The Morning Call
7/6/26
The
Market
Technical
In the current minor
pullback, the S&P has now made a higher low, in the process bouncing off
its 50 DMA (the good news). On the other hand, it has filled that gap down open
and now appears to be making a lower high (the bad news). So what happens next?
The weight of the evidence supports a continued push up: (1) it is above all its
DMAs and (2) it is in uptrends across all timeframes. Further, the (1) economy
continues to perform and (2) with one huge IPO down and two (?) to go, I can’t believe
that the Wall Street bankers are going to allow the Market to go down ahead of
these offerings.
Nonetheless,
follow through is what matters. If the Market can regain its former highs, that
is great---I will stay invested, though given the growing number of potential
negatives (valuation, the ‘deal’, direction of monetary policy), I am now
questioning whether to add to my holdings---'questioning’ being the operative
word. If the Market goes on to make a new lower low, I will likely take some
money off the table---some of my semiconductor holdings are well into their
Sell Half Range and I have delayed making those sales because of their strong
upside momentum.
Patience.
The long bond reversed
a fairly strong very short term uptrend. Though I am not sure if it is whether
the bond boys think that monetary policy is about to loosen or tighten. The latter
would be the easy explanation. However, as I noted previously---usually tighter
monetary policy usually produces higher rates. On the other hand, recall when
the Fed started its rate cutting program (lower rates) the long bond sold off on
fears of inflation. That could be what is happening now. In other
words, the bond market could be realizing Warsh may not be as hawkish as they first
believed. That said, it is a fool’s errand to try to figure out what Warsh is
thinking and what the bond boys think that means.
So I will stick
with what we know technically: (1) the long bond bounced off support, (2) but
made a dramatic reversal, closing back below all three DMA and (3) remains in
downtrends across all timeframes.
As I said last
week, I won’t consider that TLT’s downside momentum is done until it can at the
least push through the upper boundary of its very short term downtrend (green
line).
GLD remained in a well-defined
downtrend; it is below all three DMAs; appears ready to challenge its short
term uptrend; and historically, it hates high interest rates (see above) and a strong
dollar (see below). It would appear there is more downside in the cards.
The dollar remained in a very
well defined very short term uptrend but on a longer term basis is wandering in
the wilderness, i.e., it has a long way to go to get out of its short term
trading range. At the moment, the only thing that I can see that will reset
that to an uptrend is if Warsh is the real deal---and we don’t know that yet.
Thursday in the charts.
Summary: H2'26 has started off with an unwindy/rotation
bang as momentum winners have collapsed (AI/memory/semis) and momo losers
are surging (no obvious catalyst aside from META's 'excess compute'). Weak
payrolls pushed bond yields lower and gold higher as rate-hike odds
dropped. Oil down on the week as flows picked up. Korea's
carnage was crypto's gain (BTC's best 2 days since feb). Point-to-point
this week, the US Majors are hiding a lot of pain with the S&P and Dow
leading, Small Caps lagging modestly, and Nasdaq bouncing to a small gain.. Nasdaq's
bounce came today as it tested its 50DMA... below the surface it was a bloodbath......as the
reality of 'peak Tokenmaxxing' suddenly hits economic reality.. AI winners have been clubbed like a baby seal over
the last two days (with Goldman's AI Beneficiaries vs 'At Risk' pair crashing
16% - its worst two-day drop ever)... The 'check writers' have made a modest recovery
relative to the 'check receivers' in the last couple of days... Momo has
crashed over 18% in the last two days... ..its worst two-day drop since Nov 2020 (when high
growth tech stocks collapsed on positive COVID vaccine news while financials
and energy outperformed)... Momo has crashed over 18% in the last two days... ...its worst
two-day drop since Nov 2020 (when high growth tech stocks collapsed on positive
COVID vaccine news while financials and energy outperformed)... And the realized
vol of momentum has exploded higher (not great for VaR budgets)... Momo traders were hit with a double whammy
of winners crashing and losers rallying... Memory stocks are a bloodbath, down over 18% in
the last two days... the biggest two-day drop in memory stocks in at
least 12 years (GS data). AI Semis were slaughtered (worst two days drop
since Liberation Day)...
