of strains. Even, for example, in the US restaurants business the growth is pretty consistent over the last six quarters."

Etsy's revenue barely grew in the quarter y/o/y, the stock is down sharply pre market and said this, "while US unemployment is low and inflation data is mixed, consumer sentiment remains depressed, which some speculate can be attributable to the very high cost of money. Consumer wallets remain squeezed, so there's often little left after paying for good, gas rent, and childcare. And there's significant data indicating that the largest e-commerce platforms have primarily been able to grow by selling everyday essentials at very low prices."

"Macroeconomic conditions also continue to be quite challenging in our other top markets, the UK and Germany. These headwinds are real, do not appear to be abating, and are impacting our sales."

After going thru some of the revenue trends of the product lines sold on their site, "But overall, we see this as a tale of broad weakness in the types of merchandise we sell."

eBay's gross merchandise sales were also flat y/o/y, with revenue up 2% and said "we continue to navigate through a tough environment for discretionary e-commerce, particularly in the UK and Germany, two of our largest markets." Exactly what Etsy said. They said the "US is in better shape" compared to Europe.

They said "the macro environment remains challenging and dynamic" when laying out their financial guidance.

When I go thru the earnings calls of Visa (last week) and MasterCard from yesterday, I have in the back of my mind that there is a secular shift to using credit cards/digital payments from cash and these companies live in a nominal world when it comes to retail sales.

They reported an 11% y/o/y revenue growth rate and said "These results were powered by healthy consumer spending and strong cross-border volume growth of 18% y/o/y on a local currency basis."

Here was their macro view: "the picture remains mixed. First, strong labor markets and solid wage growth remain in countries across the globe. This is supportive of healthy consumer spending. Second, inflation has been moderating with a path towards normalization of monetary policy in most countries. Persistent inflation in the US could delay rate cuts here. And third, geopolitical uncertainty remains in several countries. In addition to these areas, we are closely monitoring the strength of the dollar, commodity prices and consumer balance sheet health. With tailwinds and headwinds to economic growth remain on balance, we are positive about the growth outlook."

Not only did we get the ADP April jobs report yesterday but ADP itself reported earnings and the stock was up about 2% in response.

They mentioned "the resilient overall US labor market and the fact that our clients continue to add to their workforces at a moderate pace."

CDW is always an important company to listen to as a major distributor of all things tech, hardware, software, computer peripherals, cloud computing, mobile devices, telecom equipment and cyber products. The stock was down 11% yesterday after earnings.

They said, "Market conditions remained challenging, and first quarter results came in below our expectations...In the 1st quarter, customers demonstrated caution and concern given heightened macro uncertainty weighing on capital investment decisions. At the same time, the complexity of the tech landscape continued to ratchet up, particularly given the additional layer of AI and changes in the IT market landscape."

"This lengthened decision making as customers deliberated on both how to navigate technology roadmaps and when to spend on infrastructure in a challenging economic environment. While activity was reflected in a solid pipeline, with deals being pushed out, our sales and gross profit lagged. Results were also impacted by the federal budget stalemate, which led to a pause in our federal channel."

They also said, "we do not expect decision cycles to improve in the near term."

Shifting to travel, an area of economic strength as we know.

From Marriott:

"Once again, we saw RevPAR growth across all three of our customer segments, group, leisure transient and business transient. Group, which comprised 24% of global room nights in the 1st quarter was again the strongest customer segment."

International growth outpaced the US and Canada.

As for the outlook, "By customer segment, RevPAR growth is still anticipated to be driven by another year of strong growth in group revenue, continued improvement in business transient revenues, and slower, but still growing leisure revenues. RevPAR growth is expected to remain higher in our international markets than in the US and Canada."

MGM Resorts mentioned the bifurcation in their customer base. "If I think about Las Vegas first, again, another strong quarter, principally driven by the high end. Although we did see some signs of fatigue at the lower end of the market, overall ADR was up 7% in the 1st quarter and are expecting to hold that range into the 2nd with increased occupancies looking at the 2nd quarter and through the balance of the year."

As for the Chinese consumer and their Macau business, "Macau, as you all know, for us in particular, but I think for the market, is simply booming."

They said their regionals business got better as the quarter progressed after the tough winter weather in January.

Shifting to transportation, from CH Robinson:

"And although we continue to battle through an elongated freight recession with an oversupply of capacity, I'm optimistic about our ability to continue improving our execution regardless of the market environment."

Dupont's stock was up sharply yesterday after their earnings. "Our results for the period exceeded our expectations, driven by better than expected volumes in all segments. Broadly, the first quarter confirmed that we are past the bottom in electronics and on the road to recovery."

Sector wise, "Our Semiconductor Technologies business" saw 8% revenue growth sequentially and 10% y/o/y, "driven by a pickup in underlying chip demand and normalization of customer inventory levels."

