Stocks ended at the low of the day, triggering a bearish candle before big earnings from AAPL and AMZN.

Breadth had been narrow all day but flipped to decliners beating advancers at the end.

Another view of breadth. If not for big tech, the market was down today.

Bearish Shooting Star Candle reminds us that we are still in a bear market. The red line is the 50-day SMA. Let's see if that holds tomorrow. Note that while the Nasdaq is also above the 50-day, the Russell is still 2% below.

Thank you to those who played along with our little quiz.

The answer is...

$10,000 invested for 530 years at 5% would grow to $1.7 quadrillion! To earn that much, however, the vampires would have had to live off their day jobs and never spend a penny of Vlad’s nest egg. 

This question required that the vampires would spend a portion of each year’s gains, reducing the 5% annual return to just 4%. In other words, in year 1, the vampires would earn $500. (a 5% gain on $10,000) They’d spend $100 of that amount on castle upkeep, reducing the amount that would compound to just 4%.

$100 doesn’t sound like much, but that was real money in the 15^th century when most people lived below the poverty line. Vlad’s $10,000 wealth probably made him his generation’s Elon Musk. (Makes you wonder whether Elon is an energy vampire)

Allowing the vampire community to pay their bills with 20% of each year’s gains reduces their current wealth from $1.7 quadrillion to just $10.7 trillion. For reference, that’s 5x the wealth of the top 20 billionaires combined.

So, the correct answer was B.

Here's why that's the case.

There is a force in this world that is stronger than vampires. And that is compound growth. Einstein (allegedly) called compound growth the 7^th wonder of the world.

The $10,000 Vlad invested in 1492 is called the principal. Principal is the amount of money from which growth occurs. By the end of 1492, Vlad had earned $500, raising the principal to $10,500. However, Vlad took out $100, leaving the account with $10,400 at the beginning of 1493. In 1493, the $10,400 principal grew by another 5% to $10,920. Again, Vlad and friends spent 20% of their gains, leaving the principal at $10,816.

By spending 20% of the returns, Vlad’s portfolio compounded at an annual rate of 4%.

Q2 EPS of $1.65 beats estimate of $1.61 and revenues of $95.36b beat forecast of $94.33.  $100b buyback. Shares down.

AMZN earnings out. Looks like they beat on earnings, but AWS growth was a miss.

Also...

Before the market closes, I thought I'd share a fun question.

I wrote this a few years ago, but every bit of it is relevant for today.

This topic is one of the most important and fundamental in all of finance.

My 15-year-old and I have been bonding over a show about vampires. “What We Do in the Shadows” is probably NSFW for many reasons. However, it’s a pretty silly look into how vampires spend their time.

If you know anything about vampires, and I can’t claim to be an expert, they seem to own really nice homes. From Count Dracula’s castle to the spacious home on Staten Island occupied by “Shadows” four vampires, vampires are rarely crowded. I don’t believe that vampires actually work, either (except for “Shadows’” Colin Robinson, who is an energy vampire and takes office workers as his victims).

Now, let’s say that the Staten Island mansion was purchased many years ago during a time when real estate was somewhat affordable. And that vampires don’t really worry about things like lights or heat. They’ve still got to pay their taxes. And property taxes on Staten Island are high. The vampires’ tax bill probably runs over $50,000 per year. How do they pay that?

I have a theory. Some say that Vlad the Impaler was the first vampire. Vlad was the Prince of Wallachia back in the 15^th century. Since he was a prince, it’s safe to assume he was rich. He probably also had pretty good financial advisors. And they probably advised him to invest his wealth in something that offered a solid combination of low risk and reasonable return.

Vlad probably bought an early version of a mutual fund that was diversified across stocks and bonds. The stocks gave the portfolio capital appreciation. They helped the portfolio to grow and even increase its buying power over time. The bonds spun off income that Vlad could use to pay for his extravagant lifestyle.

Over time, Vlad’s money grew. And, as he found new victims, so did the number of vampires that this portfolio had to support. Kind of like a vampire pension.

Let’s assume that Vlad had a cool $10,000 to invest back in 1492 and earned 5% annually.

How much wealth would today’s vampires control? And how much could they spend in 2022?

1. The portfolio is currently worth $1.7 billion and the vampires can spend $34 million in 2022
2. The portfolio is currently worth $10.7 trillion and the vampires can spend $102 billion in 2022
3. The portfolio is currently worth $1.7 quadrillion and the vampires can spend $17 trillion in 2022
4. The portfolio is currently worth 1 million pints of blood and the vampires can spend 100 bat wings in 2022

So, the headline number is improving, but history shows there is still the chance to test the lows. That lines up with a lot of what Helene Meisler has been saying, so I think I'm in good company.

But what of the components?

Stock Market Indicators

Market Momentum remains in extreme greed simply because it's about one standard deviation below the 125-day average. But there's more. The 125-day average is falling. That's never good.

Looking back over the last 20 years, the only time that there was a V-bottom following a declining 125-day average was during the pandemic. Well, maybe in 2018, too, but that pattern is a little more complex. That said, I think this is telling us that we could see more downside, though I wouldn't rule out more upside first.

The two breadth indicators are both moving higher. So, it's not just the Mag 7 leading the market up, which is good, and supports the idea that there could be more upside in the short-term.

Options Indicators

The Put/Call Ratio and Vix are both declining, but not at crazy levels. So, let's say that these are improving and reasonably positive for stocks.

