Things You Need to Know
- Hmmm – Is there trouble brewing at ORCL?
- Orlando Bravo sounds the alarm….
- Bloomberg Intel says we are in the ‘Manic Zone.’
- Goldman and Barclays are getting a bit more cautious.
- Gov’t is still shutdown, but the pain is about to hit some FED workers.
- Try the Linguine Puttanesca
Quick – sound the alarm! – someone sold stocks, and they ended the day in the RED. Are buyers exhausted yet? Are we at the point where investors finally recognize that maybe they are too busy tripping over each other trying to ‘get in’ for fear of missing out that they have completely ignored any risks of ‘irrational exuberance’?
2 of the big banks waving a warning flat…. Goldman telling us that last week’s ‘bullish sentiment’ among clients was the highest since December (that can be a contrarian indicator). Barclays PLC also reported that their sentiment tracker is at levels that suggest ‘exuberance’, while Bloomberg Intelligence suggests that we are in the ‘manic zone’ – a zone marked by ‘abnormal and persistent high energy, mood and activity levels’. A diagnosis that is a hallmark of bi-polar disorder that is characterized by extreme mood swings.
Now let’s be clear – stocks did NOT fall off the edge, but, you have to ask – Are they beginning to feel a bit toppy….?
The Dow down 92 pts or 0.2%, the S&P lost 25 pts or 0.4%, the Nasdaq gave back 153 pts or 0.7%, the Russell down 28 pts or 1.1%, the Transports lost 234 pts or 1.5%, the Equal Weight S&P down 35 pts or 0.5% while the Mag 7 gave up 410 pts or 1.25%.
The media credits the losses to the idea that the rally (driven by AI) has been a bit excessive as stocks have surged by $16 trillion off of the April 7th low. (Do you think?). The realization driven by an internal report at ORCL that reveals that maybe the ‘numbers don’t add up. Cloud margins are lower than many of the estimates…. They are described as ‘razor thin’…and that raised questions about profitability at ORCL (and subliminally about the industry). Now I expect we will hear more about this story in the hours ahead…yesterday ORCL fell by 7% in the morning before rallying back a bit to end the day down 2.4%. But it is enough to question the narrative – this morning ORCL flat and US futures are ticking slightly higher.
And then CNBC paraded out Orlando Bravo – CEO at Thoma Bravo – and a Private Equity Billionaire – to tell us that the AI trade is overdone, that valuations are out of control….Let’s see how much sway Lando has – will the markets pay attention to this siren call? For those of you who don’t know him or his firm – Thoma Bravo is one of the largest software focused PE firms in the world. They have a 40-yr history and more than $180 billion in AUM. They invest in ‘growth oriented, innovative companies operating in the software and technology sectors of the economy. I repeat – Growth Oriented and Innovative Companies. He got his start during the dot com bubble and burst at the end of the 20th century. Just sayin’
In the end – we are in October – a month that has a history of some volatility….and while I am bullish on the future, I continue to argue that a period of consolidation would not and should not be a surprise to anyone, the only thing I will say is that the longer we go without that consolidation is just another reason to expect a swift and painful correction when it does happen.
Remember how you felt in April – when the market lost 14% in 5 days… That same 14% today would take the S&P from 6714 to 5775 – which would take us down and thru all 3 trendlines but not really in an area that would offer any support at all. The chart suggests that if we break all 3 trendlines – we would not find support until we got to about 5550 ish…. which is a 17% move from here.
Now, I am not saying that is going to happen anytime soon, but in order for it to not happen, we have to have some consolidation, we need to shake the branches a bit, we need to break this idea that ‘there will never be another down day on Wall St.’
Speaking of volatility – we have quietly come off the lows of 14.50, pierced the short term trendline resistance at 15.90. we pierced the intermediate trendline at 16.81 to end the day at 17.04 – that is a 17% rise in volatility in the past month. 19.24 is the level to watch – that is the long term trendline resistance – a test of that will raise some eyebrows.
Now RSIs are not screaming overbot at all. Not one of the indexes is in the danger zone (close but no cigar) and that suggests that we have room to go, but that does not suggest that we shouldn’t consolidate….
This week will hear from PEP and DAL tomorrow and then the big banks starting next week – on the 14th. We are supposed to get the September CPI and PPI reports next week as well, which, right now, looks unlikely since the gov’t shutdown. If we don’t get that data, then the focus will turn to the FED again…..what will they do now, without the data…. Well, let’s be honest – does anyone really think they don’t have the data? Are we to believe that the FED is expected to make policy adjustments with no data? Come on! Talk about idiotic!
In any event – Stevey Miran is jumping up and down screaming about the need for a 50 bps cut this month – something that is NOT supported at all by any of the other members, in fact – the tide appears to be turning with some of the members coming out and saying that we should do nothing at the October meeting. Now the futures market is still pricing in a 94% chance of a 25-bps rate cut this month no matter what the FED heads say…And btw – they are pricing in an 85% chance of a December cut as well. A change in this narrative will cause investors to re-examine their excitement and maybe that will bring on the consolidation.