They "continue to see channel inventory destocking, as expected, resulting in y/o/y revenue declines in certain industrial based businesses, but we believe those conditions have bottomed."

Shifting to stock market sentiment, after the recent reduction in Bulls and rise in Bears, that reversed a bit this past week. Investors Intelligence said bulls rose to 47 from 46.2 while Bears slipped to 19.7 from 21.5. In today's AAII, Bulls rose by 6.4 pts to 38.5, a 3 week high while Bears fell by 1.4 pts to 32.5, a 3 week low. The CNN Fear/Greed closed at 35, remaining in the 'Fear' side vs 39 one week ago. Bottom line, we're sort of in a sentiment no man's land but we certainly squeezed out that extreme bullishness that we saw at the market highs.

Overseas, Hong Kong's economy in Q1 grew much more than forecasted with GDP up 2.7% y/o/y, well better than the estimate of .8%. Home sales and tourism helped.

Another of my contrarian trades this year, to buy the Hang Seng, is now working as it rallied 2.5% overnight in response and its year to date gain of 6.8% now exceeds the S&P 500's increase of 5.2%.

I mentioned yesterday that while the April ISM manufacturing index dipped below 50, it seems that manufacturing is trying to finding a bottom and we saw some signs of that in the overseas purchasing managers indices (PMIs) overseas. Taiwan's rose to 50.2 from 49.3, Japan 49.6 vs 48.2, Australia 49.6 vs 47.3, Vietnam was at 50.3 vs 49.9, South Korea at 49.4 vs 49.8, Thailand at 48.6 vs 49.1, Malaysia 49 vs 48.4, Indonesia 52.9 vs 54.2, the Philippines at 52.2 vs 50.9 and India at 58.8 vs 59.1.

Specifically on South Korea from S&P Global, "The outlook for the coming year is positive, and strengthened to a 23-month high as firms hoped for a sustained domestic and export order recovery. That said, falling employment, backlogs and inventories suggest that the sector still has some way to go before growth can be sustained. April data also brought with it unwelcome news of rising inflationary pressures, with selling prices increasing at the fastest pace in five months."

The Eurozone remains a laggard with its final manufacturing PMI at 45.7 vs 46.1 in March with particular weakness in Germany and France. The UK final was 49.1 vs 50.3 in March and vs 47.5 in February.

Investing in Cannabis Stocks? Reclassifying Marijuana Isn't the Big High

 * It was just another Manic Wednesday

* The S&P swung a total of 180 points throughout the trading day yesterday

* Brought to us by the manic quants and their algos, portfolio managers and traders and their fast fingers who respond to the Fed's word salad

* Welcome to the new regime of volatility

* The market backdrop is ideal for traders but not for the buy and hold crowd

Six o'clock already
I was just in the middle of a dream
I was kissin' Valentino
By a crystal blue Italian stream
But I can't be late
'Cause then I guess I just won't get paid
These are the days
When you wish your bed was already made

It's just another manic Monday
I wish it was Sunday
'Cause that's my fun day
My "I don't have to run" day
It's just another manic Monday

- Bangles, Manic Monday 

There is something abnormal and potentially problematic when the S&P Index that trades in integers all day - declining by 30 handles in the morning and rallying by over 80 handles on Fedspeak and then turns around to decline by -70 handles (from the high) to close -20 handles on the day:

This is not business as usual.

It is likely a market "governed" by passive products and strategies that worship at the altar of price momentum - reacting violently to those momentum shifts even on an hourly basis.

I dismiss the notion that it was Powell and his Fedspeak - which could be interpreted as modestly dovish in context but, quite frankly, was not unexpected. Who really thought a rate hike was in the cards?

To me, it was the AI driven algos and machines - violently contributing to momentum shifts throughout the day.

In total from the low to the high and back to the close the S&P Index swung by about 160 handles.

Great for traders but no so much for the buy and hold crowd.

My opportunistic trading yesterday attempted to capitalize on the volatility - though I profited as my sizing is small given the market's heightened volatility.

That is called risk control.

Fed Word Salad

I had an interesting exchange with Sofi's Liz Young last night:

DK: "LY, I don't understand how you can be more bullish short term based on Powell's comments - as no one expected an interest rate hike."

LY: "I disagree, I think markets were obviously worried Powell would at least hint at the possibility of a hike. The short term is just lengthening this cycle out even more. A sort of, nothing to see here, feeling. I don't thank its enough to scare people out of equities or high yield entirely...Another quarter of above expectations inflation data, and a hike is on the table (whether it's the right thing to do or not). Markets would get scared in the meantime. But for now, all of his hypothetical scenarios were calm-inducing. The longer they do nothing and its palatable to markets, the more time there is for people to stay invested in risk assets. At least that's my take. The pause periods are pretty benigh.. until the bitter end. And the end is usually bitter."

