Index strength masks summertime blues in some tech smallcaps ahead of Q2 earnings, while Apple's lawsuit adds tech sector uncertainty.
Superficial Index strength obscures the 'Summertime Blues' dominating a broad cross-section of small caps and others not correlated to the big Index. I don't know exactly when 'new money' flows aside mega-cap and drifts down to the smaller stocks; but it is Summer and it's also ahead of probable orders from Dept. of War and others for drones and related gear; but many of course are anticipating that; so shares have drifted down perhaps from a bit of an abundance of optimism, which we share fundamentally; but don't chase.
In that vein; I think the story has actually improved for some candidates; not just Ondas (ONDS), but it's among ones that should benefit. And you have a number of Defense/Security tickers that were higher months ago; and proceeded to a deteriorated stance primarily from those that traded aggressively almost any of them too frequently, or simply bought high.
With that said, there are some unique situations that contributed to heaviness; including the yet-to-occur 'drone dominance' next phase; or for instance even Canada's defense counter-drone decision-making, which is also pending; so I am pretty sure Draganfly (DPRO) is counting on something favorable emerging there. Plus in photonics, you probably have 2-4 months before new developments in 'light-based' connectivity are anticipated; although stocks may anticipate that. it is tough to say, since stocks are often mixed to lethargic in late Summer.
For sure the primary tactic noted lately has been pressure on Ondas primarily out of a crowd of 'well-heeled' buyers at the big offering months ago; with the complex strategy whereby they paid 16 (we 'never' paid anywhere nearly that) and have a (non-public traded) Warrant that needs over 20 or 28 to be seen, for a true success.. many would think at first blush. But not so simple; so as to manage their risk, we presume those guys have been shorting or writing lots of Call options along the way; not because they're negative; but for income. A way to generate cash-flow; thus holding the shares without a short or option tail at a time that hasn't yet arrived; but might be at least partially cooking now.
Why now? Well of course it could be next year before you see serious profits but you might get solid results from the Q2 report coming in August, plus the wide-expected improved guidance (much of which is already out there being discussed). And that's part of the inhibition to gain; everyone is optimistic and that includes most of the short-sellers we presume; again as they are what I'd called 'closet bulls or longs', given that the shorting/options was a strategy. I would think they'd start coming out of that strategy around now; but unclear of course; although 'relatively' range-bound high volume suggests anxiety.
Market X-ray: earnings season kicks off next week; but most new-era tickers don't report until August; so there's some time to remain anxious, whether one is optimistic or not. In some cases 'drone' tests are intended for August; so it's sort of the 'glacial' speed of Government evaluation, whether they actually do move forward faster or not.
So far CEOs (and certainly shareholders) are panting for more business, or a bit of clarification in some cases, so you get a variation on Summer Doldrums. I think the broad optimism about the sector compounds the issue because so many investors (and maybe institutions) chased the upside earlier this year; at the same time as the convoluted behavior of big-cap tech has money trying to focus there to hold the sector together. 'And', aside the 'sour-grapes' involved in the Apple (AAPL) suit against OpenAi; a lot of action is still sidelined for now.
Not to be too cynical; but I think institutions are letting some small tech stocks bleed a bit, so as to buy in (or back in) at very low prices, envisioning future gains ... it definitely wouldn't be the first time we've seen such Summer action.
July Expiration is coming late in the new week; but it's not a Quarterly; but does occur concurrent with the kick-off of Q2 Earnings Reports; so we'll see if that influences anything. We've seen many boring or even 'erosive' late Summers; as you know. And I've mentioned that previously; with the quirky aspect of rotation among mega-caps coinciding and also maybe colliding with expectations of progress in the drone and security-related plays. The problem for patient investors in some of these stocks from very low levels; is that the Street got excited about some of them at higher levels and that became challenging (and still is) as companies fight and migrate toward perceived contract progress. There is little or nothing I can proffer about this spectacle other than conviction in particular tickers where prices are relatively low relative to what estimates (where available) would infer regarding valuation levels more so for 2027 than for this year; although a couple of them (ONDS and UMAC included) imply healthy business growth ongoing this year not just next. So news and 'price discovery' remain pending.
Bottom line: perhaps the big story came after Friday's close; which was the big lawsuit brought by Apple against OpenAi related to trade secrets / 'industrial theft'. While this likely goes (apparently) to civil not criminal court, there are particular individuals named related to 'hardware' not just software. Even to a form of treating 'metal' that Apple claims as their Patented invention (I recall when that arrived, not details; as well as the early 'bending' iPhones). By the way (not so pertinent) but rumors say Apple will finally introduce the 'folding' iPhone in September; with the 'rumored heavier,' surprisingly, iPhone 18 and Pro delayed until early in 2027. That's odd; but we'll see. No words about the iPhone Air (the actual 'lighter' one); or a redesign of the MacBook Pro; said to finally have an OLED screen and also be touch-capable for the first time.
In particular there are references to AirPods and more; thus alleging OpenAi intent was to make its own products to compete with Apple. It all goes back to OpenAI buying Jon Ives' company after he formed it after leaving Apple; plus a 'Mr. Tan' who's also alleged to have taken materials (misappropriated laptop designs?) from Apple on departure. I have no idea; but anticipate ramification action and again a cloud over another widely anticipated IPO for late this year.
Disclosure:
This is an excerpt from Gene's Daily Briefing (distributed nightly), which typically includes videos as well as more charts and analysis.
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