The Morning Call
10/21/26
The
Market
Technical
Tuesday in the
charts.
Note: despite some
bad fundamental news (AI IPO bomb, poor housing numbers), the S&P was up on
the day, pushing and closing above its 50 DMA. The stated reason was another ‘end
of the Iran war’ rumor, which though quickly denied held the field for the day.
Another possible explanation could be that the aforementioned bad news is
already discounted---and when stocks go up on bad news, that is usually a good
sign for the Market. Follow through is of the utmost importance; but yesterday’s
pin action leaves alive the notion that the Market ex-tech could be setting up
for a positive seasonal year end run. Again the operative words are ‘follow
through’; so I am not getting jiggy just yet.
Tuesday in the
technical stats.
https://www.barchart.com/stocks/momentum
https://www.barchart.com/stocks/market-performance
https://www.barchart.com/stocks/sectors/rankings
https://www.barchart.com/stocks/signals/new-recommendations
Retail traders keep buying.
Is gold bottoming?
https://talkmarkets.com/article/if-you-own-silver-or-gold-you-need-to-watch-this-signal-closely
Wednesday morning
setup: US futures are higher as blowout results from SpaceX and a monster
preannouncement from Super Micro gave the battered AI trade a reason to bounce,
while Elon Musk's open endorsement of a SpaceX-Tesla merger added to the buzz;
but with more attacks on shipping around the Strait of Hormuz, oil is back on
the rise and as a result Brent is again above $110 while French 10Y yields
hit 5% for the first time since 2002. As of 8:00am ET, S&P futures are
0.3% higher while Nasdaq futures are up 0.6% and Dow futures are up 0.1%. That
follows a session in which the S&P rose 0.3% to 7,712 with 403 advancers,
the most since April, as the equal-weight index jumped 1.15% while the Nasdaq
slipped 0.02% in yet another rotation day out of AI. In premarket trading, the
AI complex is back in demand with SpaceX up 9.1% and Super Micro up 12.4%,
confirming our post
from last night, and Nvidia leads the Mag 7 with a 1.3% gain, while Netflix
tumbles 6.2% on a soft Q4 guide and Intuitive Surgical slides 7.8%. The
day's driver is AI (again), and this time it's the bulls' turn: SpaceX
revenue of $14.6 billion crushed
the $12.8 billion consensus and Super Micro guided fiscal Q1 sales to
$18.5-19.5 billion vs its own prior $14.5-15.5 billion guide, reviving
the AI trade one day after Korea's Elice IPO faceplant and Ken
Griffin's warning that investors are "almost certainly" in an AI
bubble. Treasuries are slightly cheaper across the curve, led by the front-end
and belly, with the 10Y around 5.12% as stocks climb on better AI sentiment and
a leg higher in oil adds to the upside pressure on yields ahead of today's $13
billion 20-year reopening; French bonds are the weak link in Europe, with the
OAT-Bund spread widening to 158bps on fiscal worries and $110 crude, while
gilts outperform even after UK CPI rose to an 11-month high of 3.5%, cementing
a November BOE hike. The Bloomberg dollar index is little changed while the
Aussie is the best G10 performer, rising 0.5% to 0.7036, the highest since
Sept. 28, after hawkish RBA comments. In commodities, WTI rises 1.4% to about
$99 and Brent 1.2% to $110, Dutch TTF gas jumps 4%, gold is flat near $4,120
and silver drops 1%. Bitcoin rises 0.8% to about $83,400. US economic data
slate is empty after MBA mortgage applications fell 5.3% last week (7am); the
Fed is in its external communications blackout ahead of next week's meeting.
The Treasury will sell $75 billion of 17-week bills (11:30am) and $13 billion
of 20-year bonds (1pm). Earnings from Meta, Tesla, IBM, Texas Instruments and
Lam Research come after the close.
Fundamental
Headlines
The
Economy
US
Weekly mortgage
applications declined 5.3% while purchase allocations were down 7.3%.
Month to date
retail chain store sales were up 9.0% versus +10.4% in the prior week.
