SOUNDING OFF ON THE NEWS AND THE MARKETS

Before the war:

The big indices were already under pressure and trading below that all important resistance/50 day moving average.

Many of the financials had already crumbled. Private equity and credit have been absolutely blasted on worries about exposure to some AI/SOFTWARE names. Brokerage were hit on the worries of AI. Investment managers hit. Credit card companies smoked. They finally came after the banks. Not very good when financials are under pressure. This is our number 2 most important area just behind semiconductors. DO NOT TAKE YOUR EYES OFF OF PRIVATE-EQUITY CREDIT.

Speaking of artificial intelligence, we had called the top in software months ago with the exact day being November 4th. As always, we never know how far or how long a move goes but this one worse than all expected. When big name Microsoft and Oracle topped out and were being hit hard, it was obvious something was up.  We are still stunned about the drop in Oracle as that four letter word came to the forefront and that word being debt. Speaking of that, artificial intelligence names that were supposed to skyrocket originally did do just that, but then as they say, the numbers do not lie. A name like Coreweave now down 60% from the highs on guess what, huge debt and massive losses. Huge debt and massive losses will not win the day. There are others.

The top in crypto happened a few months ago also with the top called on guess what day? November 4th, the same day as SOFTWARE. That’s a big hmmm! It was an easy call as everything started breaking support. In spite of the incessant calls of bottoms, we have yet to call a bottom as even the bounces have been anemic and short-lived. This is still the most asked about area in spite of the drop…and please do not listen to the touts calling for $1.5 million by 2030.

On AI, many of the spenders are weak as the numbers they keep telling us that will be spent are gargantuan but with loads of debt. The receivers of the spending have been doing very well. Semi conductors and semiconductor equipment, optical, memory, data, data storage, the builders and energy of the data centers. Absolutely no problem with these areas and many names skyrocketing. That huge spending had better come through as many names are priced based on.

At the end of the day yesterday, mid-caps looked like they were ready to break out again. Small-caps held important support. They will be roughed up this morning.

Foreign markets have been much better than ours. Foreign markets have been lagging us for many years. Not anymore. Keep in mind, these areas are less liquid going both ways. They will also be roughed up this morning.

Plenty of good had remained. Transports have been terrific. Stories about how pricing for rails and truckers have helped big time. Gold has been strong but going range-bound. Silver much less strong and are wary. Commodities have been strong on a weak dollar but the dollar usually strengthens during war.Oil had been strong with oil stocks following suit. Duh!

And duh! DEFENSE stocks have been very strong.

There are plenty of other areas in rough shape. A lot of the retail, payroll, auto dealers, insurance, restaurants and other areas have been lagging. All of travel have come under pressure because of the spike in oil prices as well as the news out of the Mideast.

But this morning…a horrid pre-market. Except for the OILS, DEFENSE, almost everything coming in hard. Even the strength being hit. Foreign  markets smoked overnight.

We think it a chance that markets have been working off of the thought that this war would be short-lived. The events of the last couple of days may be shutting that down as there may be a component here that no one thought, that this could last much longer than expected and that is combined with an already not so cheap market. We considered yesterday a big win as markets opened down badly and finished just fine but now there is the overnight and this morning. We have no clue how the markets finish today. All we know is oil prices are spiking further and world markets are coming in quite hard. The strongest of the year in South Korea’s ETF is down over 10%. All we know is the market will have another big gap to the downside and not withstanding another very good reversal, it would worsen the technical condition of the big indices that have been trying to hold on in over a four month tight trading range.