DAILY DIARY
Closing Market Internals
- NYSE volume 440M shares, 7% above its one-month average;
- NASDAQ volume 4.46B shares, 18% below its one-month average
- VIX up 1.55% to 13.12
Market Breadth
Nasdaq 100 Heat Map
After-Hours Movers
As of 4:23 p.m.:
Fingers and Toes Crossed
There was some late-day volume in Occidental Petroleum (OXY) .
Minding Mr. Market
The market over the last two trading sessions had more moves than a shortstop batting .110!
With machines and algos being the tail that wags the dog — very short-term moves are not predictable.
Bad News Was Good News
Weaker-than-expected economic data helped bond prices to rise (and yields to decline) — likely supporting equity prices from the potential breakdown that appeared late in the morning near the lows.
Nonetheless, the equal weighted S&P Index (RSP) fell by about -0.66% (at 3:35 p.m.), 3x worse that the small drop in the S&P Index and compared to a small (+0.15%) rise in the Nasdaq.
Breadth numbers will be delivered after the close.
I close the day not short any Index vehicles or instruments.
Two new positions, (OXY) (previously very very small) and (MSOS) (and constituents (TCNNF) , (GTBIF) and (CURLF) ) were put into my portfolio today.
From the Fed Whisperer
Now Large-Sized Occidental
I have moved to large-sized (OXY) ($60.30).
Buying Cannabis Equities (Again)
* Working with a $7.70 limit.
As suggested in my most recent cannabis column (last week) I am reloading in (MSOS) — with a much improved upside reward vs. downside risk (having declined from nearly $12/share recently).
More to come in the next day or so.
Boockvar on ISM Manufacturing
From Peter Boockvar:
ISM Mfr'g, the bounce along the bottom continues.
Following weakness seen in the regional manufacturing surveys, the May ISM manufacturing index stayed below 50 at 48.7 vs 49.2 in April and below the estimate of 49.5.
New orders were particularly weak, falling by 3.7 pts m/o/m to 45.4, the weakest in a year. ISM said, “Panelists indicated that the months of April and May experienced a slowing compared to the beginning of the year as housing, construction and capital expenditures activity continue to underperform.” Backlogs fell by 3 pts to just 42.4, the lowest since last November. There was little change with the inventory picture both at the manufacturing side and at customers as both came in below 50 at 47.9 and 48.3 respectively. Export orders rose 1.9 pts to back above 50 at 50.6 after falling by 2.9 pts last month. Supplier deliveries were unchanged at just under 50 while prices paid slipped by 3.9 pts to a still elevated 57, the 2nd highest read since the summer of 2022.
Employment was a positive, rising 2.5 pts to back above 50 for the first time since last September at 51.1. However, the ISM said this on the jobs picture, “Many Business Survey Committee respondents’ companies are continuing to reduce head counts through layoffs (which accounted for 38 percent of reduction activity, down from 50 percent in April), attrition and hiring freezes. Panelists’ comments in May indicated an increase in staff reductions compared to April.” 7 industries of 18 added staff vs 4 in April and 7 in March.
In terms of overall breadth, 7 of 18 industries surveyed saw growth, down from 9 in the two prior months and that is the least since January. Those seeing growth in new orders shrunk to just 4 from 8 in April and 12 in March.
The bottom line from the ISM, “Demand remains elusive as companies demonstrate an unwillingness to invest due to current monetary policy and other conditions.”
My bottom line, while I believe US manufacturing, and globally too, are putting in a bottom, at least in the US there is no sign yet of an inflection higher which would initially take place by an inventory restock, when it occurs.
The chemical industry is an amazing tell on the US manufacturing sector as their products go into everything. This from a company in that industry
“Seems like a minor slowdown is happening. With less spending in the economy, less pressure on us for our products.”
