- NYSE volume 352 million shares, 8% below its one-month average;

- NASDAQ volume 4.79 billion shares, 5% below its one-month average

Breadth

Movers

Nasdaq 100 Heat Map

Masterhedge

Mark Newton - QQQ has now exceeded targets mentioned last week at 483-5, and Daily DeMark exhaustion signals are on daily charts along with a completed 9 count and also have registered a 9 count ( "TD Sell Setup") on 240 min charts. However, neither 60 nor 120 min counts are yet in place and this could still take 1-2 days. (^SPX1.00%, not shown, shows exhaustion counts still premature by 1-2 trading days and lies below my technical target of 5521. ) Thus, 6/19 which was the date mentioned on AAPL's cycle composite for being potentially important takes on a bit more relevance now this week. Momentum indicators like RSI are above 82, which is a level which has been rarely exceeded in recent years. Overall, QQQ does not seem optimal for new investments for those with a short-term outlook and/or low risk tolerance, as consolidation likely could begin sometime this week from very stretched levels. However, given the lack of any deterioration in trend thus far, one should utilize a rising 5-day moving average which currently sits near 476.80.

I am calling it a day — a bit early.

Thanks for reading my Diary.

Enjoy the evening.

Be safe.

Say a prayer for sweet Milo.

* Our hearts are broken

Just this side of heaven is a place called Rainbow Bridge.

When an animal dies that has been especially close to someone here, that pet goes to Rainbow Bridge. There are meadows and hills for all of our special friends so they can run and play together. There is plenty of food, water and sunshine, and our friends are warm and comfortable.

All the animals who had been ill and old are restored to health and vigor. Those who were hurt or maimed are made whole and strong again, just as we remember them in our dreams of days and times gone by. The animals are happy and content, except for one small thing; they each miss someone very special to them, who had to be left behind.

They all run and play together, but the day comes when one suddenly stops and looks into the distance. His bright eyes are intent. His eager body quivers. Suddenly he begins to run from the group, flying over the green grass, his legs carrying him faster and faster.

You have been spotted, and when you and your special friend finally meet, you cling together in joyous reunion, never to be parted again. The happy kisses rain upon your face; your hands again caress the beloved head, and you look once more into the trusting eyes of your pet, so long gone from your life but never absent from your heart.

Then you cross Rainbow Bridge together....

- Author Unknown

This has been a difficult day for our family.

Sweet Milo has been put down.

Though the average English Bulldog lives between eight and ten years, our boy was twelve years old.

We are overcome by sadness to think Milo will no longer be with us.

Goodnight to our Milo who has especially provided my son and Amanda and Carlin with so much pleasure.

Milo even protected me from the haters on Twitter. Remember this?

Milo now joins our three dachshunds Cosette, Sebastian and Bella at the Rainbow Bridge.

And all our puppies are now watching over us now, instead of the other way around. 

I am at a loss for words regarding today's swift market ramp.

If pushed to answer why, I would say momentum-based traders/investors are the principal cause of the rapid rise in the indices.

I can't see a fundamental reason behind today's move.

But, then again, I have felt this way for a while.

* Two cuts or none also quite possible, depends on data; Latest CPI data very welcome, want to see more of it - prepared speech

- Policy restrictive, positioned to bring inflation to 2% 

- Expect slowing, above-trend growth, unemployment uptick

- Upside, downside risk to policy becoming more balanced

- Last week's CPI data very welcome, but overall progress on inflation in recent months has been modest

Nice, high volume reversal in  (MSOS)  from this morning's lows.

* Buyers live higher...

Look how distant SPX is from its 200 day moving average:

At $45.76, I have moved to large short  (XLG)  (Trade of the Week).

More on the more compelling case for cannabis equities tomorrow morning.

Recent buy DraftKings  (DKNG)  is +5% (+$2) on no apparent news.

* With weak market breadth (again)...

- NYSE volume 944M shares, 650% above its one-month average;

- NASDAQ volume 6.60B shares, 240% above its one-month average;

- VIX index: up 2.84% to 13.02

Breadth

Movers

Nasdaq 100 Heat Map

I added to my Occidental Petroleum  (OXY)  long at $59.53 this morning.

I expect an amended SEC filing that Berkshire  (BRK.A)   (BRK.B)  purchased more shares in the last three days.

Reminder: This is this week's Trade of the Week:

Trade of the Week: Short This ETF

My Trade of the Week is short Invesco S&P 500 Top 50 ETF  (XLG)  at $45.55 (Thursday close).

