* Breadth stinks up the joint...

Closing Volume

- NYSE volume 326M shares, 14% below its one-month average.

- NASDAQ volume 4.00B shares, 8% below its one-month average.

- VIX Index up 1.13% to 12.51.

Breadth

% Movers

S&P 500 ETF Sectors

Nasdaq 100 Heat Map

nated0gg41

Mark Newton - NVDA has now regained about 70% of the prior drawdown from mid-June, and at current levels would be higher for 10 of the last 12 weeks. It's important to pay attention to price action over the next week in NVDA, as this stock now has the dubious distinction of showing Daily, Weekly and Monthly Counter-trend DeMark "13 Countdown" exhaustion sell signals (Counter-trend indicators which can sometimes bring about a stalling out or reversal in uptrends (and vice-Versa)). Note, these "Sells" per se, have not been confirmed, but are present, and momentum has slowed, ever so slightly given the extent of June's drawdown. Ideally, this would advance for another 4-5 days to form its TD Sell Setup before any consolidation gets underway. At present, there could some resistance at $135-136 and above this near 140.76 (Prior peaks from June) Normally, with stocks that are extended and start to show minor momentum weakness, i like to utilize a 9-day Simple moving average which presently lies at 126.26. Bottom line, NVDA remains strong and remains within its uptrend, but not as strong as during May into early June, and for those who are short-term focused, this might show some evidence of stalling out after this bounce sometime in the next week. I'll be watching.

Occidental Petroleum OXY is trading at Warren Buffett's previous buy level.

But for now I am not buying as I am giving it some wider berth on the downside before I re-enter.

I have moved my buy level to under $60/share.

New 52-week low in investment short Winnebago WGO.

So I got that going for me, which is nice.

Gunga galunga.

Joel Greenblatt on valuation:

This caused selling in cannabis stocks. 

However, the bill is dead on arrival in the Senate.

I used the weakness to add across the board.

* An oldie buy goodie.

I originally wrote this column in March 2013, but with markets at all-time highs, I think that it has some merit in repeating in it's entirety.

My Basic Investing Tenets

• They are admittedly simpler to write about than they are to execute.

"You've got to be very careful if you don't know where you are going because you might not get there."

-- Yogi Berra

Arguably, the investment and asset-allocation processes can hold more weight and is more complex than nearly any other business decision. A host of variables, known and unknown, contribute to the investment alchemy. As well, subtle and unconscious influences and personal biases affect the process as we all seek Mr. Market's metaphorical green jacket (like the one to be given to the winner of the Masters golf tournament in mid-April).

What follows are some basic tenets which form my investment consciousness, which are admittedly simple to write about but more difficult to execute.

Know Thyself, Work Hard, and Don't Get Emotional

• If you don't know yourself, Wall Street is a poor place to find yourself. There is a reason why there was a church on one side of the old New York Stock Exchange building and a cemetery on the other.
• If you enter the hedge fund biz, remember Darwin. It is survival of the fittest, the smartest and the most practical. The hedge fund industry is populated by some of the most obsessive and idiosyncratic practitioners extant, most of whom are highly educated and possessive of a greater-than-normal cerebellum. Differentiate yourself by your process and by routinely working harder than anyone else (e.g., my day routinely starts at 5:00 a.m.). As John Maxwell wrote, "Successful and unsuccessful people do not vary greatly in their abilities; they vary in their desires to reach their potential."
• Do not get emotional in making investments, and however eloquent the strategy is, it is the results that count. The ecstasy of getting investment performance right is always eclipsed by the agony of getting it wrong. If you are uncertain or temporarily lack confidence, raise your cash positions.