Some other comments of note:
“Business conditions are pacing with budget and forecast for 2024. Certain markets are soft, but others are ahead of forecast, allowing us to maintain overall. Concerns with the economy continue to drive business decisions.” [Transportation Equipment]
“Volume continues to be challenging, mostly due to inflationary impacts.” [Food, Beverage & Tobacco Products]
“Orders have started to rebound, but inventory levels remain high enough for no impact on our supplier orders. It will take a few more strong months before supplier orders are reactivated or increased.” [Computer & Electronic Products]
“Backlog is dwindling as we get caught up on orders; new orders are not coming in as robust as the backlog is going down. Inflation continues to be a problem with pricing of raw material and interest rates. We expect a flat rest of calendar year 2024, especially given that it’s a presidential election year.” [Machinery]
“Export shipments continue to be soft as capital equipment sales remain lower than forecast. As a result, production is also trending lower and inventory that is not able to be pushed out is growing.” [Fabricated Metal Products]
“Demand has been strong the first few months — ahead of budget, consistent with last year. Bookings are starting to slow down for May and June. We are monitoring this data closely to determine if it is a sign of decline or our typical cyclical demand.” [Electrical Equipment, Appliances & Components]
“Business is picking up, with incoming bookings increasing.” [Furniture & Related Products]
“General concern about overall industry economics. Pricing weakness continues, and we anticipate more headwinds in the coming months for spot orders and inflation. Contract order book remains steady.” [Primary Metals]
ISM Mfr’g
New Orders
Prices Paid
This Man Is Dangerous to Your Investment Well Being
Covering SPY and QQQ Shorts
In the intraday reversal, I just covered my (SPY) ($525.61) and (QQQ) ($451.22) shorts — for a quick profit. I am out of all Index positions now....
From earlier today:
Friday's and Monday's Premarket Trading
I say some of the last-half-hour rally on Friday will be repealed...
* Shorted SPY $528.60.
* Shorted QQQ $453.42.
OY... I Mean OXY!
OY... I Mean OXY!
I have moved to medium-sized Occidental Petroleum (OXY) (cost basis today $61.11).
Nothing But Algos
I am using the gap higher to add to my short exposure.
Microsoft (MSFT) looks like it is leading the small correction from the highs — after a computer-inspired and strong opening (extending Friday afternoon's reversal).
Roaring Kitty
The interesting thing is if "Roaring Kitty" has that kind of money (evidenced by a position size of $115 million of stock plus the options), it is clear he is flipping out of his position every time he does this.
If he held, he would have no money, like the other idiots that pile in after the fact.
Given it is now obvious he is using his status to take advantage of people (granted not his fault people are lemmings), and flip out, it is amazing people are still willing to pile in on the back of this guy.
The options are further proof of what he is doing.
There is no other catalyst for the options beyond his own actions. Then he sells, obviously, otherwise he wouldn’t have any money. People are signing up to lose money to this guy now…
Most Active Pre Market ETFs
As of 8:24 a.m.:
Pre Market % Movers
At 8:45 a.m.:
Select Premarket Movers
Upside
-GME +79% (meme trader Roaring Kitty discloses $181M position)
-BPTH +66% (presents data from Ongoing Phase 2 Combination Study of Prexigebersen for Treatment of Acute Myeloid Leukemia at American Society of Clinical Oncology (ASCO) Annual Meeting)
-HZO +17% (said to be subject of acquisition by OneWater for all-cash offer of $40.00/shr)
-SRCL +16% (confirms to be acquired by Waste Management for $62.00/shr in deal valued at $7.2B)
-GPCR +11% (reports positive topline data from Phase 2a obesity study and capsule to tablet PK study for oral non-peptide small molecule GLP-1 receptor agonist GSBR-1290)
-LQDA +11% (court denies United Therapeutics’ motion for injunction to block YUTREPIA launch)
-SMMT +8.1% (sells 22.2M shares at $9.00/shr in $200M capital raise; expands license territories for Ivonescimab)
