I neglected to mention that I took a starter position (short)  (XLU)  at $71.35.

Closing Volume

- NYSE volume 457M shares, 5.5% above its one-month average;

- NASDAQ volume 3.62B shares, 7.5% below its one-month average

- VIX: up 8.69% to 13.64

Breadth

% Movers

Nasdaq 100 Heat Map

Eigenman

COST: Doug picked an interesting one. Yup it had an outside bearish reversal AND that would be a double top. No immediate recovery is bearish. Immediate recovery is bullish. Plus it looks a lot like the Spy. Maybe a tell here...

* Mostly negative...

Costco  (COST)  hits a new high - and now down on the day, an outside day.

I continue to expand my short book on any strength.

Here is a brief midday update on fixed income:

* The yield on the 2 year Treasury note is -2 bps to 4.853%.

* The yield on the 10 year Treasury note is -3 bps to 4.477%.

* The yield on the long bond is -3 bps to 4.618%.

These yields are mostly in the middle of today's trading ranges.

For the first time in the recent rally the financials seem heavy. Berkshire  (BRK.B)  and JP Morgan  (JPM)  - large components - have reversed early gains.

I would note that many technicians and strategists have recently endorsed financials, apparently in response to the strong relative performance.

Given my economic and rate concerns, I am fading that growing consensus now.

Shorting  (XLF)  might make some sense as a tradeable idea now.

I added to my smallish XLF short at $41.94 this morning.

* Another signpost of the apocalypse?

"Meshuganah is trump." (Craziness is threefold in Yiddish)

- Grandma Koufax

GameStop  (GME)  was placed on my Best Ideas List short at $238.25 on June 1, 2021.

It was currently trading at $29.68, +70% on the day.

There are no words for how badly this reflects on the state of the markets, imho.

GameStop shares soar 20%, here's why.

Here are the intraday and daily charts on GME:

* Has not closed gap of either 4 pm or after hours on Friday...

Welcome to the new regime of volatility - in the market without memory from hour to hour.

Machines and algos are the tail that wags the market dog.

It is an inherently unhealthy situation.

Most may consider bolstering cash reserves, imho.

From Peter:

Ahead of the inflation stats this week, the response of interest rates and with a spotlight on the deteriorating US government finances, my friend Barry Knapp in his weekly Ironsides Macroeconomics piece highlighted the scary trends. From the CBO's Monthly Budget Review which came out last week, and for the longer run outlook, "Spending is running +6%, with social security +9%, Medicare +10% and refundable tax credits, primarily due to the expansion of Obamacare eligibility, also up 10% year-to-date from a year ago.

These three categories account for 36% of year-to-date outlays. More shockingly, interest on the debt increased 42% year-to-date and has passed Medicare, Medicaid and Defense spending in total size." I bolded for emphasis.

I know we all debate whether this all matters because for the last 40 years when debts and deficits started getting more attention it didn't matter. As I believe the 40 yr bond bull market ended a few years ago with the euphoric peak in December 2020 when there was $18.38 Trillion of negative yielding securities, and a bond bear market began soon after, I think this all matters now, especially since we still rely on the kindness of strangers in buying US Treasuries. By the way, there are now zero bonds in the world that have a negative yield, post the BoJ rate hike, good riddance.

$ Value of Negative Yielding Bonds

While Jay Powell could change her mind, as can the economic data, Fed Governor Michelle Bowman said on Friday "I, at this point, have not written in any cuts" for 2024. "I've sort of had an even expectation of staying where we are for longer. And that continues to be my base case." She continued by saying "It is of utmost importance that we maintain credibility in pursuing our fight against inflation by proceeding carefully and deliberately to achieve our 2% goal." As a Governor, what she says matters but we know any new data point could change her opinion.

With regards to non-voting member Neel Kashkari, who gave a duel interview with Austan Goolsbee given by Steve Leisman on Friday, he's throwing out a market stat that he (thus us), is now watching to help guide him. He's given speeches on this in the past and repeated it last week. That being the 10 yr implied inflation rate in the 10 yr TIPS market and/or the 10 yr REAL rate. 

He believes that it is "the single best proxy for the overall stance of monetary policy." For perspective, the inflation breakeven started 2020 at 1.79% and is trading this morning at 2.36% and peaked at 3.04% in April 2022 right before the hottest inflation prints were seen. He then compares this with conventional rates to get to the REAL rate and then determines whether policy is tight or not, in his mind.