XLG is an exchange traded fund that concentrates in the fifty largest members of the S&P Index.

Here is a list of XLG's largest equity positions.

I am of the view that the reward vs. risk in every one of the fund's top-10 holdings are now vulnerable.

Some/many disagree with me! Trade Tracker.

Some may use this as a portfolio hedge...

Position: Short XLG (S)

BY DOUG KASS JUN 14, 2024 9:08 AM EDT

Short XLG M

From Peter Boockvar:

NY mfr'g remains in contraction but hopes for improvement

The June NY manufacturing index rose to -6.0 from -15.6 and 4 pts better than expected, though of course still reflecting contracting activity. New orders got almost back to the flat line at -1 while backlogs got above zero at +1 for the first time since May 2022. Inventories were above zero for a 3rd month at +1. Delivery times rose 5 pts but are still negative (reflecting no supply chain issues). Prices paid fell almost 4 pts to 24.5 while prices received dropped by 7 pts to 7.1, the lowest since last August. Lastly of note on the current situation, employment remained well below zero at -8.7 and is negative for the 8th straight month and the workweek was negative too.

The real bright spot was the 6 month activity outlook which jumped to 30.1 from 14.5 and that’s the highest since March 2022. Expectations for new orders seemed to help lift overall confidence as inventory expectations remained low and just maybe the hoped for inventory restock is upon us. Expectations for employment rose too but held steady at low levels for capital spending. The inflation outlook for prices paid and those received fell a touch.

Bottom line, business in the manufacturing sector in the NY Fed District remains weak but hopes for a turnaround rose to an over 2 yr high. Let’s hope as this industry has been in a recession for about two years now. Keep in mind though, as end demand remains highly unclear, any near term manufacturing improvement may just be some inventory rebuilding that would eventually need improvement in consumer demand to sustain.

This number is not typically market moving but Treasury yields are at the highs of the morning.

NY Mfr’g

The 6 month outlook

* The foundation of the market's unrelenting climb has fallen on a smaller cohort of companies' shares as the internals are demonstrating as extreme of a divergence as I can recall in years.

* Friday's atrocious breadth (in the face of more Nasdaq Index strength) is reflective of this divergence:

* The market's advance since late 2023 has been idiosyncratic — governed not by macro (which we have cautioned about for months) but my macro (read: the dreams and belief in AI) 

* History demonstrates that market rises are rarely straight up (as it has been):

Bob Farrell's Lesson #7 - "Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names"

* It is time to become more aggressive (on both the long and short sides)

* I will take no prisoners today...

Monday Monday, can't trust that day,
Monday Monday, sometimes it just turns out that way
Oh Monday morning, you gave me no warning of what was to be
Oh Monday Monday, how yould cou leave and not take me.

- The Mamas and The Papas, Monday Monday 

We have a lot to review this morning.

I plan to be increasingly active as in a bifurcated market many stocks are getting debased and many more are growing more dear.

From my comments in Randall Forsyth's Up and Down Wall Street column in Barron's over the weekend:

It’s hard to argue with the tack. Indeed, it might be a sane sort of diversification, a 2024 update of the classic 60/40 stock-bond balanced portfolio. Follow the lead of Berkshire Hathaway’s Warren Buffett and put the bulk of your money in three-month Treasury bills yielding 5.38%. Then put the rest in technology stocks powered by the promise of artificial intelligence, which have accounted for the lion’s share of the stock market’s returns. As Doug Kass, head of Seabreeze Partners Management, points out, just five stocks — Nvidia, Meta Platforms, Alphabet GOOGL 0.57%, Microsoft, and Amazon.com — have accounted for 61% of the S&P 500’s return this year. 

From this morning's Rosie's Breakfast With Dave (Rosenberg):

"Diversification, rebalancing, and capital preservation are all strategies that have been tossed into the wastepaper basket. When I discuss the necessity of maintaining resolve and discipline in open forums, my comments are met with a mix of guffaws and derision. The good thing about having been in this business for 40 years is that I have seen this movie before. Every bubble inevitably faces the pin. The ratios in the charts below of the Dow to Nasdaq Composite, the S&P 500 Equal-Weighted to Cap-Weighted index, and Value to Growth indices put on full display how the stock market is not what it seems at the surface level."

Let's start the day with my three Tweet of the Day (from Sunday). These are my first tweets in six weeks:

Of course, strategists (traders and investors) chasing equities higher (and lower) is nothing new — per The Divine Ms M's pinned tweet:

"Nothing like price to change sentiment."