The Investment Process Is Methodical

• If you are a fundamentalist, write a brief synopsis of each investment analysis/conclusion. It will serve to crystallize your investment analysis, and it is an excellent personal and investment discipline. (It is the principle reason why I write my diary.) Moreover, an ex post facto reflection on why one achieved past success or failures is usually illuminating, instructive and often leads to fewer mistakes. After all, as philosopher Benjamin Disraeli once wrote, "What we have learned from history is that we haven't learned from history."
• If you are a technician, keep all your charts, just as the fundamentalist should write up a summary of each investment. Reflecting on past mistakes/successes is as important to a technician as it is to a fundamentalist.
• A combination of mostly fundamental and a dose of technical input is usually a recipe for investment success.
• Regardless of one's modus operandi (fundamental, technical or a combination of both), logic of argument and power of dissection are the two most important ingredients in delivering superior investment returns. Common sense, which is not so common, runs a close third!

Stay Objective and Independent

• Neither be a Cassandra nor a Sunshine Boy! It is much easier to be critical than to be correct, as financial disasters are always impending by the ursine crowd. Conversely, the outlook is never as perfect or clear as it is seen by the bullish cabal.
• Within limits, stay independent in view. Above all, remember equilibrium is rarely observed in the stock market. To quote George Soros, "Participants perceptions are inherently flawed" (at least to varying degrees).

Investment Discipline Is Key

• Let your profits run and, and press your winners, as knowing when to seize opportunity is one of the basic principles to investing. But stop your losses, as discipline always should trump conviction. Edwin Lefevre wrote in Reminiscences of a Stock Operator, "I did precisely the wrong thing. The cotton showed me a loss and I kept it. The wheat showed me a profit and I sold it out. Of all the speculative blunders there are few greater than trying to average a losing game. Always sell what shows you a loss and keep what shows you a profit." Woody Allen put it even better, "I don't want to achieve immortality through my work. I want to achieve it through not dying."

The Past Is Not Necessarily Prologue to the Future

• History should be a guide but not a jailer. There is little permanent truth in the financial markets as change is as inevitable as it is constant. Do not extrapolate the trend in fundamentals in your company analysis nor in the trend in stock prices. Be independent of analytical and investment conclusions, greedy when others are fearful and fearful when others are greedy, but always remember that possessing a variant view has outsized risk as well as outsized reward.

Risk and Reward Should Be Assessed Properly

• In buying a stock remember risk/reward is asymmetric. A long can climb to indefinite heights and one can only lose 100% of the value of each investment. (Buy value but only with a catalyst.) When longs have high short interest ratios, investigate the bear case completely.
• In shorting a stock, remember risk/reward is asymmetric. A short can only return 100% (a bankruptcy) but can rise to indefinite heights. (Never make conceptual shorts without a catalyst.) Avoid shorts when the outstanding short interest exceeds five days of average trading volume.
• Use leverage wisely but rarely as financial markets are inherently unstable. While the use of leverage can deliver superior investment returns when the wind is at your investments' back, it can also wipe you out when events fail to conform to your expectations. Only the best of the best consistently time the proper use of leverage.

Knowledge of Accounting Is a Must, but Meetings With Management Have Little Value

• There is no substitute for a thorough knowledge of financial accounting. Accounting can be misleading, opaque and unaccountable, but free cash flow rarely lies.
• If you must meet with management, do so to understand a company's core business but remember that managements infrequently, if ever, view their secular prospects with suspicion. In the late 1980s Warren Buffett wrote in his letter to Berkshire Hathaway's (BRK.A/BRK.B) shareholders that "corporate managers lie like Ministers of Finance on the eve of devaluation."

Be Open to Others' Ideas, but Rely on Your Own Analysis

• Always be self-critical, and once your view is formulated, be open to criticism from others that you respect. Take their criticism and test your thesis (constantly). Avoid what G.K. Chesterton once mused, "I owe my success to having listened respectfully to the very best advice, and then going away and doing the exact opposite." Bullheadedness will get you into trouble in the investment world.

Only Invest/Trade When Distractions Are Limited

• Invest/trade/speculate only if you are not dependent upon the investment profits to maintain your standard of living.
• A stable personal and financial life, outside of investing, is typically a necessary ingredient to investment success.
• Take vacations and smell the roses. When you return you will be rejuvenated and a better investor/trader.
• Be well-rested and in good shape physically. "Investing is 90% mental; the other half is physical" (another Yogi-ism).
• Keep your investment expectations reasonable and expect to make mistakes as perfection is not attainable. Nevertheless, by all means, try to chase perfection as the byproduct will be investment excellence.