Bond Indicators

The bond indicators are back to greedy! Regarding Safe Haven Demand, that's mostly because stocks have ripped higher, and not because of any movement in bonds. 

Junk Bond Demand is a similar story. Risky junk bonds have outperformed investment grade recently, sending this relationship back towards the lows.

Summary

I think this is all supportive of what I mentioned earlier. The market is currently firing on all cylinders. But it's a news-driven market and we could change on a dime. I still believe we'll head lower, though it's so hard to know when. 

You knew it was coming! Time to check in with the Fear & Greed Index.

Back to neutral for the first time since February.

I've been watching the following downtrend, which has been broken. Both the red downtrend line and we've now got a higher high (relative to the March high.

Now, that's not necessarily an all-clear. Last time we were as low as we had been in April was in May of 2022. Following a sharp rally in both F&G and the S&P 500, stocks set a new low. And then rallied and failed, before finally starting a new uptrend in October.

When I get a chance, I'll share thoughts on each of the Fear & Greed components.

S&P 500 issues are about even on advancers vs. decliners, as the S&P 500 heads towards the day's lows.

Another view. The market's performance is being driven by the big dogs. Healthcare is a drag.

On the interesting volume front, MSFT, LLY, and META are the stocks with the highest relative volume, per Finviz. AAPL is lighter than expected as we head into earnings.

Good take on META from Sarge:

Sarge offers a good overview of the company's earnings report and Wall Street's outlook.

Like Helene, he notes 588 as a key area and says that above 588, portfolio managers will rush to buy. In the meantime, he's hoping to take a position as an investment closer to the 21-day EMA at 547, should shares fade.

The target price if this double bottom holds is 680. But remember, it's not a double bottom until the breakout holds.

Sector performance since Liberation Day:

Four sectors have reclaimed their Liberation Day levels. Industrials, Utilities, Tech, Staples.

Basic Materials, Energy, Financials, Healthcare, and Cyclicals have not.

Tech just broke out today. Can it get back to its February high?

On a relative basis (each ETF divided by the S&P 500)

The outperformers since Liberation Day are: Industrials, Tech, Utilities

Underperformers are: Energy, Staples, and Healthcare.

Staples are interesting because they outperformed on price but recently underperformed on a relative basis. Mostly, they just haven't gone anywhere during this move.

Industrials, Tech, and Utilities are the most liberated sectors right now. Others are, at best, market performers.

In yesterday's Top Stocks column, Helene Meisler wrote:

I have no strong view on Meta (META) , but I would note that the first trip up to resistance at 588 was that Wednesday, April 9^th, so that’s going to be resistance again should it get up there.

Shares are currently trading in premarket at 585 and have been as high as 590. So, let's watch and see how this one plays out.

Reposting from TheStreet's Martin Baccardax in his Stock Market Today column.

Around 241,000 Americans filed for first time jobless benefits last week, the Labor Department reported, a 19,000 increase from the prior period and a bigger-than-expected overall tally.

Continuing claims, meanwhile, rose to 1.916 million, the highest since November of 2021, suggesting job-seekers are finding it increasingly difficult to secure a new position.

Treasury yields moved lower following the data release, with 2-year notes dropping 4 basis points to 3.564% and 10-year notes falling 3 basis pints to 4.129% as investors bet on slower growth forecasts and the prospect of a spring interest rate cut from the Federal Reserve.

Earlier this morning, Challenger, Gray & Christmas noted that April job cuts fell sharply from the previous month, but at just over 105,400, remain some 63% higher than over the same month in 2024 and the highest in five years.

“Though the Government cuts are front and center, we saw job cuts across sectors last month. Generally, companies are citing the economy and new technology. Employers are slow to hire and limiting hiring plans as they wait and see what will happen with trade, supply chain, and consumer spending,” said senior vice president Andrew Challenger.

Over the weekend, I published an article on Tesla calling for Musk to step away from the company and sell his shares. It's the only way forward for the company.

They've alienated their core customer base at a time when EVs are losing popularity and competition is increasing. Why buy a Tesla today when you can buy a better car from Porsche/Audi, Hyundai, Kia, etc?

The stock is overvalued and has been dead money since 2021. It's done nothing but go sideways. Investors would have done better in an index fund and suffered less volatility. The most recent trip over $300 was based on Musk's proximity to Trump, which has only hurt sales.

Tesla is a cash register for Musk and he has only hindered its ability to innovate. Key manager turnover was reportedly 44% (AllianceBernstein) in 2019.

The issue is that the car company is only worth about 20% of the company's $900b market cap. The other 80% is hopes and dreams that Elon will come back and innovate. Will he? Can he?

After driving my Model 3 on full self driving this weekend, I'm skeptical that the technology is ready to be used in a driverless Robotaxi. And Musk wants to sell me a robot helper? That's terrifying! Show us some real innovation, please.

So, it was interesting that the WSJ reported that the board has started a search to replace him, which Tesla denies. But is there a bit of truth?

Today's futures. To the right of the rightmost dashed vertical line is since yesterday's close.

Good morning Diary folks. Dougie’s taking today off, and I'm excited to be back with you all.

The good news is that it's May! The start of a brand new month and a new P&L. If you had a great April, then good for you. A terrible one, it’s over. Time to move on. April is history.

Besides, it’s not like April gave us any clarity. 

So, let's get after it and have some fun today.