DAILY DIARY
Thanks for Reading
Thanks for reading my Diary, I hope it was useful.
Enjoy the evening.
Be safe.
Closing Market Internals
Closing Volume
- NYSE volume 377M shares, 7% below its one-month average;
- NASDAQ volume 4.08B shares, 26% below its one-month average
- VIX: down 0.32% to 12.59
Breadth
% Movers
Nasdaq 100 Heat Map
After-Hours Movers
I've Got a New Position
New position: Short Invesco S&P 500 Top 50 ETF (XLG) at $44.37.
Action Jackson
Energy gets a bid.
Financials (especially of a private equity-kind), pharma/biotech and utilities for sale.
Coming Up Friday
Tomorrow morning I will start out with my opening missive which will explain the case for accumulating an INVESTMENT position in cannabis stocks in June and July —during which the comments period for rescheduling of cannabis to Schedule 3 takes place.
Now My Largest Long Position
Occidental Petroleum (OXY) is now my largest individual long position.
Absurd Squared
Added to My Index Shorts
I have added to my SPY and QQQ common shorts at $534.14 and $463.72, respectively.
DraftKings Bottom?
DraftKings (DKNG) looks like it might have made a short-term bottom.
Oil Is Getting Jiggy
Crude oil is getting jiggy.
Update on OXY, Energy
Crude was slightly lower in the morning and is now +$1.07/barrel.
(OXY) is my Trade of the Week. I have been adding all morning (I have increased (CVX) , (XOM) all week).
Tweet of the Day
Good stuff from Bramo:
A Mistake
My (XLU) short cover yesterday (for a modest profit) will likely prove sub-optimal.
Andy Rooney on D-Day
Though not market relevant this is wonderful:
I will be at Normandy (and Dunkirk) in August.
My Trade of the Week
Our Trade of the Week: Buying Occidental Petroleum (OXY) ($59.99)
Rationale:
* Back to Berkshire's (BRK.A) (BRK.B) "buying zone."
* Crude oil and energy equities are oversold,
* OXY shares are down from $71 to $60 — a more favorable upside reward vs. downside risk ratio.
Boockvar on the ECB, Jobs Data
From Peter Boockvar:
ECB, an easing or just less restrictive?/Jobs data, including Challenger
The most noteworthy line in the ECB statement, “now appropriate to moderate the degree of restriction” and they are not “pre-committing to a particular rate path” which means that we don’t know yet when the next rate cut will be and don’t assume there will be another one in July. Also, they raised their 2024 and 2025 inflation estimates. All of this was meant to satisfy the hawks on the committee. Bond yields are higher in response and the euro is up too. US Treasury yields are moving up also in sympathy.
Initial jobless claims rose to 229k from 22k1 and that was 9k more than expected. As a 232k print dropped out, the 4 week average fell by 1k to 222k. Of note, continuing claims remained elevated at 1.792mm, up slightly w/o/w.
The bottom line, seemingly confirmed below, remains that the pace of hiring’s is slowing while firing’s remain low. That said on firing’s, the 4 week average in initial claims are just off the highest since last September.
Also out this morning was the May Challenger Jobs Report where they said announced job cuts fell 1.5% m/o/m and lower by 20% y/o/y. Year to date thru May, firing’s are down 7.6% and tech continues to lead the way in cuts. This squares with the still muted level of initial jobless claims. The growing issue however is the slowing demand for workers as Challenger also said “hiring announcements are at their lowest level in a decade. The typical churn in a healthy labor market appears to be stalling.”
The Book of Boockvar
From Peter Boockvar:
Container prices continue to spike/Make sure to read the retailer comments, "Everyone loves a bargain and Bargain is our middle name"
World container prices continue to spike higher and the problem is not just the lengthier trips but also the lack of containers in China as empty ones don't come back to them as fast as they did. The Shanghai to Rotterdam trip was up 15% w/o/w to $6,032, higher by $762 on the week. It's doubled since late April and is up from $1,667 at year end. That's also triple where it was in February 2020, though still well below the panic peak in 2021 of $14,807. The Shanghai to LA trip was higher by 11% w/o/w to $5,975.