-ADSK +7.6% (earnings, guidance)
-CLDI +7.1% (presents CLD-101 Phase 1 Trial Update and Preclinical Data Highlighting RTNova and CLD-201 at 2024 ASCO Annual Meeting)
-NEGG +6.7% (launches SellingPilot, a new SaaS platform designed to revolutionize multichannel marketplace management for sellers)
-PARA +5.4% (Skydance said to revise offer for holders at $15/shr; a 26% premium to Friday's close)
-SPOT +5.1% (raises Premium prices by ~10% in US)
-MSTR +3.9% (MicroStrategy and its founder settle tax case for $40M regarding income tax fraud)
-EW +3.6% (BDX to acquire Edwards' Critical Care product group, a global leader in advanced monitoring solutions, for $4.2B in cash-debt)
-COHR +3.5% (names James R. Anderson as CEO, effective Jun 3rd)
-NVDA +3.5% (momentum following announcements regarding development of new AI chips)
-ARWR +2.7% (Plozasiran Pivotal Phase 3 PALISADE Study met primary and all key secondary endpoints in patients with Familial Chylomicronemia Syndrome)
-JBLU +2.5% (raises Q2 guidance)
-BDX +2.2% (to acquire Edwards' Critical Care product group, a global leader in advanced monitoring solutions, for $4.2B in cash-debt)
-AMD +2.0% (momentum following announcements regarding development of new AI chips)
-MLCO +2.0% (Board approves new $500M share buyback program)
Downside
-SAM -12% (Japan’s Suntory said not in talks to acquire company)
-GSK -8.5% (announces updated, longer-term results from Phase 2 Jemperli study)
-ONEW -5.2% (HZO said to be subject of acquisition by OneWater for all-cash offer of $40.00/shr)
-PETS -4.5% (CFO to step down; names Caroline Conegliano as COO)
-PNW -3.9% (files to sell $450M of convertible senior notes due 2027)
-CAVA -2.2% (JPMorgan Chase and Co Cuts CAVA to Neutral from Overweight, price target: $77)
The Book of Boockvar
From Peter Boockvar:
A bunch of interesting things here on home prices, credit spreads, CRE debt, rig counts, U-Haul, & signs of mfr'g recovery.
You want to reignite the talk of a July Fed rate cut? Maybe a 4% handle on Friday's payroll unemployment rate will do it, especially as the March dot plot has a year end 2024 median unemployment rate estimate of 4%. The current estimate is 3.9% which happens to be the highest since January 2022.
Why are so many frustrated by the economy as seen in polls? It's obviously inflation but in particular the high cost of housing, whether to buy or rent. I decided to look at the S&P CoreLogic Case Shiller index to see where it would be if it remained on trend since the beginning of the data in 1987. Just drawing a simple trend line has this index 85% above the trend line. It was 50% above in 2007 for reference and got back to it in 2012 when prices collapsed. The 2nd chart is a trend line I drew for the median home price within the existing home sales data. It's 63% above its trend line vs the 33% it was in 2007.
So when you hear your baby boomer relative tell you that 'when I was your age I had a 12% mortgage rate', the price paid then for a home was much cheaper relative to one's income.
S&P CoreLogic Home Price Index
Existing Home Sales Median Home Price
I haven't mentioned it in a while but wanted to circle back to the CCC rating category of high yield and quietly the spread to Treasuries looks like it's carving out a bottom at 803 bps, it's the highest since late April. It still is VERY tight but something to keep our eye on. Putting aside spread and looking at the yield itself, it's at 12.8%, expensive.
CCC Credit Spread to Treasuries
After a pretty steady rise over the last few years as loan commitments given prior to 2022 were likely satisfied, commercial real estate bank loans saw its biggest one week drop outstanding for the week ended 5/22 since March 2023, when SVB blew up, to $2.99 trillion. Something to watch.
US Bank Real Estate Loans Outstanding
As OPEC is about to extend its production cuts well into 2025, the US crude oil rig count fell last week to match the least since November 2023. At 496, it is just 2 rigs from matching the lowest since January 2022. The natural gas rig count is 1 rig off the lowest since October 2021. We remain bullish and long energy stocks, both oil and gas.
