E Market Briefing For Wednesday, May 5

Executive Summary (non-China related):

  • Market internal structures have been weekend for about two months, we will probably try to hold the S&P in this range briefing, but it's touch & go.
  • It's been a dragged-out 'process', but the idea of vulnerability increasing a good bit in late April and early May (or beyond in May irregularly) proved a prescient view, while also noting many stocks declining for weeks.
  • The tech tumble reflects spreading caution, it has been about the most overextended sector there is, as forewarned really for a couple months.
  • Semiconductors are among the market movement keys, and when one views them on an equal-weight basis within the Index, they were and are warning, this is not so much stock-specific, as sector-general.
  • Several technology analysts are 'talking down' the demand for chips (not just the supply chain delays), and while I discussed this in recent reports, there is no doubt that such stocks got too overheated and have shown a series of distributional patterns really since early Spring.
  • Nvidia (NVDA), AMD (AMD) and TSMC (TSM) aren't exactly in the same business, but to some degree will tend to move in-harmony, if not lockstep, AMD especially led on the way up (our entry was from 16-18, with some off the table between 80-100), and AMD 'if' it drops significantly, will be important on the way up that ensues after this period of correction or however this evolves.
  • Many of the big-pharma stocks (Bristol Myers (BMY) included) were played well before now, and are not attractive again yet, as others like dividend plays (especially AT&T) remain 'relatively' cushioned because of their dividend, and should be comparably stable (in AT&T's (T) case there's also improved fundamental assessments to make, that we've written about).
  • In COVID developments, cases are rising rapidly in Asia beyond India and even in China (which acts in Draconian ways), they have new variants.
  • Eli Lilly (LLY) has begun clinical development of an anti-SARS-CoV-2 antibody designed to work against all currently known circulating variants, note the action is weeks after FDA revoked single-use emergency authorization of Lilly’s first COVID-19 antibody due to the rise of variants (this is a field of multiple players now, including Sorrento (SRNE), Merck (MRK) and others).
  • Among small stocks, LightPath (LPTH) announced the retirement of Bob Ripp, the long-time Chairman, he said a couple years back he'd retire after he supervised realignment of the Company, which is largely achieved.
  • LPTH should get interesting now: new VP Finance, new Operations VP, new General Manager for the China plant, and soon new Chairman, all under the leadership of their fairly new CEO who seems to produce (and a new website design that better describes their expanding capabilities).
  • We look forward to hearing more about several new key staff changes, as well as their vision going forward, during their earnings report Thursday, I am very disappointed by their stock performance, but they surely are too, if it got any serious visibility or institutional interest, that could help.
  • By the way Chairman Ripp was responsible for finding Sam Rubin, the new CEO, who has been very busy semi-reorganizing matters there, I'm thinking Ripp retired based on optimism, rather than simply not running for the Chairmanship at the next Annual Meeting.
  • Finally, the risk that while my 'Inger Bottom' 2020 low was key and definitely a bear cycle low, there is an alternative that the Nasdaq double-top is actually leading the S&P, which rotated higher on the back of sector rebalancing included infrastructure beneficiaries.

In-sum: the Fed knows they need to backstop the Nation's economy, and as you know that was the heart of our bear-to-bull reversal in late March 2020. If we go into a serious correction 'beyond the stall' we already have experienced during the somewhat frustrating grinding market of recent weeks.. if we do so, the odds of a more significant sell-off would increase.

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