Market Briefing For Wednesday, April 10

'Turning this ship around' - might seem to reflect on heavily buffeted stocks, like Boeing (BA) or even Intel (INTC), but I intend it to reflect upon the S&P leadership, about which money managers are fearful of being skeptical, 'with reason'.

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That's because most funds have been too 'top-down' (the biggest only) with pressures to perform and sustain what they already own. Given the volume on all of them, it's eased the process of entry and exit, but because of heavy weighting of these stocks ('magnificent seven plus') they tend to buy dips for the most part, more interesting in supporting their positions than seeking real value. Here and there they will probe speculative stocks. Similar here.

Our approach hasn't been identical, because we sold 'some' portions of most major big-caps and hold 'core' representation (sometimes for many years). It's intended to see gains, but nibbling at small caps hasn't been effective for any player in this market overall although here and there were exceptions. So, we still retain 'some' Apple, Chevron, certainly AMD or Texas Instruments, but of course the small caps are where we have hoped to find new excitement.

One of those was AEHR Test Systems (AEHR), originally an early 'pick of the year' at 6 bucks, and more at 12 and so on. Once it got into the 40's and 50's we sure wanted it to go higher, but didn't buy more and subsequently sole most of it. In that respect a fantastic homerun became a no-hitter in later stages. I'm sure a sense of that is detectable in the CEO's demeanor, as Gayn Erickson more or less pre-announced a disappointment for results reported after today's Close.

So, let's look at the results now, as we follow, but are not currently holding this stock, but with patience suspect it has a lot of potential for a recovery trip try. I am not enthused about upside near-term, but 'if' it plunges I might consider it.

Revenue for their Fiscal Q3 (reported today) was cut more than in-half from prior Quarter's results (in the area of 7.6 mil from over 17 mil), while earnings were a 3 cent loss per share. Plenty of cash, but lower 20 mil backlog. They reiterated previously-lowered guidance of around 65 mil for this Fiscal Year, which ends in May. My hunch is that they will make the 65 mil, and prefer to push new orders into the upcoming Fiscal Year starting 'end-May'.

I noticed CEO Gayn emphasized they have 'not' lost a single prospective new customer. That matters as I interpreted it as a push-out of EV or other related (inverter etc.) Silicon Carbide utilization and more (photonics too etc.). And he spoke to a shift to suppliers in Asia (I presume pressure on Chinese EV's not to buy American electronics, but counter our own restrictions, keep it there). I note AEHR expanded staff in the Philippines to serve Asian customers. Again I'll keep an eye on it, everyone slower, while anticipating a good year 'but' I'm under the impression he expects another Quarter or two before expansion by his customers. If anything, their opportunity sooner might be in 'memory'.

 

Market X-ray: 

Market on-hold for Wednesday's CPI, as maybe a hot inflation number would reduce expectations for sequential Fed rate cuts ensuing. For that matter if it's 'really hot', then market gets hit and rates move to upper 4's.

The market is both setting itself up for some disappointment, but those same fund managers will tend to buy dips to support their positions, to an extent. Of course that creates a high-level trading range for S&P, and begs-the-question as to 'what' it would take to get a serious (event-driven likely) correction.

Oil prices alone should hint at 'other than soft' inflation data in the morning.

Everyone is debating the inflation trade, versus the momentum trade. Along the way Energy, Gold and Silver have been strong, partially global events as well as traditional hedge activities. Lower yields might find vulnerability over time for the big-caps that benefited earlier this year, and help smaller-caps.

 

 

Cyclicality is going to be interesting in Ai, probably as Jamie Dimond notes in his remarks, but it doesn't happen all at once, and a softening in enterprise is possible, especially as that time arrives. Voice generative Ai isn't necessarily liked so much (I'm not talking about food) but is a definitive trend to cope with as Ai evolves increasingly.

 

Bottom-line: 

CPI coming-in at consensus would be alright most think. If the Fed (or Powell directly) can convey flexibility that would help, so far they talk around this issue. Anything other than a 'friendly' CPI the Fed likes and you'll be set for a possible renewal of corrective action in S&P. Of course the White House wants to see the number come way down, but can it be massaged? I wouldn't suggest they would or could, but recent data has been a bit curious.

'If' inflation is 'perceived' as being at a level where they can cut, that's going to be helpful to hold S&P together, but upside ought to be limited regardless of the news, given where S&P is. A ceasefire would be a relief, mostly as might be supportive of an Oil price slippage. What's key would be 'broadening-out' of the market's participation, aside from any possible 'relief rally' on CPI.

For sure 'correction stumble risk' is out there too, but managers try holding it off. We go into Wednesday respecting the 'churning' that followed a key S&P reversal day last week.


More By This Author:

Market Briefing For Monday, April 8
Market Briefing For Tuesday, April 2
Market Briefing For Monday, April 1

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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