US Crude Oil Rig Count
US Natural Gas Rig Count
An earnings conference call that I always find interesting but its never really given much broader attention is from U-Haul, the moving and storage company. They said this last week:
"So far consumers remain cautious in our experience...when I said I think the consumer is still pretty conservative, that really results in less miles per rental. People still move because moving is a need and it's based on things like marriages, births, deaths, these things are inherently kind of smooth. They don't have a lot of peaks and valleys and they steadily increase over time. But how far people move and therefore, how big the dollar amount of the transaction has something to do with just how they feel about life.
They think it's great, I'm going to go on my big adventure and move to San Diego and start a new career. Well, great. That'll be great for us. But when they get more conservative, they say, well, I'm going to move to another house in the neighborhood, keep the kids in the same school, keep my present job. So that just shortens the move and to a large extent, we have to recover costs based on mileage incurred because our costs very much vary with mileage incurred.
So I don't see a big shift. I thought we would pick up a little bit quicker than we have. And I'm still expecting we're going to see this shift. We're not running behind this year, but we're running I think a little bit behind historical trends or at least how I have anticipated they would play out and we'll see the housing turnover or whatever it's called has some modest effect on it, but I think how people feel about the economy and this whole life situation has a greater effect than residential new home sales."
Based on the May global manufacturing PMI's seen, it seems that the bottoming process is continuing and with some modest improvement with now most above 50 again. Here are some seen today, South Korea 51.6 vs 49.4, Taiwan 50.9 vs 50.2, Indonesia 52.1 vs 52.9, Philippines 51.9 vs 52.2, India 57.5 vs 58.4, Japan 50.4 vs 49.6, Australia 49.7 vs 49.6 and the private sector focused Caixin China mfr'g PMI at 51.7 vs 51.4 (in contrast to the drop seen in the state weighted one).
With the China read, "Businesses grew more optimistic, with the corresponding indicator indicating slightly from the previous month. Surveyed companies had high expectations for improvements in domestic and foreign demand in the following year." On pricing, "Input costs rose at the fastest pace in 7 months, though the increase was modest. Some surveyed companies attributed higher input costs to the rising prices of industrial metals, plastics and crude oil. Sales prices continued to decline amid intense market competition. However, factory gate prices for intermediate goods ticked up."
On Taiwan S&P Global said, "The steady improvement in Taiwan's manufacturing economy continued during May. Growth rates of output and new orders both picked up and, although modest, signified a noticeable turnaround from the moribund performances of the last couple of years. There were reports that domestic sales had improved, though noticeably export performance remained subdued as firms pointed to continued softness in global manufacturing demand."
In South Korea they said, "South Korea's manufacturing sector appears to have caught a 2nd wind. After recovery efforts appeared to have plateaued recently, growth surged in May as stronger demand conditions, both domestically and abroad, drove production growth to its strongest in nearly three years."
The May Eurozone manufacturing PMI was revised a touch to 47.3 vs the initial read of 47.4 but up from 45.7 in April and the best read since February 2023. The final figure for the UK was 51.2 vs 49.1 in the month before.
So the ECB on Thursday will cut rates just as their manufacturing sector is showing some signs of life and commodity prices are near the highest since August 2022.
The Market as a Casino
* I'm shocked! Shocked to find that gambling is going on in here.
"The world is a perpetual caricature of itself; at every moment it is the mockery and the contradiction of what it is pretending to be."
- George Santanyana
From my perch the market has lost its moorings and, with ever more frequency, market gyrations are being exaggerated (especially over the short-term) and influenced by non fundamental factors. Indeed, the market has become casino-like:
* Market Structure — The proliferation of passive products and strategies (principally adopted and implemented by algos and machines) are the tail that wags the market's dog. These vehicles know everything about price but nothing about value. (It also creates an opportunity for those that have a good view on value to capitalize upon).*
*The New Paradigm of AI — This phenomenon is leading to varying degrees of speculation as traders/investors buy/embrace and will wait to ask questions later.