While I see certain inflation pressures are definitely receding, others are not and reiterate my belief we are in a new world of greater inflation volatility and the days of consistent 1-2% inflation are over for a while.
By the way, this was the wording on inflation from the S&P Global services US PMI seen yesterday. "Despite lower employment, wage pressures remained a key factor pushing up input costs, which increased sharply again in May and promoted a faster increase in selling prices, providing further evidence that inflation remains sticky."
WCI Shanghai to Rotterdam
WCI Shanghai to LA
With the S&P 500 and NASDAQ closing at fresh highs, though the Russell continues to badly lag, let's do a stock market sentiment check. The Citi Panic/Euphoria index seen on Saturday remained in Euphoria land, though a touch less so vs the previous week. The Bull/Bear spread in the Investors Intelligence survey dipped slightly below the extreme read of 40 as Bulls fell .6 pts to 57.6 and Bears were up .3 pts to 18.2 (this was as of Friday). AAII saw no change in Bulls at 39 while Bears rose by 5.3 pts to 32 (this was as of Monday). The CNN Fear/Greed is in the Neutral camp at 45.
Bottom line, putting aside still squishy breadth, with the headline indices the bulls certainly continue to be right as AI excitement from and front running the hopes for rate cuts power us higher. With Nvidia, just looking at the chart and another parabola is being formed fyi.
We know the ECB will cut 25 bps today and we'll see what talking points Christine Lagarde uses, encouraged by the Germans, that the pace of rate cuts will be gradual and another one won't necessarily be followed up in July. With regards to the Bank of Canada's expected move yesterday, the simple reason they gave was "With continued evidence that underlying inflation is easing..." Pointing also to a gradual, uneven likely pace of rate cuts, "Nonetheless, risks to the inflation outlook remain." QT continues on as "The Bank is continuing its policy of balance sheet normalization," a slight tweak in wording from the prior meeting statement.
On to some earnings calls.
From Dollar ($1.25) Tree who is now looking at possibly spinning out Family Dollar:
"In both segments, comp growth was driven by traffic gains that were partially offset by lower average tickets. The average ticket declines reflected weaker discretionary demand, particularly in the Dollar Tree segment."
Quantifying the continued prioritization in spend, "Dollar Tree's consumable comp was 7.4% and its discretionary comp declined 3.2%." With Family Dollar, the consumable comp was up 1.4% and its discretionary comp was down 4.7%.
They blamed some of the slower discretionary trend on the timing of Easter as "recent consumer research showed that Easter gatherings were down 20% this year and that 6 million fewer American households purchased Easter products in 2024." And, "We also saw related softness in non-Easter discretionary categories, like garden supplies, outdoor, toys, and other seasonal items."
"And we're definitely seeing the customer right now buying a little more on promotion. And it's not that there is more promotional activity, but what the customer is actually buying is items on promotion."
From Five Below:
They reported a 2.3% drop in comp store sales and "These results fell short of our expectations as we experienced a meaningful slowdown in sales during the back half of the quarter."
And why? "First, our negative comp results were driven by a decline in comp transactions. Second, consumers were more discerning with their dollars, increasingly buying to need. We saw this in the types of products they purchased, choosing more items in our version of consumable categories, such as candy, food and beverage, beauty...Additionally, declining sales and older merchandise trends presented greater comp headwinds than planned."
"Finally, we achieved positive comps in our higher income cohorts, suggesting some trade down of these customers seeking value at our stores. However, we saw underperformance in the lower income demographic that more than offset these results."
And lastly, "The quarter solidified that consumers are feeling the impact of multiple years of inflation across many key categories such as food, fuel and rent, and are therefore far more deliberate with their discretionary dollars...I would also call out that the slowdown we experienced was across all geographies, further suggesting there was a broader macro impact."
I'll add this. We might get some rate cuts, but this type of stuff will likely be the reason why.
From Lululemon:
Their international business, including China, grew faster than in the US.