Thursday in the technical stats.
https://www.barchart.com/stocks/momentum
https://www.barchart.com/stocks/market-performance
https://www.barchart.com/stocks/sectors/rankings
Monday morning
setup: US equity futures point to a firmer cash open as traders return from the
long weekend, but the bigger question is whether investors continue to rotate
out of the crowded AI trade and into the broader market. As of 8:00am
ET, S&P futures rise 0.4%, while Nasdaq 100 contract rise 1.1% as most
Mag 7 names are in the green. In premarket trading, chip/memory stocks rebound
from last week's rout which follows the 18% plunge in the GS High Beta
Momentum (GSPRHIMO) basket over the last two sessions, on track for 2nd worst
month in >15 years. This follows an APAC session on Monday which took a more
downbeat view of the tech sector; South Korea’s Kospi index fell,
having gained as much as 3% earlier. Memory chipmaker Samsung Electronics’
preliminary earnings Tuesday will provide further clues on demand for AI
infrastructure and the durability of the sector’s growth narrative. The MSCI
APAC index fell as much as 0.7% before returning to the unchanged
mark. The Stoxx 600 has just slipped into negative territory, down 0.1%, after
hitting another record high earlier in the session. The Bloomberg Dollar Spot
Index is up 0.2% with the greenback firmer versus most G10 peers. Gains are
most pronounced against the yen with USD/JPY venturing as high as 162.31 but
still below last week’s multi-decade peak at 162.84. Treasuries are seeing a
modest bid with the 10-year yield down 2 basis points at 4.46%. Oil prices fell
as flows through the Strait of Hormuz persisted and OPEC+ signaled higher
supplies, with Brent trading about 0.4% lower at $71.82 a barrel. Precious
metals are on the back foot with spot gold and silver posting respective losses
of 0.8% and 0.7%. Bitcoin is down 0.1%. Today's US economic data calendar
includes June final S&P Global US services PMI (9:45am) and June ISM
services (10am). Fed speaker slate includes Waller at 11am
Fundamental
Headlines
The
Economy
The
US stats last week were slightly negative with one plus primary indicator and one
minus inflation number. Overseas, the data was overwhelmingly upbeat with no price
measures.
There
is nothing in this data to alter my view of steadily growing economy. Indeed,
the quite positive global stats help that case.
On
inflation the front, the aforementioned negative US inflation number was hardly
a key datapoint (the Case Shiller home price index) even though it does support
my outlook. On the other hand, (1) the lower than expected payroll numbers
hints at a potential weakening in the economy and (2) Warsh’ comments at a global
monetary conference were much less hawkish than at his own FOMC presser,
opening the door for even more hope [for the bulls] that rates hikes are not necessarily
in our future. So, as I have noted previously, at this point, nobody really
knows Warsh’s predispositions.
So
for the moment, my ‘inflation is as good as its going to get though it may not
get any worse’ position remains.
https://www.zerohedge.com/markets/wage-growth-leading-inflation-indicator
Regarding
the end of the war, the Market keeps wanting to believe that the worst is over---and
it may be. But that doesn’t mean the resulting outcome/peace will be anything
close to what Trump is suggesting. Indeed, from my point of view, the Iranian
behavior mocks the Donald and his narrative. To be sure, the resumption of the
flow of oil out of the Middle East is a plus for the US/global economy. But at
what price? The US having pissed away billions of dollar and some American kids’
lives for outcome that accomplished nothing? The Iranians now charging the rest
of the world a toll that didn’t exist before for passage through the Strait of
Hormuz? An Iranian regime that is more radical than the one will killed? Damage
to US prestige for letting a bunch radical muslims call its bluff?
Bottom
line: while it makes sense to be positive about the resumption of oil flowing
out of the Middle East, the question is how positive. And that has yet to be
answered.