While I do think this is an important thing to watch, we have to understand that it is just a reflection on how people think today the 10 yr inflation average will be. It changes every single trading day as more information gets absorbed into those thoughts.

10 yr REAL Rate

Yes, the BoJ is still doing QE but they continue to slow the pace and that was clear overnight as they announced the purchase of more JGB's but less than seen last month and yields rose in response. The 10 yr yield was up 2.5 bps to .94%, just 2 bps from matching the highest level since 2012. The yen is still not getting much relief though as it's down a touch this morning. This was the first cut in monthly buying this year.

Between this action and the more hardened words from Governor Ueda and what was seen in the BoJ minutes from their prior meeting, they seem to be getting closer in matching their words with actions on stopping the yen weakness and following the FX intervention. We are warming up to the yen and bought a new Japanese stock last week.

10 yr JGB Yield

The only two conference calls of note on Friday were in the service and experiential businesses.

From Soho House with their membership and attendant spend in their Houses as their revenue drivers. Memberships were pretty consistent but "What we've seen is where members come in, they're just spending a little bit less, a little bit more cautiously. We talked on the last call, I think about dry January. 

The good news is that we have definitely been seeing it get better sequentially throughout the year. I don't want to talk about weather. It's all about what we can do with our members and the trend is improving, especially through March and April, and into May." Keep in mind though, in house spending was still down year to date thru April, they were just less down as each month progressed in the quarter and into April.

Also, they are not seeing any differences in business geography wise as "It's all very similar across every single region from Asia to America to Europe to the UK."

From Sphere Entertainment, a venue I'll finally see for the first time next month when Dead & Co comes to town.

"For the third quarter (of their fiscal yr), Sphere welcomed nearly 1 million guests to more than 270 events. This event volume once again far exceeded the world's busiest venues." Their 'Sphere Experience' featuring Postcards from Earth, did $1 million in average daily ticket sales. Also, U2 did 40 shows, Phish sold out 4 nights "in less than one hour, and Dead & Co has already extended their upcoming residency."

Bottom line, spend on experiences continues to the better part of the US economy.

Back overseas, China's April CPI was up .3% y/o/y, up from .1% in March and vs the estimate of up .2%. Taking out food and energy prices saw core CPI up .7% y/o/y and actually has been pretty stable around these levels for a while now.

PPI was down 2.5% y/o/y and continues to be a symptom of the slowdown in manufacturing being seen globally.

China also reported a sharp slowdown in money supply growth with M2 rising 7.2% y/o/y, down from 8.3% in March and vs the forecast of 8.3%. Also, and something that hasn't happened since 2005, aggregate financing shrunk in April from March. At 12.73 trillion yuan year to date thru April, it's about 1 trillion below expectations and down from March. Corporate, household and government borrowing all were soft and a continued sign of deleveraging that is going on there, whether via choice or by distress.

The Hang Seng by the way was up another .8% overnight and now higher by 12.1% year to date. We remain bullish and long.

The S&P Short Range Oscillator has dropped from 6.69% to 5.84%.

View larger here.

View larger here.

Upside

-ACIU +50% (AC Immune and Takeda sign exclusive option and License Agreement for active immunotherapy targeting Amyloid Beta for Alzheimer’s Disease; reports earnings)
-GME +34% (meme stock momentum)
-CCLD +20% (releases details regarding its receipt of an unsolicited, non-binding indication of interest dated Mar 4th to acquire the Company for $5.00/shr of its common stock)
-FULC +14% (enters collaboration and license agreement with Sanofi for development and commercialization of Losmapimod in Facioscapulohumeral Muscular Dystrophy; reports earnings)
-AMC +13% (meme stock momentum)
-SQSP +13% (to go private by PE firm Permira at $44.00/shr in cash in $6.9B deal)
-OKLO +8.2% (signs MOU with Atomic Alchemy to collaborate on isotope production)
-ANNX +7.4% (earnings)
-RXRX +6.4% (completes NVIDIA-Powered BioHive-2, the largest supercomputer in pharmaceutical industry)
-INCY +6.0% (to buyback $2.0B of common stock)
-BZFD +5.5% (meme stock momentum)
-RPHM +4.4% (Reneo Pharmaceuticals and OnKure announce proposed merger)
-ARM +3.2% (reportedly plans to launch its own AI chips by fall 2025)
-ARQT +2.9% (expert panel review further validates use of ZORYVE Topical Foam, 0.3% for Treatment of Seborrheic Dermatitis Across Diverse Hair Types Published in Journal of Clinical and Aesthetic Dermatology)
-BMRA +2.9% (announces in Foods IBS Pilot launch with prominent 1.1K member physician group commencing June 2024)
-ATNM +2.8% (announces Multiple Abstracts Highlighting its Antibody Radiation Conjugates Iomab-B and Actimab-A and Novel Linker Technology for Solid Tumors Accepted for Presentation at the 2024 Society of Nuclear Medicine & Molecular Imaging Annual Meeting)
-SNTI +2.2% (earnings; First patient dosed in Phase 1 clinical trial of SENTI-202 for treatment of Relapsed or Refractory Hematologic Malignancies Including Acute Myeloid Leukemia)
-TME +2.0% (earnings)

