No Bombs for Israel, Market Uncertainty, Pessimistic Consumers, Trading Palantir
The trading volume was there on Tuesday. The breadth is why we cannot confirm an upward change in trend.
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The Associated Press broke news overnight that the United States had paused a delivery of 3,500 bombs to the Israel Defense Forces over concern that these bombs, which are dropped from aircraft, would cause great damage if dropped on a dense, urban area such as Rafah in southern Gaza near the Egyptian border. The IDF is currently operating in that area.
The move comes after last month's US foreign aid package had been signed into law that included billions of dollars in Israeli assistance and after the Biden administration had urged Israeli forces not to attack the city of Rafah unless civilians could be evacuated first.
There are several variants of these two bomb types. If these are Mark 84 2,000 pound and Mark 82 500-pound unguided munitions, as I suspect they would be, the manufacturer would be General Dynamics GD, not that holding on to these bombs would impact the bottom line terribly, but readers should know who is impacted. Mark 84's go for about $16K a piece while Mark 82s sell for about $4K.
The bombs are manufactured in both Texas and Poland. A long time ago, I once found an unexploded 500-pound bomb (a dud) sticking out of the ground out in the desert, which was quite alarming in itself. That bomb was so large that I am having a little bit of a hard time wrapping my head around what a 2,000-pound bomb must look like.
Just Can't Confirm
This is getting somewhat annoying. Readers well know that I prefer to see a "volume-based" confirmation of any change in trend. The worm turned on April 19th and we still do not have an honest confirmation. Ever since bottoming on that date, "down" days have occurred on notably higher trading volume than have "up" days. Its been almost uncanny.
Almost makes one feel like markets are being set up for a good punch in the nose. Of course, all of this uncertainty goes away with an earnest rally on increased trading volume where there is little doubt that professional managers participated in aggregate. Right now, we just can not say this.
On Tuesday, the S&P 500 eked out a gain of 0.13%, while the Nasdaq Composite gave up 0.1%. Nothing to write home about in terms of ground gained or lost. Of course, individually, the Walt Disney Co DIS was slapped around for a loss of 9.62% on Tuesday after reporting the firm's quarterly results ahead of the opening bell. Disney was the worst performer among the Dow 30 and the second worst performer among the S&P 500 for the session.
I did sell some later in the afternoon as I had written I would. I am still long the name, but the stick bears a weighting of less than 1% of my book and is no longer a top 20 holding.
Beyond the majors, the Dow Transports gained 0.35% on Tuesday, followed by the Russell 2000 (+0.19%), the KBW Banks (-0.17%), and the Philadelphia Semis (-0.74%). Remember earlier this week where growth and cyclical stocks appeared to leave defensive type names behind? Tuesday reflected a complete reversal of that situation.
While eight of the eleven S&P sector SPDR ETFs still closed out the day in the green, and the Materials XLB led the way higher at +1.19%, Defensive sector funds took places two through five on the daily performance tables. Cyclicals and Growth took places six through eleven, with Discretionaries XLY closing in last place at -0.72%. Tesla TSLA surrendered 3.76% ending what had been a three-day winning streak.
Sour Breadth
The trading volume was there on Tuesday. The breadth is why we cannot confirm an upward change in trend. That and the fact that the Nasdaq Composite actually closed in the red. Winners beat losers by a rough 5 to 4 at the NYSE, while losers beat winners by a smidge at the Nasdaq. Advancing volume took just a 48.4% share of composite NYSE-listed trade and a 49.1% share of composite Nasdaq-listed turnover, so you had a minority share of positive price action for listings of both exchanges as well.
This more or less rendered the increased trading volume experienced across these listings as well as across the memberships of both the S&P 500 and Nasdaq Composite close to meaningless, at least technically when viewed from 10,000 feet.
Neither major index has yet tested its respective 50-day SMA (simple moving average) from above since retaking that key line. The Nasdaq Composite has been above the 50-day line since Friday, while the S&P 500 has held that line since Monday.
Softer Consumer
The Federal Reserve reported on Tuesday that consumer credit increased just 1.5% in March, down from growth of 3.6% in February. In other words, total consumer credit grew by $6.3B for the month of March with economists looking for something with a $14B handle. Revolving credit, or credit card usage increased just 0.1% for the month, down from growth of 9.7% for the month prior. March was the slowest month of growth for revolving credit since April of 2021.
Is It Any Wonder?
This came hours after the RealClearMarkets/TIPP Economic Optimism print for May hit the tape. At the headline, May optimism dropped to 41.8 from 44.1 in April. Just an FYI, "50" is the line between perceived mass optimism and perceived mass pessimism. According to this survey, American consumers have now been pessimistic for 33 consecutive months. That's not a misprint. The last month with a headline reading above 50 for this series was August of 2021.
On specific questions, the reading for consumers' six-month outlook dropped to 35.7 from 38.8, while confidence in the federal government's economic policies dropped to 38.5 from 40.3. When split into investors and non-investors, investors have been more optimistic. For May, investor optimism dropped from 54.9 to 46.3, while optimism among non-investors actually improved, but is still overwhelmingly negative, from 36.6 to 40.1.
Restricted!
Late Tuesday, Bloomberg News reported that the Biden administration had revoked licenses for both Intel INTC and Qualcomm QCOM to sell chips to Chinese telecom giant Huawei for use in both handsets and laptops.
The US Commerce Department confirmed for Bloomberg the withdrawal of a number of licenses without getting into specifics, while according to the piece on Bloomberg's website, House Foreign Affairs Committee Chair Michael McCaul confirmed the administration's decision. So far, QCOM is down almost 1% overnight, while INTC is up small.
Trading
Billionaire investor Stanley Druckenmiller appeared at CNBC ahead of Tuesday's opening. He revealed that he had taken some profits in Nvidia NVDA earlier this spring as had I.
As NVDA has rallied into its upcoming quarterly earnings release, and the stock price climbs closer to those levels seen a couple of months ago, it was reaffirming for me as a trader/investor that someone I think of as possibly the industry GOAT, was thinking along the same lines... protecting profits near highs going into what seemed like a rough patch, as was. I remain long the name, and the name remains for me, a top 10 holding.
I did add to my long position in Palantir Technologies PLTR on Tuesday as I wrote I would in my piece at TheStreet PRO. Yes, this purchase violated net basis, but also... how often does one get to purchase a stock they are truly committed to at a 15% discount to the day prior's close? That purchase just gets PLTR into my top 10-weighted equity holdings.
Economics (All Times Eastern)
07:00 - MBA 30 Year Mortgage Rate (Weekly): Last 7.29%.
07:00 - MBA Mortgage Applications (Weekly): Last -2.3% w/w.
10:00 - Wholesale Inventories (Mar-rev): Flashed -0.4% m/m.
10:30 - Oil Inventories (Weekly): Last +7.265M.
10:30 - Gasoline Stocks (Weekly): Last +344K.
13:00 Ten Year Note Auction: $42B.
The Fed (All Times Eastern)
11:00 - Speaker: Federal Reserve Vice Chair Philip Jefferson.
13:30 - Speaker: Reserve Board Gov. Lisa Cook.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: AFRM (-.52), BUD (.65), UBER (.39)
After the Close: ABNB (.23), ARM (.30), HOOD (.12), TTD (.22)
At the time of publication, Stephen Guilfoyle was long GD, DIS, NVDA, PLTR equity.