In the end – overvaluation itself is not a reason to hit the sell button; it is a reason to become a bit more cautious and even consider rebalancing if you are out of whack. Remember – it is time in the market that will reward you, not trying to time the market.
And so, the gov’t shutdown continues…. nothing new to see here, while there are conversations about Democratic demands, there is no apparent resolution just yet. The pressure is building as some federal employees, and military families are about to NOT get paid…and that raises the stakes.
Bonds rose yesterday on the back of a successful auction – and that suggests that bond investors are not running away from US treasuries. The 10 yr is back at 4.09% (down from 4.16%) while the 30 yr is yielding 4.69% (down from 4.73%).
Oil is up 70 cts at $62.46 – just under the converging trendlines at $63.10. For now – we remain in the $60/$63 trading range.
Gold now has a 4 in front of it…. This morning it is up $52 at $4,036 after trading as high at $4,049. Gold is now up 55% this year – going thru 14 century marks… from $2,606 in January to $4,036 this morning. The shutdown being the latest reason for the ongoing surge in prices. Yesterday’s ORCL headline only adding to excitement as some investors look for the ultimate ‘safety trade’. In the end – the momo guys continue to push gold higher…..
US futures are higher…. Dow futures up 105 pts, S&P’s up 12, Nasdaq up 60 and the Russell is ahead by 12. It appears that yesterday’s ‘weakness’ is just a memory…the Algo’s just keep pushing it higher and higher….This morning we got Mortgage Apps and they are down 4.7%, this as buyers are starting to look at ARMS (adjustable rates) to try and get an initial lower rate to help them get in. But remember – ARMS can be dangerous…..Make sure you go in with eyes wide open.
European markets are all higher…..France in the lead up 0.9%…. Macron gave Lecornu an additional 48 hours to have final discussion with the rival parties…. he is due to report tonight – which should be anytime now.
The S&P closed at 6,714 down 26 points. With little to no new eco data being reported – the focus will continue to be on DC and what they are doing vs. what they are NOT doing. Expect more chatter about the latest ORCL news and who might also come under scrutiny…. At the moment – it feels like a one-off headline, but surprises happen all the time. Tech earnings are not due out until later in the month – end of month…. And while we never go that expected September pullback, October has just begun…Earning season is only days away now – let’s see how this shapes up. In any event – Enjoy the ride!
Here’s your new countdown:
6 days until earnings season kicks off.
21 days until the next Fed decision.
44 days until Black Friday.
And only 77 days until Christmas.
Let’s review your plan. Call me for a complimentary, no-obligation portfolio analysis: 561-931-0190.
Take good care,
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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The market commentary is the opinion of the author and is based on decades of industry and market experience; however, no guarantee is made or implied with respect to these opinions, which may not necessarily align with our firm’s standpoint.
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Linguine Puttanesca is pure Naples — bold, briny, and a little mischievous.
Legend has it that the dish first appeared in the bustling working districts near the port sometime in the mid-20th century. The story goes that the local signorine — women of the night — needed a hot meal that was quick, inexpensive, and made from shelf-stable pantry ingredients. They would throw together tomatoes, anchovies, garlic, olives, and capers, letting the vivid aromas waft from their windows to tempt sailors and late-night wanderers.
Whether or not that tale is strictly true, the name stuck, and so did the spirit of the dish — fast, bold, and a little risqué. Today Puttanesca is a classic of Neapolitan kitchens: a sauce that wakes up the senses with its salty tang, red-pepper heat, and punch of the Mediterranean.
Here is what you need:
Bring a pot of salted water to a rolling boil – then turn to simmer until you need it.
Start with 3 crushed garlic cloves sautéed in olive oil about 3 / 4 mins…do not let it burn… next add a diced white onion and sauté for 5 mins or so…. Now add in the chopped anchovy filets and sauté – as they cook, they melt away.
Add one can – 28 oz – of kitchen ready crushed tomatoes… not puree – Crushed. Add about 1/4 of a can of water – Let simmer for 10 mins or so.
Next add capers, oregano, pepper, chopped Italian parsley, and rough chopped pitted Kalamata olives or pitted black olives – whichever you prefer – but do not mix… It is one or the other. No need to add salt as the anchovies are salty enough.
If you like more bite, you can add red pepper flakes at this point… cover and let simmer.
Add the Linguine. Let boil for 8 mins or until aldente. Remove and drain – keep a mugful of the pasta water. Add the pasta to the sauté pan with the Puttanesca sauce and heat and stir until well coated and fragrant. Serve immediately onto warmed plates offering up grated Parmegiana cheese on the side.
Buon Appetito!