With regards to the US, "As we mentioned on our last call, we've seen a slower start to the year due to several internal factors, including missed opportunity in women's and bags, which we are actively addressing, and some ongoing choppiness in the consumer environment. Our men's business has maintained its momentum."
As we heard the word 'dynamic' from others, "the consumer environment in the US is dynamic" which seems to be code word for 'choppy.'
From Ollies Bargain Outlet:
"Consumers clearly remain under pressure and are seeking value in making their purchases...Everyone loves a bargain and Bargain is our middle name."
"We're continuing to see a trade-down of higher income consumers. The sweet spot looks to still be the $100,000 to $150,000 household income range, and our lower income cohort is relatively stable. I mean, keep in mind that we're underpenetrated in lower income consumers compared to others, but it's been relatively stable...with the consumers being stretched, in our opinion, value's going to win."
From Thor Industries, the RV maker:
"In our fiscal 3rd quarter, our independent dealers experienced increased retail activity during the Spring selling season; however, conversion to sales remained difficult in light of the economic pressures on retail buyers. Faced with elevated floor plan interest rates, our independent dealers remain understandably cautious with their ordering patterns; consequently, our independent dealer inventory levels remain suppressed."
From Campbell Soup:
"I want to go into more detail about the current consumer environment. Unquestionably, as prices have begun to moderate, consumers are starting to recover. This is substantiated by the first improvements in consumer confidence in a long time. In addition, we are seeing significant growth in the percentage of the top 50 edible categories that are maintaining or increasing household penetration compared to the same period last year. Most importantly, we are seeing food volume stabilize as pricing normalizes. Yet it is fair to say that the pace of this recovery has varied depending on the specific category and the consumer's income level. For example, our snacks business, which has been the most resilient to date, is now facing some short term pressure, especially among lower and middle income consumers."
As read above, Five Below and Dollar Tree said their food/consumable business did better than other categories, particularly discretionary.
The only thing of note and ahead of the ECB rate cut, German factory orders in April were weak, falling .2% m/o/m vs the estimate of up .6% and March was revised down by 4 tenths to a drop of .8%. The economy ministry said "The negative trend that has persisted since the beginning of the year is thus continuing, albeit at a much slower pace."
Richard Bernstein on My Opener
From my long-time pal Richard Bernstein (in response to my NVDA opener):
I love that all these professed “historians” of the market leave out the megacap/largecap stocks from the 2000 Tech Bubble that simply don’t exist anymore.
EMC was supposed to the storage play. The internet would yield tons of data that would need to be stored. The data supposition was true. Unfortunately, no one anticipated the cloud. Whoops.
Most Active Premarket ETFs
At 8:14 AM:
Premarket % Movers
At 8:29 AM:
Select Premarket Movers
Upside:
-VNDA +25% (Cycle confirms all-cash proposal to acquire Vanda Pharmaceuticals for $8.00/shr)
-SMAR +13% (earnings, guidance)
-SCWX +11% (earnings, guidance)
-LULU +9.3% (earnings, guidance)
-SMTC +8.0% (earnings, guidance)
-RLAY +5.6% (announces clinical trial collaboration with Pfizer to evaluate Atirmociclib in combination with RLY-2608; discloses three new programs at new program & platform event)
-GIII +5.4% (earnings, guidance; signs strategic partnership and investment in All We Wear Group for an ownership stake of ~12%)
-ABM +4.7% (earnings, guidance)
-RNW +3.9% (earnings, guidance)
-SEE +3.0% (Mizuho Securities Raised SEE to Buy from Neutral, price target: $50)
-HOOD +2.9% (acquires global cryptocurrency exchange, Bitstamp for $200M in cash)
-GEF +2.0% (earnings, guidance)
-SJM +2.0% (earnings, guidance)
Downside:
-CXM -23% (earnings, guidance; Sprinklr and Reddit expand strategic partnership to help connect enterprises with Redditors)
-BIG -17% (earnings, guidance)
-FIVE -17% (earnings, guidance)
-LPG -9.4% (priced 2M share offering at $44.50/shr)
-ANNX -5.4% (prices 13M shares at $6.25/share)
-VSCO -4.0% (earnings, guidance)
-DX -3.8% (files to sell 10.5M share public offering of common stock)
-CHPT -3.5% (earnings, guidance)
-NIO -3.0% (earnings, guidance)
-PGY -3.0% (FY24 guidance)
-BASE -2.5% (earnings, guidance)
-AEYE -2.3% (files to sell $7M in stock)
-SMG -2.0% (cuts FY24 guidance)
Today's Economic Calendar
Opening Up the NVDA Debate
Masterhedge
25 minutes ago
Doug, thanks for opening NVDA to debate.
