Pent-up selling into strength - finally arrived; albeit not in the most-hyped AI sector; almost exclusively. So far this is actually healthy; while characteristics of a 'vacuum' of 'bids pulled' gets attention; and it was a key reversal session.

That means 'higher high, lower low and lower close' which defines an 'outside day' or key reversal. However I'm suspicious it may be more the anticipated (a week of unsustainably low VIX levels getting into the high 11's and pointing to a VIX bump and S&P sell-off).. more the anticipated overbought correction as well as a reticence to take-on more positions ahead of a long weekend, than a true shift in sentiment; though of course it will initially appear that way.

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I mentioned the other day I basically agreed with JPM's Jamie Dimon (will he be pushed in circumstances to run for the Presidency or can't be burdened?).. about the economy; about commercial property delinquencies just stalled in a lot of cases (from desperate sales or foreclosures); about consumer struggles (we highlighted charts last night about that); and notably that 'they' would do a buyback of JP Morgan stock 'at these prices'; which said a lot about banks if not just JPM.

After the Close today; Intuit made numbers, raised guidance, but dropped 55 or more.. and this was their big TurboTax Quarter too. Again; fully priced is a basic way to describe that and so many stocks; which lack attractiveness as it relates to valuation now. We know this and is why we focus on a handful of AI small-caps mostly; even though we realize 'normally' the volatility is greater in the less mature companies. Even Workday (that shouldn't be surprising) got hit in aftermarket; off another 26 points. (Lower customer growth for them.)

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Market X-ray: a true internal look at the Indexes showed lack of participation even before Nvidia's results; and the speculated 'sell the news' afterwards, that ironically took everything down 'but' NVDA, mostly thanks to the 10x split.

The Index heaviness in-part is aided not just by an absence-of-bids; slippage of retail and restaurants as we've noted, but also the latest Boeing fiasco. I'm unsure of the specifics or accuracy; but stories making the rounds include the horrifying thought of about 300 in-use '777' models flown by American and United, as having risk of 'exploding fuel tanks' given an ignition source. Not at all sure if this is similar to TWA Flight 800's disaster years ago (take-off from JFK and still controversial as to whether it 'really' was just a center fuel tank or friction-based spark) or scary journalism I've been reading. TWA was a '747' of course; and much older design; so you'd think better fuel system in a 777.

Anyway; outside-down (key reversal) day; but take that as a bit ambiguous for now; although if you want to argue a multi-hundred point S&P retreat ahead; it would not be incongruous with this market. Regardless we didn't agree with a 'chasing' of big mega-caps; while holding what we have from long ago; and at least a bit of speculation with potentially-interesting innovative stocks.

I don't disagree that S&P could retreat at some point to the 200-Day Moving Average (say 4700-4800 or so); but I definitely felt and feel that you won't be taking the leading mega-caps of 'this era' much further without an adjustment; in any event straight-line moves higher were becoming more than extended. It is tough to say double-top because of divergent segments; but sure, could be. It also wouldn't be surprising if a 'Hail Mary' revival is attempted.. next week? I also believe 'AI' underpins this market for some time; so whatever 'bursting' is going on now, it's an interlude; not an extreme kind of market-ending tsunami.

One might be surprised; but small specs like SOUN and BBAI were virtually unchanged today; as after morning up-down selling; came back near the Bell. Again these are innovative / disruptive stocks; not appropriate for everyone; at the same time the big caps retain parts of, like AMD, ON, AAPL or TXN really are doing nothing or were hit today sort of typically like most stocks.

The implication (of the small stocks) is that they are not overpriced; just get a good bit choppy (because there are lots of retail players in both; while there's probably no movement at all from core insiders for now; not should there be). The concentration into AI is one thing (and overdone for the mega-caps); as the smaller ones have lots of potential 'as' their fundamental unfold; and that's of course presuming that they do.