From Bob Farrell:
Rule #3 There are no new eras – excesses are never permanent.
Translation: There will be a hot group of stocks every few years, but speculation fads do not last forever. In fact, over the last 100 years, we have seen speculative bubbles involving various stock groups. Autos, radio, and electricity powered the roaring 20s. The nifty-fifty powered the bull market in the early 70s. Biotechs bubble up every 10 years or so and there was the dot-com bubble in the late 90s. “This time it is different” is perhaps the most dangerous phrase in investing.
As Jesse Livermore puts it:
A lesson I learned early is that there is nothing new in Wall Street. There can't be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again.
Bob warns:
Rule #9 When all the experts and forecasts agree – something else is going to happen.
Translation: This rule fits with Farrell's contrarian streak. When all analysts have a buy rating on a stock, there is only one way left to go (downgrade). Excessive bullish sentiment from newsletter writers and analysts should be viewed as a warning sign. Investors should consider buying when stocks are unloved and the news is all bad. Conversely, investors should consider selling when stocks are the talk of the town and the news is all good. Such a contrarian investment strategy usually rewards patient investors.
* Gambling in ODTE Options — With more than half of the daily trading options of a maturity of less than 24 hours, a casino-like backdrop has developed. Moreover, the markets are more easily manipulated for short-term gains.
This all reminds me of the classic scene in the movie Casablanca:
Rick: How can you close me up? On what grounds?
Captain Renault: I'm shocked! Shocked to find that gambling is going on in here.
[a croupier hands Renault a pile of money]
Croupier: Your winnings, sir.
Captain Renault: [sotto voce] Oh, thank you very much.
[aloud]
Captain Renault: Everybody out at once.
Speaking of gambling...
* Gambling on Meme Stocks — This morning the shares of GME have nearly doubled. However, those traders who cannot remember the past are condemned to repeat it.
More Bob:
Rule #5 The public buys the most at the top and the least at the bottom.
Translation: The average individual investor is most bullish at market tops and most bearish at market bottoms. The survey from the American Association of Individual Investors is often cited as a barometer for investor sentiment. In theory, excessively bullish sentiment warns of a market top, while excessively bearish sentiment warns of a market bottom.
* Fear of Missing Out — And all I can say here is that emotion is not an ideal characteristic of a trader or investor.
Again from Bob Farrell:
Rule #6 Fear and greed are stronger than long-term resolve.
Translation: Don't let emotions cloud your decisions or affect your long-term plan. Plan your trade and trade your plan. Prepare for different scenarios so you will not be taken by surprise with sharp adverse price movement. Sharp declines and losses can increase the fear factor and lead to panic decisions in the heat of battle. Similarly, sharp advances and outsized gains can lead to overconfidence and deviations from the long-term plan. To paraphrase Rudyard Kipling, you will be a much better trader or investor if you can keep your head about you when all about are losing theirs. When the emotions are running high, take a breather, step back and analyze the situation from a greater distance.
Charting the Technicals
"Know how to listen, and you will profit even from those who talk badly."
- Plutarch
Bonus - Here are some great links:
June Markets Better During Election Years
Why There Won't Be a June Swoon
Higher Rates and Their Impact on Trading
Friday's and Monday's Premarket Trading
I say some of the last-half-hour rally on Friday will be repealed...
* Shorted SPY $528.60.
* Shorted QQQ $453.42.
On Friday afternoon I added to Occidental Petroleum (OXY) and DraftKings (DKNG) longs.
I reduced my Exxon (XOM) and Chevron (CVX) longs at the close.
I added to my Trump Media & Technology (DJT) short.
I also initiated a very small Paramount Global (PARA) long.
Oscillator Less Oversold
The S&P Short Range Oscillator became less oversold at -1.72% vs. -3.19%.
Cartoon of the Day (Friday)
More Casino Action
More casino-like market action:
The Casino Is Open
And the casino is open:
More on the market as a casino in my opening comments.