Read and Learn From the Best

• Learn from those investors who have excelled by reading and re-reading the classic books on investing.

Position: None

Carter, Guy and Dan on MRKT CALL at 1 PM.

How High Will Stocks Go? (youtube.com)

This 30-45 minute broadcast is quite valuable to me... and it's free!

Run, don't walk to watch it.

From Peter Boockvar:

Bond yields

It’s possible that the rise in U.S. yields as Powell speaks is not because of what he is saying, which is nothing really new, but in response to the bond sell off going on in Europe today with French yields up the most. The 10 yr French yield is higher by 9 bps after falling by 4.5 bps yesterday in immediate response to the elections. And the CAC 40 is down by 1.8% taking its year to date performance back to negative, by almost 1%. The reality of governing is now upon whatever new government gets formed and managing their excessive debts and deficits is what investors are most focused on.

10 yr French Oat Yield

CAC 40

I added to two of my consumer shorts — Pool Corp. POOL and Boot Barn BOOT — this morning.

At the risk of being the boy that cries wolf, I see three divergences today that could contribute to a break in the market's winning streak:

* Breadth: Remains poor:

* Not Broadening:

SPY +0.18%

QQQ +0.20%

IWM -0.79%

RSP -0.22% (equal weighted S&P Index)

* Bond/Stock Performance

SPY +0.18% (+10 handles on S&P cash)

TLT -0.89% (The yield on both the 10-year and 30-year Treasuries are +6 basis points)

* Same old, bad market breadth

* At 10:35 a.m.

Volume

- NYSE volume 102M shares, 23% below its one-month average;

- NASDAQ volume 1.44B shares, 13% below its one-month average;

- VIX index + 0.49% to 12.43

Breadth

S&P 500 Sector ETFs

Nasdaq 100 Heat Map

Consumer based stocks — Coca-Cola KO, Starbucks SBUX, Home Depot HD, Winnebago WGO, McDonald's MCD, Nike NKE, Disney DIS et al — continue to suffer in the face of the specter of a consumer-led economic slowdown.

This may also even apply to energy equities (see OXY, XOM, CVX, etc. ) where we previously took profits on the latest run:

I Am Taking Profits

With gains of between +$3 to +$4 (today) in (XOM) and (CVX) I am taking profits from recent buys on weakness.

BY DOUG KASS JUN 20, 2024 1:43 PM EDT

I Sold My Favorite Trading Sardine

At $62.92 I am out of (OXY) common and calls!

I plan to repurchase on weakness.

BY DOUG KASS JUN 20, 2024 1:13 PM EDT

From Peter Boockvar: 

Powell's prepared text review

As he said last week in Sintra, Jay Powell is maintaining his more balanced view on the economic outlook and the two mandates they focus on but with a window towards easing.

As he said last week in Sintra, Jay Powell is maintaining his more balanced view on the economic outlook and the two mandates they focus on but with a window towards easing.

“We continue to make decisions meeting by meeting. We know that reducing policy restraint too soon or too much could stall or even reverse the progress we have seen on inflation. At the same time, in light of the progress made both in lowering inflation and in cooling the labor market over the past two years, elevated inflation is not the only risk we face. Reducing policy restraint too late or too little could unduly weaken economic activity and employment.”

The bold is mine and we know the Fed is now more closely watching the labor market.

And, “Over the past two years, the economy has made considerable progress toward the Federal Reserve's 2 percent inflation goal, and labor market conditions have cooled while remaining strong. Reflecting these developments, the risks to achieving our employment and inflation goals are coming into better balance.”

Reflecting the easing bias, “The Committee has stated that we do not expect it will be appropriate to reduce the target range for the federal funds rate until we have gained greater confidence that inflation is moving sustainably toward 2 percent. Incoming data for the first quarter of this year did not support such greater confidence. The most recent inflation readings, however, have shown some modest further progress, and more good data would strengthen our confidence that inflation is moving sustainably toward 2 percent.”