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There's no big tsunami of liquidation; even though superficially it looks like it. I don't know that we're framing the outcome of AI speculation correctly; but will continue to believe we're 'early' at least in the 'Voice Generative AI' area and certainly when it comes to expediting 'people processing' like Airport security screening and something that radically reduces TSA lines just to catch flights.

Nobody talks about it, but (as I noted yesterday) Ed Bastian (Delta CEO) for all practical purposes confirmed the expansion of 'facial rec./biometrics' for a few major 'hubs and expectation to more Delta cities coming as embraced. I believe (absent a formal announcement) that this is Pangiam; hence BigBear but while we think we connected dots on this, they need to formally say so.

By the way the SEC approved Exchange applications to list Spot Ether ETF's, and well ok... but it doesn't change views that much of crypto is 'sketchy'.

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Bottom-line: S&P got way ahead of itself, even before this week; and that's a reason why it had little chance for much more headway absent a 'broadening' much wider than what's been seen so far.

Back drop has been increasing struggles for 'many' population segments; as inflation and general high prices press more families than is recognized; and I have talked about that. Pulling back exposure was the idea; but profit-taking in AI has been rather limited; compared to continued languishing elsewhere.

Friday might try to rebound after a washout; but probably not dramatically. To add to confusion, besides Memorial Day, you have more erratic trading weeks ahead, with June 'teenth' at mid-month and Independence Day 2 weeks later. All of it coincides with what is often strength in June's 2nd half; but not to start and so far it looks like this year may not depart from that seasonal prospect.

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Prior highlights follow:

Debts are piling-up .. with more Americans challenged to keep-up. That's my take on the credit card debt and delinquencies, which might be viewed with a bit more concern that expressed by the 'bah humbug' FOMC Minutes today.

I think it's also more important than the Nvidia focus or big-cap tech for now. It may also temper so-called consumer optimism; also reflected by Target or others that mostly cater to the lower 'retail range' of consumers; then markets act surprised when they get hit (shouldn't as this is ongoing). However, tough consumer conditions, may also mean a rate cut coming before just very late this year, or not at all, as David Solomon (Goldman Sachs) suggested today. GS/Solomon says 'not at all'; I disagree... just look at 'consumer cyclicals'.

Perhaps elitists don't see the challenges average families feel; and dismiss it by rationalizing people keeping cars longer since 'older are better'. That may be the case in a few instances (like mine haha); but generally it's the reflection of lack of new car affordability for the lower economic segments (as well as awareness of trend changes to EV's, absurdly high prices and so on).

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The FOMC Minutes came out today; talking of 'higher for longer' but calling for inflation to 'edge down towards the Fed's target' over time. Sort of odd until we realized these Minutes were before the latest data-stream series, which in fact tamed some of the hawkish zealots among the Fed.

So not much change; just doubts about whether restrictive enough (failing to recognize that higher rates themselves contributed to juicing inflation further); but overall probably a non-even or minor event, if you try contextualizing this more than we just did. Basically it says the Fed's on the right track but not yet there; and that basically makes sense.

The Fed was too low for too long, then rushed rates higher (contributing very clearly 'to' inflation), and now is sort of stagnant pending a slight easing trend. Now, you have most consumers extremely vulnerable or doing what they can to hang on, as evidenced by a significant increase in people working two jobs, likely trying to make ends meet. This is not sustainable, and the Fed knows it.

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Market X-ray: we're starting to get some easing of the 'pace' of inflation; but as I've contended for months, not much (if any) actual price relief. Hedging is sort of back in vogue, just because the S&P is so high for so long and values are generally not there, as the 'air pockets' in a couple stocks clearly showed. You didn't have to wait for Palo Alto Networks, Lululemon or Target reports to see this evolution, while the focus on Ai and tech overall shows resilience.

I do want to note one 'geopolitical' note; as I'm concerned American media is (again) going to ignore context of the Congressional grilling of Sec'y. Blinken.