Certainly a dramatically changed market structure — with the investing landscape dominated by passive products and strategies that worship at the altar of momentum — exacerbates and exaggerates market moves. But, ultimately, the market is a weighing machine.

Back to 'Uncle' Bob Farrell:

Lesson #4 Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways.

Lesson #5 The public buys the most at the top and the least at the bottom.

"Oh Monday morning, Monday morning couldn't guarantee
That Monday evening you would still be here with me."

From Peter Boockvar:

Two lane economy coincides with two lane stock market/French markets/US oil production topping/Other

I'll start by chiming in on the growing bifurcation in the US stock market that really has widened out over the past month. This is not just a rotational thing that continues into the very biggest companies driven by AI excitement, it's reflecting the ever growing two lane highway that is the US economy as I say again I haven't seen a more uneven and mixed situation.

S&P 500 mkt cap weighted in white/Equal weighted in orange performance ytd

Since the Mario Draghi 'whatever it takes' statement in 2012 that helped to quell the panic in the sovereign bonds of Greece, Italy, Spain and Portugal, whenever I see chaotic politics in Europe I usually roll my eyes and want to do the same with the worries about France. That said, the rise in bond yields in France is a reminder that the ever exploding debt and deficits in many countries, including our own, have left them little prepared to deal with an investor revolt. More so in Europe where individual countries don't have their own printing press and must rely on the ECB to put out any fires.

At the end of 2023 that I have numbers on from Eurostat, France had a debt to GDP ratio of 110% and a budget deficit as a % of GDP of 5.5% which is not far from the depths of the 2008-2009 recession when it got to 7.4% and I'm not including Covid. Little room for maneuver and the ECB today is telling France, 'don't look at us.' Reuters is reporting today "ECB policymakers have no plan to discuss emergency purchases of French bonds and still think it is for French politicians to reassure investors spooked by the prospect of a far-right government, five sources told Reuters...speaking on condition of anonymity given the sensitivity of the situation, they hadn't discussed activating an emergency bond buying scheme to support French debt, nor do they currently plan to do so." They shouldn't have plans at least for now as the parliamentary elections haven't even taken place yet, we therefore have no idea what any coalition government might look like and what policies may come of it.

Eurostat France Debt to GDP ratio 12/31/23

Eurostat France Budget Deficit as % of GDP 12/31/23

French/German 10 yr bond spread

I want to mention again the falling US oil rig count as it continued for the week ended 6/14 to just 488 rigs, down another 4 on the week. This is the lowest since January 2022 even as oil continues to trade in about a $70-85 price range over the past year and today stands near the middle of it. At least for now, US oil production is plateauing. We remain bullish and long energy stocks.

Crude Oil Rig Count

Shifting to commercial real estate lending, through March of 2024 bank loans to real estate construction projects continued higher as previously made commitments were fulfilled. Now though it seems that those projects have been fully funded and the weekly bank loan data is reflecting the new market reality of tight lending standards, slowing demand and deals that no longer pencil out. For the week ended 6/5, real estate construction loans have rolled over to the smallest amount since August 2023.

US Commercial Real Estate Construction Loans outstanding

China reported its May economic data and it was mixed. After disappointing in April, May retail sales surprised to the upside with 3.7% y/o/y gains, above the forecast of 3%. Similar to the rest of the world, the Chinese consumer is spending more on services like travel and entertainment rather than on stuff. Industrial production grew by 5.6% y/o/y, just below the estimate of 6.2% growth. Property investment, not surprisingly, continued to shrink. Also of note, home prices continue to fall and this does tie into consumer wealth as much of it is tied up in apartment ownership. Home prices fell .7% in May m/o/m, the 11th straight month of m/o/m declines. Prices are lower by 3.9% y/o/y. We watch to see what impact, if much at all, the new government initiatives to buy unsold apartments and push to complete unfinished projects. Nothing yet of note. There was little change in Chinese stocks in response.

Before the opening, Verano Holdings  (VRNOF)  has announced a sizeable ($50 million) share repurchase. 

This buyback follows Green Thumb's  (GTBIF)  buyback (announced in the last 10 days) and is one of the positives I pointed out in my recent industry analysis.

The upside reward now dwarfs the downside risk in cannabis equities.

I will have more on the attraction of cannabis stocks later today or early tomorrow.