Treasuries are down slightly as just maybe there was some positioning for more hints of dovishness. As stated, I’m becoming more confident that the Fed cuts in September.

From Liz Ann:

From Peter Boockvar: 

Credit spread check/Small business look/Taiwan loving the AI spend

As Powell just spoke early last week, I don't expect anything new today in his prepared testimony and Q&A notwithstanding Friday's payroll report where the unemployment rate at 4.1% is now above the Fed's dot plot yr end 2024 median estimate of 4%. He also won't pre-commit today ahead of Thursday's CPI. That said, I'm becoming more convinced that they will cut in September.

It's time again to watch the credit markets as the CCC spread to Treasuries has quietly risen to the widest since February at 864 bps. This would correlate somewhat to the poor performance of small cap stocks. The overall high yield index spread however is still VERY tight at 310 bps but something to watch from here. Regardless of the tight spread though, the yield to worst is still 7.8% vs 5.1% as we entered 2020. CCC credits are paying 13.25% to borrow vs about 10% in early 2020.

CCC Credit Spread

High Yield Credit Spread

Speaking of small businesses, the June NFIB small business optimism index rose to 91.5, up 1 pt from May. While still well under its long term average of 98, it is the best read since December when it was at 91.9.

Plans to Hire was unchanged at 15%, unchanged m/o/m but still 2 pts above the 6 month average. Job openings though fell 5 pts to 37% and that matches the lowest since January 2021. Current compensation rose 1 pt after falling 1 pt last month and is in line with the 6 month average. Comp plans from here rose 4 pts to a 5 month high. Of note too, Plans to Increase Inventory rose 4 pts and while still negative at -2, that is the highest since November. Cap ex plans remained the same.

As for the business outlook, there was a 5 pt rise in Expect a Better Economy to the least negative since August 2021. But, there was no change in Expect Higher Sales and Good Time to Expand. The earnings outlook at -29% was up 1 pt but still is deeply negative.

Lastly, Higher Selling Prices rose 2 pts to 27%, a 3 month high. Credit conditions didn't change but the average loan rate at 9.5% was up from 9% and "4% of owners reported that all their borrowing needs were not satisfied, up one point from May and the highest reading since August 2022."

The bottom line from the NFIB is still blaming inflation and higher costs for the challenged outlook. "Inflation is still the top small business issue, with 21% of owners reporting it as their single most important problem in operating their business, down one point from May." The high was 37% in July 2022 when the rate of change in inflation was peaking. It however was 1% in February 2020.

Specifically on high labor costs as a challenge, "Labor cost reported as the single most important problem for business owners rose 1 point to 11%, only 2 points below the highest reading of 13% reached in December 2021."

From Bill Dunkelberg, "Main Street remains pessimistic about the economy for the balance of the year. Increasing compensation costs has led to higher prices all around. Meanwhile, no relief from inflation is in sight for small business owners as they prepare for the uncertain months ahead." The higher cost of capital is a challenge too.

This all squares with the poor performance of micro and small cap stocks.

NFIB

Expect a Better Economy

Average Loan Rate

% of Small Business Saying Inflation is #1 Problem.

Digging into the NY Fed's Survey of Consumer Expectations for June saw the one yr inflation forecast dip by 2 tenths m/o/m to 3% while the 3 yr guess rose one tenth to 2.9%. The longer 5 yr crystal ball read fell 2 tenths to 2.8%. Hopefully realized, there were drops in price expectations for homes, gasoline, food, medical care, rent and college.

Earnings growth expectations rose, and squares with what the NFIB said. However, "The mean perceived probability of losing one's job in the next 12 months increased by 2.4 percentage points to 14.8%." This has ranged this year between 11.8% and 15.7%. But, if that job is lost, there is higher confidence of finding a new job.

Consumer spending expectations rose one tenth to 5.1% and remaining in the range of 5-5.3% seen over the past year. Access to credit weakened a touch and "The average perceived probability of missing a minimum debt payment over the next three months rose by 3 tenths to 12.3%, above the series 12 month trailing average of 12.1%." Something to watch as we know many consumers are stretched.