Senate Republicans pushed Blinken on whether the Biden administration would back a bipartisan push for sanctions on the international court for interfering in a country that is not party to the court's founding statute (Israel) and that clearly has an independent judiciary. “I welcome working with you on that,” Blinken said. 

House Republicans say they're already working on legislation that would sanction ICC officials & advisers involved in this week’s announcement, though it’s unclear how many Democrats would back such legislation despite the fact Democratic leaders in the House and Senate criticized the ICC announcement; given Senate Majority Leader Chuck Schumer calling the ICC's decision "reprehensible."

We're not thrilled with some of Netanyahu's politics that's for sure (many Israelis are not fond particularly of how West Bank settlers have treated their neighbors); at the same time trying to create a moral equivalence between Israel and Hamas is insane, which is however what the ICC attempted to do. Also shame on Spain and Ireland for recognizing Palestine as a 'state'; again failing to recognize where the history takes you; although most people do expect a 2-state solution (perhaps not forget the origins of the modern Palestinian movement that tracts from WW2, and the 'Grand Mufti' actually meeting with Adolf Hitler.. and forgets that the SS in a few cases trained the Arab police forces in the region; hence brutality origins to a degree). (It's also not coincidental the Saudi 'flag' presents 'crossed swords'.) I digress, but the problem with recognizing as occurred today is: rewards terrorism.

By the way: on a 'security alliance' regional deal; after national security adviser Jake Sullivan made weekend visits to Saudi Arabia and Israel — it could fall through if Israel fails to acquiesce to Saudi demands. So Blinken said: "The Saudis have been very clear: [a deal] would require calm in Gaza, and it will require a credible pathway to a Palestinian state,” maybe not attainable now.

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Meanwhile . . . the focus has been on N'vidia, and will likely migrate beyond that next week. It really needs to, or you're back to a small leadership cadre of a few stocks, and that's not good for overall progression of the markets.

Regardless of Nvidia making 'no' mention of SOUN at all; or shares dropping after this rush (probability of any meaningful setback reduced by a major split, which retail investors love; as do insiders); aside this we see it as opportunity longer-term for SOUN. Why? Because they are partners; but more important, a 'large language model' deal with (privately held) 'Perplexity', will bring key LLM capability and dynamic interaction to SoundHound's products.

That's 'Generational Voice Ai' leaping to a higher level. So it's significant. Sure Nvidia gets recognition for being involved; but it's a Perplexity partnership that transforms/advances SOUN / Gen. Ai (in both Automotive 'and' IOT -internet of things- and that's a bit disruptive to the big boys plans). So I think it's a 10+ stock regardless; just a question as to whether a further ill-informed shakeout or not occurs along the way.

By the way note Delta Airlines CEO Ed Bastian mentioned 'Delta Digital ID' in a 'pre-Summer' email to Delta SkyMiles Members. This is BigBear.ai new system (thanks to the Pangiam acquistion), and notice he mentioned not just the Boarding process, but your baggage clearing security screening, after all the usual reference to new routes and the 'App' and so on, with this remark:

CEO: "We’re also continuing to expand our Delta Digital ID program, allowing SkyMiles Members like you to check bags easily and move through security without a physical ID. It’s available to opt-in today in Atlanta, Detroit, Los Angeles, and both LGA and JFK in New York." Thanks Ed; progress noted.

Bottom-line: the base case of the Fed believing the next phase is a 'rate cut', is thought by some to be an 'altered case' after today's FOMC Minutes. I don't see it that way; but that's part of overall defensive action looked for anyway, ahead of the Nvidia report. We consistently felt inflation was merely rising at a slower pace; however at no time did we buy into a 'lower prices' argument.

So even the withdrawal of Gasoline from its 'strategic' Reserves is an artificial move to temporarily soften retail gasoline prices ahead of Memorial Day; it is not an accurate reflection of Supply & Demand on overall firm Oil prices.

Thursday will start with an upside kickoff thanks to 'sighs of relief' from NVDA. (Yup, sure did; then 'la deluge'.)

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