I think one of the keys to unlocking further upside in the medium term will be the markets realization that this is more than a chip company. In the same way $AAPL traded at 12x earnings and was considered primarily a hardware business the key for NVDA is to transition to a SAAS software valuation as the market works out the earnings power from renting out the chips. This past weeks Computex Taiwan conference really highlighted again just how far behind the competition is and the derivative plays are really quite sub-optimal - $AMD etc.
Many public equity long only managers are in a no-win situation with its ballooning weight in indexes. The vast majority remain underweight and the career risk is becoming intolerable.
Short-term (next 2-4 weeks) we may very well be reaching a substantial overbought situation exacerbated by the split. Around $1250-1350 I expect to see counter-trend exhaustion with this level of overbought. $QQQ is also showing DeMark TD sequential weekly 13 countdown exhaustion and a sell set-up emerging. I have a 12% long position in $NVDA 6% long position in $ARM out of my 130% long book. I will be trimming, maybe substantially, from today onwards.
@masterhedge
Dougie Kass
valid and valuable observations.
Chart of the Day
Today's speculative activity is occuring in the options pits:
Is It Different This Time?
Nvidia undefined S&P 500 Weight:
2024: 650bps (6.5%)
2023: 290bps
2022: 105bps
2021: 215bps
2020: 88bps
2019: 35bps
Source: Larry McDonald
It is common for the business media to repeatedly ask their guests on Fin TV whether Nvidia undefined compares to other market leaders in 1997-2000 and if the broader market resembles the end of the dot-com era in early 2000.
Many answer in the same manner (by using valuation) that our sub, Masterhedge, observed yesterday in the Comments Section:
Masterhedge
14 hours ago
The boomer bears are gearing up to short $NVDA post split June 7th. They, like myself, remember the $CSCO split as marking a top in the TMT bubble.
The big difference this time is of course valuation. In 1999, the P/E ratio of Cisco was 171.47. They were helping to build the internet but the internet was still small and early. Vast valuations for $CSCO and for example internet ecommerce were far far too early and business models we recognize as successful today were just early e.g Amazon.
Today $NVDA is THE infrastructure which was so badly lacking in 1999-2000 and it is valued far far less despite the $3trn market cap suggests.
Others often make the PEG ratio argument:
In his comment Masterhedge makes the case that not only was Cisco's (CSCO) valuation absurd (both absolutely and relative to Nvidia) but that it was early in the adoption of the internet and e-commerce. By comparison, Masterhedge also emphasizes NVDA's dominant role in the development of AI implementation.
Whether robust business models of the other (non-NVDA) AI plays occur in the near term (or in a reasonable investing timeframe) is subject to debate.
Here is another compare of NVDA vs. Microsoft (MSFT) :
My pal Richard Bernstein looks at the eras differently:
My Bottom Line
What is not obvious is that, in a world now dominated by passive investment, it is lifting or at least keeping many stocks at levels that would not be the case if not for NVDA.
Bubbles are bubbles and people are correctly distinguishing between the dot-com bubble and the current AI bubble. HOWEVER, while NVDA has very strong fundamentals (sales, earnings and growth), the bubble psychology is a question of price at some point unknown exceeding the value of that growth.
I would love to continue this debate in the Comments Section this morning.
It's the ECB'S Turn — Batter Up!
One From Larry
From my pal Larry McDonald:
Cannabis Tweet of the Day
Howling About a Frozen Housing Market
Wolf Street howls about a frozen housing market and still elevated prices.