Market Briefing For Wednesday, Oct.13

A complex battle has been outlined on both sides of S&P 4400. So, having forecast the rebounds to that area, we expected no defining structure, quickly answering questions about whether there was more correction ahead, much less the extent of potential new unwinding of mega-cap institutional holdings (which they are loathe to do unless making lateral moves into comparables).

Iphone 13, Iphone, Smartphone


Each time we probed lower, the bottoming action was expected, but had clear tones of 'hail Mary' rebounds to them, hence incomplete as far as longer-term. That invited questions not just about the Fed, or earnings, but even the China bond market chaos, and whether any of that would be an existential problem in our markets that typically are more myopic.

Now it will probably be resolved downward with the continuation pattern that I have outline in these reports and videos. Apple's slowing iPhone 13 will be a media explanation, when in-reality the chip slowdown is 'not' news, although it is also not broadly known that the relationship with China is fraying. As goes Apple (AAPL), goes the S&P (SPX), and perhaps that's the simplest way to frame this.

In-advance we shared the probability that questioning whether this correction has indeed completed would be the case, as the market was likely to shuffle, repeatedly, in the rebound resistance area (roughly the 50-DMA) for awhile.

It was also a good opportunity to focus on areas leading the pack, or likely to, as we increasingly ponder not just inflation or stagflation, but sectors for 2022. Energy remains strong, semiconductors too. But since we've been right there all year (Chevron (CVX) and AMD (AMD) are good examples as for common stock), we're expanding a bit into suppliers 'to' the semiconductor fabs, hence AEHR pick.

I spent time with the AEHR institutional Presentation today, the CEO has 20 years experience in this field, with the Silicon Carbide being the new wafers they are believed in-the-lead (for now anyway). I particularly caught a remark about Intel and Nvidia (NVDA) both realizing their next-generation chips will have to include a photonics aspect (chip-to-chip speed), and all that requires 'burn-in' reliability, hence (AEHR). We already own it, and new readers or investors can either ignore it, or hope for a dip if there is any decline with a market break.

'The China Shoppe' . . . continues to face wrecking from the CCP, which has managed to proved 'the West's' contentions about their internal repressive as well as autocratic designs, fostered by their propaganda apparatus dating all the way back to their push into power back in 1949. China is now sketchy.

You heard they're restricting foreign broadcasting or online reporting, but may not know that the proposed media crackdown is just the latest in a long list of entities that private investors wouldn't be able to participate in under proposed changes. Those include political, economic, military, diplomatic organizations, plus major social, cultural, technological, health, education, sports and other services. Yup, the media message is clear: don't mess with state propaganda, and the rest of it is to have the dominating voice to control.. well, everything.

All this comes down to the closest proximate societal overseers since Japan's militarism in the 1920's and '30's (and hence designs on Asian domination of 'that' era), or Nazi Germany's molding of the population. While these societies were permitting private and corporate ownership, unlike Soviet Russia, what's ongoing in China is termed a 'profound revolution', a sort of innocuous term of course (to mask what it is), intended to mitigate if not eradicate capitalism at a level where the profit-oriented firms or media might influence anything.

While it's tempting (but not worthy) of contrasting efforts to control/moderate a slew of social media / internet issues here in the United States, at least we do have the ability to protest, to strike, to resist (there was no real Air Traffic ATC Florida ground halt for 7 hours the other day, contrary to Southwest's claim), it doesn't merit delving into that. Our point is about doing business in China as must be weighed against the 'revolution'. Realize risk there beyond distraction now and then by the politicians, pending a Biden/Xi Summit over all of this. Like I said: the U.S. may preside over China's slide if Beijing fails to reform or stabilize to global norms, rather than proclaiming China's preeminence.

The U.S. knows this (both parties incidentally, so we're united on something it seems), so while there are disruptive near-term issues, over 3-5 years lots of outsourced manufacturing will have shifted, basics to other countries (Mexico and Vietnam are among them), and sophisticated microelectronics to Taiwan, and to Arizona, Texas and New York (yes specifically those three locales). For those semiconductor and Silicon Carbide 'fabs', demand will be exponential, so yes the chips are historically volatile and we may see a traumatic transition for the industry 'if' they have to do more not to depend on mostly Taiwan. With decisions made to enhance capabilities 'in' the United States, we'll be stunned if the handwriting isn't on the wall to comply with needs of capital equipment expenditures as the new fabs are built-out. So hence our interest in AEHR.

Note: I do not expect to dwell on this or any stock excessively, but once I've had a chance to review developments, I'll update. Today was a Presentation, so the accompanying graphics give you a taste of the hour spent on AEHR.

I can also give you a slight update on Inovio, back-burnered because they have the single vaccine DNA platform. Well their Phase 2 appears good and they'll expand into a global Phase 3 trial (very broad so it trains people on an assumption that it works). INO viability or not will be shown with Phase 3 in the Philippines, Mexico, Brazil, Columbia and China (China's own vaccines have done poorly, and the truth of a wider spread of COVID isn't reported). So, its price movement has been eerily similar to Sorrento (SRNE), both sub-7 and sort of speculations to see what comes next. At least we have an update from (INO). I don't know if these, like others, will erode more, in a general market slide.

Meanwhile . . . the market shuffles and we've spent time delving into stocks, in the lower-price ranges particularly, that appear correcting or under pressure without deteriorating, and perhaps even enhanced prospects for 2022.

We've made it clear that 'Energy' is also stronger (relatively speaking better performance than the mega-behemoths this rocky month), but extended. So while I don't expect the kind of break that's at-risk in the big-mega-caps, Oil(s) will tend to bide it's time while the correction winds its way to conclusion.


The slightly messy rotation, including 'memory' stocks being hit (pricing plus supply constraints), contributes to rising 'risk aversion' among managers. Of course long ago we sold Micron too soon (with about 600% gain years ago), and 'if' it were to get utterly clobbered, we'd be interested to 'have a go' as we look to the changes ahead. But again let this market try to find it's own level.


I'm not inclined to trade consumer stocks or casino stocks and so on, mostly as these (and related travel) stocks are dependent on 'presumptions' about a benign conclusion to the pandemic, and unfortunately I'm unconvinced that it is wrapping-up broadly enough to (especially) bring back business travel. Also the shares generally have pulled-back only mildly, so they anticipate normality in 2022 and probably corporate guidance, whereas I suspect outside of 'tech', where optimistic guidance makes sense in most areas, prospects remain 'iffy'.

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 subscribe for  more

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William K. 2 years ago Member's comment

I am mentioning this, not as a judgement or to be critical, BUT keep in mind that China IS A POLICE STATE! That makes it very different from the US and most other countries. It also means that investors need to understand that the rules in China are much different.

Gene Inger 2 years ago Contributor's comment

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