September
pending homes sales fell 7.3% versus forecasts of -0.5%.
International
The
September Japanese trade balance was -Y531.6 billion versus predictions of
-Y181.0 billion.
The September UK
CPI was up 0.4% versus consensus of +0.3%; core CPI was up 0.2%, in line; PPI
was up 1.5% versus +1.6%.
Other
Charts of the week.
https://www.carsongroup.com/wp-content/uploads/2026/10/ChartsoftheWeekOct12-16.pdf
Wall Street expectations for Treasury yields---higher
for longer.
https://econbrowser.com/archives/2026/10/wall-street-expectations-for-treasury-yields-higher
Say goodbye to a
housing recovery.
https://bonddad.blogspot.com/2026/10/september-new-housing-construction.html
Overnight
News
Anthropic could
spend $750 billion on additional computing power in the coming years, the WSJ
reported, citing a draft IPO prospectus, while billionaire Ken Griffin said
investors are "almost certainly" in the midst of an AI bubble.
Nvidia is in talks
to invest hundreds of millions of dollars in Australian AI cloud provider
Firmus.
Nasdaq futures
rose after SpaceX and Super Micro topped forecasts, reigniting the AI trade.
Adding to the buzz, Elon Musk said SpaceX and Tesla are studying a potential
merger that would be the biggest ever.
Over the past two
weeks, HFs aggressively net sold global Info Tech stocks at the fastest pace in
the past decade (-3.3 SDs), driven by long-and-short sales. Net allocation to
Global AI stocks now sits in the 38th percentile while aggregate long/short ratio
is in the 6th percentile vs. the past year.
Persian Gulf oil
exports have surpassed prewar levels, as an improvised shipping system under
U.S. protection is helping tankers move oil through one of Iran’s fiercest
waves of attacks in the Strait of Hormuz.
Benjamin Netanyahu
is pushing to resume large-scale strikes against Iran and had instructed his
military to plan for a major new offensive earlier this month, moves that risk
plunging the region back into full-scale war.
Iran
Overnight news.
https://www.zerohedge.com/geopolitical/two-tankers-fire-oman-irgc-boasts-naval-mine-warfare
Inflation
Rents are re-accelerating.
AI
Reality sucks.
https://alhambrapartners.com/weekly-market-pulse-reality-bites/?src=news
Billions in Nvidia chips sitting in Amazon
warehouse collecting dust.
Datacenter bloodbath spreads down under.
The Fed can kill the AI boom.
AI debt worries spark surge in default insurance
trading.
https://www.ft.com/content/6dd31584-064c-4015-bf5d-e5747799ccd5?syn-25a6b1a6=1
Summary.
Investors are racing to buy credit default swaps to protect their portfolios in
the event the AI boom unravels, sending trading volumes surging for an
instrument that shot to prominence during the global financial crisis. More
than $9bn worth of CDS linked to bonds issued by Oracle, SpaceX, Alphabet,
Amazon, Meta, Broadcom and Nvidia was traded on average each week in September,
up from less than $2bn in July, according to Morgan Stanley Research. In a sign
of investors’ increasing unease over the borrowing binge, the cost of buying
CDS on many AI-linked companies has hit record highs this month. This so-called
spread has in recent days climbed not only for companies that investors judge
as riskier, such as AI cloud-computing provider CoreWeave, but also for those
such as Microsoft that are seen as relatively safe.
Investing
Sometimes, knives
just keep falling.
Everyone hates
this bull market.
Summary:
The current US bull market is the most distrusted rally in several decades,
with many people skeptical of a rising market and expecting it to end in tears.
The market is often compared to the internet craze of the late 1990s, but the
mood is entirely different now, with reservations and warnings instead of
excitement and optimism. The AI boom is seen as a threat by many people, and
its impact on the market is significant, with AI-related companies dominating
the leaderboard and accounting for a large portion of the market's value.
News on Stocks in Our Portfolios
What
I am reading today
Reflections
on the protests in France.
7
reflections on the situation in France - by Arnold Kling
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