Overseas, Taiwan reported a 23.5% y/o/y increase in exports, much better than the estimate of up 13.4%. Credit Taiwan Semi and huge AI demand as exports of computers and other tech hardware saw a whopping 324% y/o/y spike. The TAIEX was unchanged overnight in response but is up 33% year to date mostly because of Taiwan Semi.

Which reporting quarter will it be that investors ask when the returns on this massive AI spend will be realized?

* Nothing new here, either...

Upside:

-SNGX +158% (expanded HyBryte treatment demonstrating positive outcomes in Early-Stage Cutaneous T-Cell Lymphoma)

-WENA +44% (to advance patented Klotho Gene Therapy for Neurodegenerative Disorder Treatments)

-QURE +26% (announces positive Interim Data Update Demonstrating Slowing of Disease Progression in Phase I/II Trials of AMT-130 for Huntington’s Disease)

-AKTS +17% (secures $8M in Volume XBAW Orders with Tier-1 Customer)

-SXTP +13% (announces IRB Approval of Clinical Study of Tafenoquine for Treatment of Babesiosis in Immunocompromised Patients with Persistent Babesia microti Despite Prior Treatment)

-TRNR +10% (secures Exclusive Distribution for CLMBR in Fast-Growing Gulf Region With MEFITPRO and Receives Six-Figure Initial Order)

-NXGL +9.3% (reports prelim revenue)

-CRNT +7.8% (announces multi-million dollar order for Siklu to Expand Network Coverage)

-OPTT +7.5% (signs MOU with AltaSea to advance wave power projects)

-WULF +4.8% (announces early debt payoff, eliminating all outstanding debt)

-VTGN +4.7% (broadens PH80 Global Intellectual Property Portfolio with New Patents for the Treatment of Migraine)

-NN +3.8% (granted Department of Transportation Award to Test PNT Services as a Complement and Backup to GPS)

Downside:

-HELE -25% (earnings, cuts guidance)

-TNXP -15% (files to sell public offering for common stock of indeterminate amount)

-GAME -9.5% (announces $20M pre-paid advance agreement with Yorkville Advisors)

-HLIO -8.5% (CEO Josef Mastosevic to exit following allegations; Appoints Sean Bagan Interim President and CEO in addition to his CFO role, effective immediately)

-BP -4.2% (issues Q2 trading update)

-MEDS -4.0% (declares special dividend)

-ARQT -3.3% (provides update on sNDA for Roflumilast Cream 0.15% for Atopic Dermatitis; FDA indicates they are working to finalize action letter and have not indicated they would extend PDUFA goal date of July 7, 2024)

-CHWY -1.8% (Argus Cuts CHWY to Hold from Buy)

9:15AM: Fed Vice Chair for Supervision Barr (Voter) speaks before the "Financial Inclusion Practices and Innovations" Conference hosted by the Federal Reserve Board, Washington, DC (Other details TBA. Federal Reserve. Livestream at www.federalreserve.gov and www.youtube.com/federalreserve).

10:00AM: Fed Chair Powell delivers semi-annual monetary policy testimony before the Senate Banking, Housing and Urban Affairs Committee.

1:30PM: Fed Board Governor Bowman (Voter) gives introductory remarks before the "Financial Inclusion Practices and Innovations" Conference hosted by the Federal Reserve Board, Washington, DC (Other details TBA. Federal Reserve. Livestream at www.federalreserve.gov and www.youtube.com/federalreserve).

As of 8:14 a.m.:

At 8:32 a.m.:

The following blurb on AI writing code is interesting.

This is something I was under the impression that it was better at doing, in part because code is more strictly rules-based. But recently I had been hearing stories that it is not so great at writing code, either.  