Downside

-FTRE -11% (earnings, guidance)
-BROS -3.0% (downside momentum)
-PENN -2.5% (hearing Tier 1 firm cuts rating to Neutral from Buy)
-BTDR -2.2% (earnings)
-IEP -2.2% (intends to offer new $500M senior unsecured note offering due 2023 in private placement)
-NVTS -2.0% (delays 10Q citing material weaknesses in internal control over financial reporting have been identified)
-MKSI -1.9% (files to sell $1.0B of convertible senior 2030 notes in private offering) 

Just when the consensus appears to be giving up on the notion of a consumer-led domestic economic downturn it is time to revive those concerns.

There are several factors that are contributing to my expectation of a downturn in personal consumption expenditures:

* The cumulative pandemic-era of excess savings has been depleted:

* The shocking impact of "stacked inflation" since 2020 is beginning to be felt by the consumer - witness disappointing results at Nike  (NKE) , McDonald's  (MCD) , Starbucks  (SBUX) , Xponential Fitness  (XPOF) , Disney  (DIS)  and other recently reporting companies.

* As detailed below, there are numerous reasons why interest rates will likely remain higher for longer.

* Shrinkflation is here to stay as consumers get less for more:

* The inflationary impact of lagging expenses - like property, health and auto premiums - are only now beginning to be felt. Last week's data indicated that inflationary expectations are RISING.

* Deglobalization, continued service inflation and other factors will insure the sustenance of relatively high consumer prices and limit the extent of possible monetary ease.

* Fiscal policy - whether in the hands of Biden or Trump - will be constrained in the years ahead. There is not nearly as much scope for fiscal expansion as either had at the start of their respective presidencies.

* The specter of higher individual tax rates lies ahead in order to finance the burgeoning US deficit and out of control US debt.

* Mortgage rates are climbing and home affordability is worsening:

* Consumer spending is increasingly skewed towards the wealthy - just look at consumers' recent trade down from beef to chicken(!) and to cheaper private label products:

I am short a number of consumer equities, I plan to short more.

From our own Bobby Lang in his latest Bearish Bets column:

Just an atrocious move down for Disney  (DIS)  as the stock had a poor reaction to good earnings. Guidance was weaker than expected here, but the CEO Bob Iger said the track to profitability was positive but there will be lumpiness. That was probably the case this past quarter, but a drop on heavy volume is serious business. 

We don't believe there is a buying opportunity here on Disney for some time. In fact, the 200-day moving average is not far away for a test at the $95 level.

View larger here.

Money flow is bearish and the MACD (moving average convergence divergence) which had been uber bearish already, renewed a sell signal. Clearly money is flowing out of Disney, and there is good reason to follow along this path. RSI at the top is very weak, and Disney is not even oversold yet.

We could look for that 200-day moving average level of $95.7 as a target. Put in a stop at $110 just in case, but DIS looks like it will move substantially lower.

DEA appears to question marijuana's medical value.

B Riley downgrades Xponential Fitness  (XPOF)  to neutral and reduces price target to $9.

“We decided that systematic trading was best. Fundamental trading gave me ulcers.”
- Jim Simons (RIP)

Bonus - Here are some great links:

AlphaTrends 

The Year of the Utes? 

Gold Miners Set New Highs 

Something Incredible is Happening in China   

The Important Message From Charts 

Wolf Street howls about how homeowners get to pay interest and fees on their own money.