Market Briefing For Thursday, Aug. 10

An 'absence of bids' can be a basic way of describing 'why' the market experienced a late in the day fade, ahead of the somewhat key CPI report Thursday morning.


So yes, we did not get a reprieve in S&P initially after the 'super conductor' in South Korea claim, failed two tests by Oxford and others. I hoped we'd get at least a rebound in Semiconductors generally, but we did not. Then later in the Wednesday session, as stocks generally were having a rebound, the pause I described regarding 'absence of bids'. But there's a bit more now occurring.

The main market problem is concentrated leadership expensive stocks, which rotationally are coming under pressures, and by implication pause sentiment in other stocks. It's the extreme angle of ascent (technically) that's worrisome in any number of such mega-cap stocks, and some specialty stocks that ran to extraordinary levels, and which could drop 20-30% and still be expensive. It doesn't mean they will (a few already have), but it has traders opening eyes.


There are some cracks, instead of healing, in the extended major semi plays. And that's led by Nvidia (NVDA), dropped 21 a day after Datadog (DDOG) got creamed just yesterday (we don't follow either closely, and warned about Nvidia actually).

It's problematic because both of these related to AI which has been central to markets, and probably will be in the future too. Another overpriced stock the market is watching, but we also don't follow (it's in the category of overpriced) is Super Micro, as SMCI got hi by an astounding 23% or 81 points. That gets attention, as Super Micro talked of weak demand for its 'AI Servers'.

And there are plenty of stocks that moved up lately and Wall St. analysts now come forth with recommendations. Absurd as the rallies already occurred. It's lots wider, like Constellation Brands, or of course Eli Lilly and even Amgen.

Some of these are fine, but only if they plunge significantly in weeks ahead. I think the pundits are worried as even the most vocal who typically chased the most expensive stocks, are suggesting 'not to chase stocks'. Yes they see the scenario and in-hindsight there were stocks that could have been chased. But the solution is not to chase them now, which is why I question coverage with higher targets for stocks that already had parabolic moves beyond reason. It is possible, almost probable, that we get a CPI-based run-up, but then when it falters, the pundits will say 'well, Food & Fuel weren't down'. The who bet for CPI is that the numbers were based on data collected before recent activity or price increases, which generally have not accommodated the disinflation idea here, although interestingly they have in China, and market there didn't like it.



The story of AI is intact, nothing's going away. Just as such stocks got too high, they attracted short-covering taking prices of those so-called leaders beyond anything logical, which has a side-effect of eroding even relative value plays. They went berzerk on the upside and now everyone will worry about later earnings (around August 23rd) from Nvidia, because of ancillary sector fear.

It's August, there was going to be correction in mostly-tech-led mega-caps or key expensive players, and that's what's occurring. Perhaps we get relief if an upside response occurs to CPI in the morning, but traders notice these bumps and will likely be tempted to fade the rallies, if any, at least temporarily.

These are not financial crises, they're not Enron fiascoes or anything like that of course, but they are a reflection of extremely excessive robust gains in just a handful of stocks, and that has spillover psychological effect on moods.

By the way Oil is near 84/bbl. This is pressed 'even higher' as SPR buys last week contributed to the move. Little is more inflationary than higher Oil. Yes, I called for the move-up from the high 60's, but wanted 'Gov'ment' to buy then. That they are doing so now or more recently contributed to higher CPI reality, if data was taken now. There is also the Saudi production limits, Russia, etc. (Oil stocks and trading crude, was fine from preceding lows, now too high.)

Parabolic (mostly big-cap) reversals and rebound failures are in-focus now.

To defend controversy among analysts and pundits, after Wednesday's close we got Disney (DIS) earnings (a stock we have been unfriendly too, but less so as it crumbled in price). Disney actually made their consensus number, just like many companies which early this year gave conservative guidance, making it easier to meet or exceed estimates. However they had 'subscriber slippage' in their streaming video services, which impacted the shares, then a rebound.

The basic action was sell on news and then rebound, but institutions are less sanguine about Disney, as we've warned for months. So we dislike it less but see no urgency or enthusiasm toward buying it. Media focuses on ESPN and linear television (or streaming), but I notice the higher prices there, and lower attendance at higher prices at the theme parks, partially anecdotal evidence.

I emphasize though, that 'if' DIS really craters anew (or stabilizes this Fall), we may well become favorable to it, rather than just being 'less unfriendly' to it. If so it might relate to a risky venture, blending Disney with ESPN and gaming, now that they have a partnership deal with Penn Entertainment. Innovative, for 'family-friendly' Disney (which offers NO casinos on their cruise ships). My point is it's a really big move for Disney to migrate into 'sports gaming'. This is so un-Disney that some might view it as a 'Hail Mary' sort of gambling deal.

I don't like (like Netflix) the hike in streaming fees and password-sharing fees, but I understand the rationale. Disney+ may lose a couple billion this year as advertising on Disney+ and Hulu both suffer lower advertising revenue. Bob Iger knows this best, says they'll make 5 billion more, consumers will decide. I point out the current (new) Quarter winds-down elevated theme park visitation which anecdotally has been challenging, even though the report says 'strong'.

There's a lot to be skeptical about, not just tiny stocks (so far) like some of our 'sprinkled' speculations, none of which I particularly see as girded sufficiently to challenge a sour and conflicted stock market in the Dog Days of Summer.

It may be (the months ahead, not merely this week or this month) appropriate to gradually initiate or add positions especially if the S&P cracks wide open for a bit, which could happen given the nature of big-cap leadership role stocks.

More By This Author:

Market Briefing For Wednesday, Aug. 9
Market Briefing For Tuesday, Aug. 8
Market Briefing For Monday, Aug. 7

This is an excerpt from Gene Inger's Daily Briefing, which typically includes one or two videos as well as more charts and analyses. You can follow Gene on Twitter  more

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