Finally,
the ‘there is just no quit in the AI investment cycle’ narrative seems to be
shifting a bit with some corners of the investment community starting the question
just how positive the underly economics of the AI revolution really are---not
that the ultimate outcome won’t be extraordinarily upbeat, but who will benefit
in the process. And more importantly what price do you pay for the
beneficiaries even if you are smart enough to figure out who they are. I for
one am not; so I maintain my healthy dose of skepticism.
US
International
May
German factory orders were up 1.9% versus consensus of +1.2%.
May EU retail
sales rose 0.2% versus projections of +0.3%; May PPI was up 0.2%, in line.
The June EU
construction PMI came in at 42.8 versus estimates of 43.0; the June German construction PMI was 44.8 versus 42.0; the June UK construction PMI was 38.4 versus 40.0.
Other
Citi expects oil to sink to $60 a barrel.
https://www.zerohedge.com/energy/citi-expects-oil-sink-60-hormuz-traffic-normalizes
Overnight
News
Shipping along a
US-protected corridor near Oman in the Strait of Hormuz recovered after some
vessels earlier performed unexplained U-turns and detours. OPEC+ backed another
modest rise in quotas for next month.
Ukraine is
striking Russian energy infrastructure at an unprecedented rate, according to
an FT data analysis showing that Kyiv’s intensified drone campaign is spurring
Russia’s worst fuel crisis in decades.
Ukraine’s capital
Kyiv came under a deadly Russian attack early Monday morning, on the eve of a
critical NATO summit in Turkey that US President Donald Trump plans to attend.
World powers are
pouring billions into AI, drones, hypersonic missiles and space technologies in
a race to dominate the battlefields of the future.
A year ago, the
message from many business leaders was that AI was going to wipe out jobs. For
the past month or so, tech CEOs have been striking a more optimistic tone.
Large
investors are committing billions of dollars to private credit funds as big
institutions seek to profit from an exodus of smaller retail clients. North
American direct lending funds that seek to attract institutional clients raised
at least $16bn in the second quarter.
AI
Blackstone pulls out of a major datacenter build
out.
Summary:
Up until now, when it comes to real estate, Blackstone was best known in recent
years for dumping many of its trophy office properties - which in the aftermath
of work from home never recovered their projected cash flow potential - at
a huge
discount. Now, it may be pulling a page from its old, pre-Lehman
playbook by calling the top in yet another
commercial real estate segment: data centers. Two days ago we
reported that Blackstone was selling its stakes
in a trio of data centers across Northern Virginia for $3.5 billion, cashing
out of part of a bet it made less than three years ago. The increasingly
bitter political and grassroots pushback against new data center construction
explains why Blackstone has been getting cold feet just as the AI bubble is
peaking, first selling existing data centers, and now walking away from
upcoming projects. A recent
Gallup poll found that 7 in 10 Americans oppose
constructing data centers for artificial intelligence in their local area,
including nearly half, 48%, who are strongly opposed. Barely a quarter
favor these projects, with 7% strongly in favor. And now that the protest
movement knows how to push back against uninvited Wall Street occupants, thanks
to the BlackStone capitulation, expect an exponential increase in legal (and
other) attempts to hinder the rollout of data centers across the US, assuring
that the AI supercycle, which is already years behind schedule with just half
of the data centers meant to be built in progress and on time, will expect to
see an avalanche of delays and cancellations assuring that the return on
debt-funded capex will be even less as eventual launch dates gradually move
ever further into the unknown future
Investing
The latest from BofA.
https://www.zerohedge.com/markets/hartnett-red-white-and-boom
Summary:
BofA's sell signal gets even more
bearish, as it rises to a near all-time high 9.5 from 9.1 last week, driven by
more bullish hedge fund positioning (reducing S&P 500 futures
shorts and reducing VIX futures longs), bond inflow to HY bonds, equity
inflows to tech and healthcare. As a reminder, the BofA
Bull and Bear Indicator "sell signal" was triggered May 20th; and
since 2002 there have been 17 "sell signals", average loss for global
stocks over 2-3 months is 2-3%, with a hit ratio of ~60%, max drawdowns of
15-20%
The investment case for gold.
(4)
The World’s Gold Is Quietly Leaving London and New York
News on Stocks in Our Portfolios
What
I am reading today
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