Dougie Kass

Friday Night and Premarket Monday Trading:

Added to SPY short $542.99

Added to QQQ short $479.91

As of 8:30 AM:

As of 8:14 AM:

Upside:

-AAN +32% (to be acquired by IQVentures Holdings at $10.10/shr in ~$904M cash deal and become privately-held company)

-ZYME +10% (US FDA clears the investigational new drug (IND) application for ZW171, a novel 2+1 T-cell targeting bispecific antibody for mesothelin (MSLN)-expressing cancers)

-ADSK +4.6% (Activist holder Starboard reportedly discussed concerns with company execs over recent weeks; issues letter to shareholders)

-BBY +3.9% (UBS Raised BBY to Buy from Neutral, price target: $106 from $85)

-OLLI +3.5% (JPMorgan Chase and Co Raised OLLI to Overweight from Neutral, price target: $105 from $89)

-PRMW +3.0% (to merge with BlueTriton in all-stock transaction)

-GEF +2.8% (Tier1 firm Raised GEF to Buy from Neutral, price target: $77)

-MU +2.7% (price target raised at Susquehanna)

Downside:

-OVID -66% (affirms Takeda’s Skyway study in Lennox-Gastaut syndrome missed its primary endpoint of reduction in major motor drop seizures)

-MRNS -7.9% (Phase 3 RAISE Trial of IV Ganaxolone in Refractory Status Epilepticus fails to achieve statistical significance on the second co-primary endpoint of the proportion of patients not progressing to IV anesthesia)

-AMCX -7.4% (files to sell $125M of convertible senior notes due 2029 in private offering)

-STLD -2.0% (reports prelim Q2)

-ITRI -1.8% (files to sell $500M in convertible senior 2030 notes)

-X -1.3% (reports prelim Q2)

From JPMorgan:

US: Futs are flattish to start the holiday-shortened week; pre-mkt Semis are higher led by NVDA +0.7%, AVGO +2.8%, and MU +1.7%. AAPL is +0.7% with the balance of Mag7 more muted. Bond yields are higher amid a bear steepening; Jay Barry sees yields being range-bound for the summer with the 10Y being fairly valued at current levels. USD is flat to start the week. Cmdtys are mixed with Energy higher ex-natgas but Ags and metals coming for sale; metals potentially dragged by weaker than expect data from China overnight. Today’s macro data focus is on Empire Mfg but tmrw’s Retail Sales is the key release this week with additional focus on Friday’s Flash PMIs.

and...

EQUITY AND MACRO NARRATIVE: The SPX added 1.6% last week, +2.9% MTD, as the macro narrative shifted to a positive tone, aided by the AI-theme; this occurred despite political-induced volatility from outside the US. The 10Y fell 21.3bps on the week, to 4.22%. IG CDS widened 3.8bps and HY CDS widened 11.9bps. CPI and PPI both printed dovishly supporting the disinflationary trend hypothesis; JPM Econ now see PCE trading at 0.14% MoM and 2.6% YoY; if PCE YoY prints at that level it would be the lowest since early 2021.

The US Market Intelligence view is tactically bullish. While we had thought the market was setting up for a pullback based upon the price action during earnings season, narrowing breadth, reduced HF positioning, and the potential for markets to take some profits given the almost 32% gain in the SPX since this bull run began in Oct 2023 (38.6% for NDX), this has not come to fruition and the near-term market setup points to another leg higher being more probable than a pullback. The macro data should support this hypothesis into a seasonally strong July which then transitions to earnings season in mid-July. Here is what we are looking for:

· MACRO DATA – look for Retail Sales on Tuesday (Feroli sees +0.4% MoM vs. 0.3% survey) to expand MoM pushing the market back to a Goldilocks narrative given the cooler CPI/PPI prints. Flash PMIs prints on Friday are unlikely to change that perspective. Feroli and team see the June 28 PCE printing 0.14% MoM and 2.6% YoY.

· EARNINGS OUTLOOK – FactSet sees 24Q2 Revenue growth of 4.6% YoY and EPS growth of 9.0% YoY, the strongest period since 22Q1 for earnings. This would market the 15th consecutive quarter of positive revenue growth; 10 of 11 sectors are expected to have positive growth with Materials the only declining sector. Net profit margin is expected to be 12.0% vs. 11.8% in 24Q1 and 11.6% a year ago; the 5-year average is 11.5%. Looking forward, FactSet sees revenue growing at 5.5% and earnings at 13.6% for 24Q3 – 25Q4.

The balance of this note gives more color, based upon recent client conversations, on (i) seasonality/technicals; (ii) valuation; (iii) geopolitical & election risks; (iv) the economy; (v) the Fed; (vi) positioning.