To me, Powell and the Federal Reserve are feckless. Clueless from a forecasting standpoint and have lost all credibility. So, while the machines and algos trade stocks and parse his words - I dismiss the more dovish notion.

Technically Speaking

Technically speaking the five day and 20 day market moving averages are both declining and despite a gap higher in stock futures this morning, the 50 day could also be in a decline.

I would not be surprised if equities test their 200 day moving average in the weeks and months ahead.

I am a seller of spikes higher now and not yet a buyer on weakness which I expect to come.

Remember the markets will do the least obvious thing in the least obvious way.

I know at times it is hard for subscribers to follow this trading - but get used to it as I try to take advantage of what Mr. Market and his cousins (the quants) give me as exaggerated moves grow more commonplace.

I wish it was Sunday, that's my fun day!

* Subscribers should pay more attention to this product...

My Watch List (formerly known as Best Ideas) (long and short) on TheStreet Pro is intended to be used by the buy-and-hold crowd — it is not a trading list.

Many of the stocks have been on this list for years. As an example, Hartford Group  (HIG)  has been on my Watch List for over eight years.

Longs create wealth.

Shorts protect wealth.

On Longs

Recognizing that, over the long run, equities rise — my Watch List (longs) are for "long onlys."

While my market view changes, the list of longs are intended to be held almost "forever" as core positions.

Though I always trade around core holdings (as reward vs. risk is dynamic), this is for the buy-and-hold crowd who generally disregard short-term market volatility and gyrations — and implement bonafide long term market positioning.

On Shorts

My shorts on the Watch List are a group of stocks whose secular growth prospects are likely to be less than the consensus forecast.

Typically these shorts have impaired longer-term business models that will produce disappointing future returns.

Most investors should avoid shorting for the reasons mentioned repeatedly in my Diary.

From the Chairman of Green Thumb (and overall good guy!):

Overnight the S&P Short Range Oscillator became a bit more overbought at 2.34% vs. 1.82%.

I have been steadily increasing my exposure to uranium:

"To knowledgeable investors, chart patterns are not squiggles on a price chart; they are the footprints of the smart money."

- Thomas Bulkowski

Bonus - Here are some great links:

Analysis 

Technology Still The Worst?

Deep Dive into Industrials

Sell in May and Go Away?

With sales in the last two days I am down to tag ends long Viking Therapeutics  (VKTX) .

I plan to buy back on weakness — if it develops.

The shares' price rise has been outstanding.

I am meeting with a company for breakfast so there will be no "futures" column today.

* I am nearly out of energy stocks now...

Yesterday crude oil had its worst day since January:

Energy-related equities ("bulled up" in Q1 2024) continue to get beaten up — with more losses in  (OIH) , and the integrateds on Wednesday.

Tactically, I have been reducing my exposure in Chevron  (CVX)  and Exxon Mobil  (XOM)  on the recent strength — and I am now down to tag ends.

The charts look to me like the semiconductor sector, which is also making a decisive move lower.

Will the financials be next?

From my friends at Miller Tabak:

Wednesday, May 1, 2024

Powell Is Wrong to Dismiss Slowing Growth

The biggest takeaway from the May FOMC meeting is that the Fed is still unwisely dismissing mounting evidence of slowing economic growth. Our position remains that slower growth will continue through the third quarter, and that it will compel the FOMC to cut by 25 bps in July, November, and February 2025. Powell, however, described growth as “about as strong as last year.” He is correct to note that 1Q2024 demand was fine. He is wrong, however, to hint that 2023’s “very high productivity growth” is continuing.

The most recent data show that last week’s GDP report is not an outlier. This includes construction spending falling 0.2% m/m (versus 0.3% expected), ISM manufacturing missing expectations at 49.2% (versus 49.9% expected), and job openings falling to 8.5 million (versus 8.7 million expected). Second quarter GDP is likely to be slightly weaker than 1Q2024’s 1.6% reading (more on this later). The economy is evolving as we expected. We reiterate that we also expect core-inflation readings to come in around 2.5% by the end of this quarter. Expect the June FOMC meeting to demonstrate much greater concerns about growth, paving the way for a July rate cut.

Figure 1: Little Connection Between Balance Sheet ($ trillion) and 10-Year Term Premium

The FOMC’s decision to reduce its maximum monthly asset sales (quantitative tightening) from $95 billion to $60 billion is not a major development. We have long been skeptical that changes to the Fed’s balance sheet have important effects on the real economy. If bank reserves are adequate, reductions in the Fed’s balance sheet are simply offset by reductions in bank reserves and the net effects are minor. We note that there is little evidence that recent asset sales/purchases have had significant effects on yields. Furthermore, we do not see the reduced pace of sales as a way to send a dovish signal to markets without actually cutting rates. Rather, it is a just technical change to make sure that reserves remain adequate to avoid “financial market turmoil.”

Wolf Street howls about Fed policy.