Market Briefing for Monday, May 1

The greater drama (whether a brief swing high occurs or not first) risks what would be the first technically-based 'range' breakdown in awhile, from what is now an established overbought condition in most of the major indexes. At this point more than 10% of the overall market cap led by this is from narrow leadership provided by that well-known handful of stocks; not broad gains.

On a short-term basis, tension that rebounds Oil (which did have setbacks of mild proportions), such as the new deployment of US troops backing up the Kurds along the Turkish border (after an attack by Erdogan's Air Force killed about 20 Kurdish fighters that were working with our teams against IS it should be noted), can also have a sustaining influence if Oil stocks rally; at the same time that any escalation of tensions or war(s) would nullify that.

The market prospects are as discussed and outlined: minor upside potential and significant downside risk, which varies depending on whether we see a normal technical breakdown; which if combined with a geopolitical disaster, can become a combined downward force of extreme short-term potential. It is not generally recognized; but the 'modern portfolio' management theories that emphasize Index and/or ETF investing actually contributes to this risk; as it results in 'baskets' of stocks bought or sold without concurrent devotion to analysis the merits (or lack) of the components. A liquidation wave in the Index funds for instance, could be almost catastrophic on a short-term basis and of course is something we'd rather not see.

Nevertheless complacency rules as now pundits suggest nothing can break this market. Always beware the 'this time is different' argument; and you've seen the risk gradually by the focus on moving into small-caps while money managers concentrate (and peddle) interest in a handful of big-caps, which are dominating the Index behavior.

If we don't get more military action before Monday, we should see a rebound from initial new selling with the S&P still in the 'range'; and although I wouldn't expect enthusiasm with the upside; that would be reasonable, with lots of 'sell in May and go away' speculation along with 'this time is different' abounding as background.

Again, risk/reward potential is skewed in-favor of the next meaningful move being to the downside, regardless of war and regardless of any rally even if it thrusts to new highs in the very near-term. No change in overall outlines.

Of course strong quarterly results (above conservative guidance that we've suggested many companies were using so they could meet or exceed with little trouble) don't create a hot streak; they reward those who bought many months ago primarily; with any entering 'after the fact' exposed to rising risk though very few analysts or pundits will acknowledge that until after the run.

Whether it's Alphabet (GOOGL) or Amazon (AMZN) or others; you've got a bit of fuel for resumption of blow-off characteristics. Notice that the move is not particularly broad, and that here and there hints of breadth separation (between the core big-cap leaders and the also-ran) starts to appear. We'll not dignify the ridiculous argument about which of those two above are the ones to buy; as neither is a particular value now; or especially at near-term higher prices.

Same might be said about Apple (AAPL), where nobody will address the market-share deterioration in China for instance; although I've never been bearish on Apple for other than short-term pullbacks, in over 15 years. (Yes we had two great shorts and a few great long ideas on Apple; for traders; while for investors buying the purges was the idea; and like now, we'd not buy into surges for any of these stocks; and lighten-up into others doing so, if one needs to build cash to take advantage of serious correction risks.

In the short-run (daily) traders are focused on these 'big quarters' for such stocks, and not the overall micro OR macro conditions beyond impact these near-term so-called leaders have. Perhaps they might glance at what they'll now dismiss as 'old-tech' companies; like Microsoft's (MSFT) revenue miss or Intel's (INTC) softer revenue. Yes, stocks will go opposite knee-jerk first reactions; but that's not the point. It's not bargain day with May on the way.

What's driving this is the multifaceted factors dominating technology; and of course a reticence to invest where there's an impact from lower investment in software and so on. Generally our concern isn't about lower spending by a lot of firms, but more about semi-parabolic behavior in the major Indexes.

The shift of focus back to the health of corporate America is valid for just a New York moment here; as with long-awaited tax-reform seemingly in-play (it will take many months to truly come together; but it's a work-in-progress) and perhaps a 'glimmer' suggesting to me there will not be immediate 'war' with North Korea, there just might be breathing space to get new highs first, and then we can have our correction.

Bottom-line

After Wednesday's tax-plan roiling we got a fairly sanguine or erratic Thursday, which swung a lot; but wasn't a serious down-up-down or bearish session technically. Had it been we'd be more concerned near term.

We might still get an 'absence-of-bids' later Friday, ahead of the 'military' or tense weekend (because nobody's focused on the UN rep. invitation for a visit next week being a sort of notable departure for Pyongyang's policies; we can only hope). However, at least it should start as an up day and then perhaps fade some later in the session.

Conclusion

The geopolitical and domestic political whirlwinds persist. Now Russia has warned North Korea that the situation is deteriorating rapidly. A serious John McCain says that Trump knows striking North Korea is solely a last resort alternative. The odds are that there's no Obamacare repeal now, so the scare tactic of a Congressional battle holding-up a CR or better, is a likely moot issue at the moment (and moments change quickly these days of course). So we suspect the market tries to extend; even if it later falters.

Geopolitics are forecast to contribute to impact (depth-and-breadth) of any evolving rallies or retreats. Thus far North Korea's not disrupting markets dynamically; part of a process denying players who 'thought' the market is immune from decline or news; and then periodically running them in with unsustainable short squeezes.

Many will 'blame' geopolitics alone; but as you know the economic factors, including delay of tax-reform and exhaustion of seasonal reinvestment funds coming-into markets, contributed to my view of April-May risks after a likely S&P peak indicated at the beginning of March. If those issues now return to the forefront in a way that promises legislation that's doable; then the S&P evolution will change a bit. However it can be a 'hook' to drag in late-stage buyers as well.

Avoiding corrections of a greater magnitude in the weeks ahead is pretty unlikely, short-term higher highs notwithstanding.

Weekend (final) MarketCast

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