This table is a valuable resource for momentum-based short-term traders:

* For now AI remains an elegant parlor trick

* Defining bubbles takes several forms — I will explain

* The end of the beginning or the beginning of the end?

* And a warning from Dr. Geoffrey Hinton 

Some more blurbs below on the failures of “AI.” 

If AI is going to take over the world, why can't it solve the Spelling Bee?

The article on the spelling bee is particularly interesting, as it also explains how this stuff actually works, from which you can also infer why it fails at a lot of basic things with regard to language. “AI” can do certain things well, but with regard to language, and search, which has caused some of the mania, and where a big hunk of the money now seems to be going — I am not sure it will ever be able to do it well.

Generative AI is an elegant parlor trick. It cuts and pastes and assembles pre-existing content together very rapidly. But it has no context or ability to think when it does this, thusly all the errors. Until something is actually able to think, as opposed to just process very rapidly, slapping pre-existing text together will not be effective. 

It is also a circular problem, without the pre-existing content, generative AI cannot work. If generative AI did work, and actual people stopped producing new content, what would the AI be trained on? We would be stuck in neutral at that point, as the AI would only be able to refer back to content that it created.

Talk about a doom loop. The AI needs the humans, thusly all the controversy around what it was using to train itself on, which was content produced by humans, that in many cases was used without their permission. 

A bubble can be defined in more than one way. People often think of a bubble solely in regard to equity markets, and valuations (which can be defined by earnings multiples, but also by revenue multiples and total market cap). But, there is more to a bubble. The bubble can also refer to human behavior, and where investment capital is being spent. This too is also circular. The more investment capital being spent on something, feeds back into the corporation supplying the infrastructure, which increases revenue more rapidly, which causes the valuation of the equity in question to go up even further.

It was no different in the tech bubble. The valuations were crazy, but the amount of money being thrown at what turned out to be worthless stuff, was also crazy. What didn’t turn out worthless, in many cases, still represented about 10 years worth of capacity that was put in place in two years. 

The tweet (edzitron) is interesting in this regard. The end-use case is not proving out. Businesses are not yet seeing a return from it – the cost/benefit is not there. Individual end users are not seeing the benefit from it, as end use (shown in previous Tales columns) has quickly flatlined at a low base, because it does not yet work well. Usage has flatlined even while the base offering is actually free, which is pretty damning.

Yet those that spend money on infrastructure are spending money hand over fist. The fear of being left behind, I guess. The potential bubble is not just in the equity market, but it also exists on the investment side. The combination of the two things is what has created the current phenomena. The spending side of the phenomena does not last forever. If it does not work well and the end use case is not great, the spending side will normalize. And for what does work, we still have no idea about the capacity that has been ordered relative to actual underlying demand levels for the output. Akin to fiber optical cable and components back in the day. 

Deception abilities emerged in large language models

Finally, GPT-4, for instance, exhibits deceptive behavior in simple test scenarios 99.16% of the time (P < 0.001). In complex second-order deception test scenarios where the aim is to mislead someone who expects to be deceived, GPT-4 resorts to deceptive behavior 71.46% of the time (P < 0.001) when augmented with chain-of-thought reasoning:

More than one-third (37%) of all ChatGPT answers reviewed by doctors, lawyers, veterinarians and other subject matter experts were ranked untrustworthy, with numerous instances of misleading or hazardous information identified. • 42% of the ChatGPT answers reviewed are "missing crucial details" • 14% of the ChatGPT answers reviewed are "misleading" • 4% of the ChatGPT answers reviewed "give dangerous information" A doctor reviewing a ChatGPT response about a possible subarachnoid hemorrhage found the medical information to be misleading.

Finally, a scary warning from "the godfather of AI" (Dr. Geoffrey Hinton) on last night's 60 Minutes.

Please watch. It's worth 10 minutes of your time!

Here is a list of my previous "More Tales of Nvidia":

* TheStreet Pro

* TheStreet Pro

* TheStreet Pro

* TheStreet Pro

* TheStreet Pro

* TheStreet Pro

"There is absolutely no doubt in my mind that one of the real keys to winning is learning how to lose."

- Stan Weinstein

Bonus - here are some good links:

Stock Market and Crypto Analysis

Stock Market & Crypto Analysis June 14 2024 (youtube.com)

'Jazzy' Jeff Hirsch and Quad Witching

ETFs and Markets 

Commodities Hunting For a Non Correlated Trade

Nothing But Tech