First of all, AI was only good for basic low-level code to begin with. Then I have been told its performance is degrading. Sure enough, I was just sent the blurb below with excerpts from an assistant professor at the University of Glasgow. AI's code work is getting worse and not better. In part that's because it cannot think and needs humans, and it's in part because the technology itself does not work well and is unstable. What we are seeing now is akin to the little boy putting his finger in the dike to stop a leak, but new leaks keep springing up. No matter how much money you spend, if the dike is faulty, you are not going to make it viable:

Overall, ChatGPT was fairly good at solving problems in the different coding languages—but especially when attempting to solve coding problems that existed on LeetCode before 2021. For instance, it was able to produce functional code for easy, medium, and hard problems with success rates of about 89, 71, and 40 percent, respectively.

“However, when it comes to the algorithm problems after 2021, ChatGPT’s ability to generate functionally correct code is affected. It sometimes fails to understand the meaning of questions, even for easy level problems,” Tang notes. 

For example, ChatGPT’s ability to produce functional code for “easy” coding problems dropped from 89 percent to 52 percent after 2021. And its ability to generate functional code for “hard” problems dropped from 40 percent to 0.66 percent after this time as well. 

“A reasonable hypothesis for why ChatGPT can do better with algorithm problems before 2021 is that these problems are frequently seen in the training dataset,” Tang says. 

Essentially, as coding evolves, ChatGPT has not been exposed yet to new problems and solutions. It lacks the critical thinking skills of a human and can only address problems it has previously encountered. This could explain why it is so much better at addressing older coding problems than newer ones. 

“ChatGPT may generate incorrect code because it does not understand the meaning of algorithm problems.” —Yutian Tang, University of Glasgow

“ChatGPT may generate incorrect code because it does not understand the meaning of algorithm problems, thus, this simple error feedback information is not enough,” Tang explains. 

 None

* Hits the most overbought in history...

Don't listen to me, listen to Warren:

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

From JPMorgan:

US: Futs are higher led by Tech; Semis are seeing a global rally with both YTD leaders and laggards rallying. Pre-mkt, NVDA +1.2%, INTC +3.7% and Mag7 are higher ex-AAPL/TSLA. The pre-mkt rally appears to be broad-based into Powell’s speech which is expected to reflect a dovish view. Bond yields are flat to +1bp, but Jay Barry sees today’s 3Y auction needing some concessions to be digested; USD is flat. Cmdtys are selling off again with Precious the primary area of safety. Fedspeak is today’s macro focus; Powell speaks at 10am EST.

and...

EQUITY AND MACRO NARRATIVE: Yesterday, we had a quiet start to the week with indices seeing additional gains but there seemed to be some squeezy behavior below the surface as we saw some JPM baskets such as Rising Rates Winners, Renewable Energy, and Housing near the top of the leaderboard.

My colleague Mike Gormley provides a summary of Powell’s commentary from last week:

At ECB’s Sintra Forum, Powell delivered an upbeat outlook for risk pointing to progress in the inflation outlook and cautiously optimistic on the labor market coming into better balance. He noted that after a pause in 1Q inflation “is now showing signs of resuming its disinflationary journey” while May and April prints “suggest we are getting back on a disinflationary path”, albeit qualifying we need to see more. He continued his praise of recent data saying we need to see “more data like we have been seeing”. Turning to the labor market, he noted it has “seen a pretty substantial move toward better balance…you can see the labor market is cooling off, appropriately so, and we’re watching it very carefully” and noted a faster deterioration could spur a faster turn to rate cuts. Finally, he pushed back on any specific date for a rate cut “I’m not going to be landing on any specific dates here today”. The tone has started to change on the labor market and that is making a September ease more likely. Powell echoed San Fran Fed’s Daly comments last week where she said the jobs market was nearing an inflection point where further slowing could lead to rising joblessness and points to fresh focus on recent deterioration in unemployment even against healthy job adds last month. If we see a continued weakening in labor market data, this will likely harden the market’s bet on a September ease. The caveat to this is JOLTS, one of the Fed’s main variables.

From my dear pal and lynx-eyed Sarge:

“The point of investing, after all, is not to have a great story to tell; the point of investing is to make money with limited risk.”

- Seth Klarman

Bonus - Here are some great links:

Playbook for the Week 

July Strategy

Navigating the Summer 

The Arrival of Summer Doldrums

A special one: 

Wally Deemer interviewed!

From Charlie!