Some Sarge Favs Take a Hit as This S&P Indicator Gets 'Iffy'
Watch the price targets as Rocket Lab and some others hit a rough patch; watch SentinelOne possibly get targeted; and watch your back for hacks as Microsoft hits the alert button and cyberwarfare strikes.
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Equities rallied sharply on Monday morning and then sold off sharply over the final 90 minutes or so of the regular trading session. Why did traders (trading algorithms) take profits on Monday afternoon? Was there a catalyst? Not really. Not anything we didn't already know about on Monday morning. Forced overshoot? Possibly. That's been a consistent flaw in the price discovery process ever since human traders were largely eliminated. It's not like these markets were not due for some profit taking.
Breadth faltered a bit for stocks listed at the NYSE, but remained strong for Nasdaq-listed stocks, which is kind of odd, given that there was some rotation out of the kinds of stocks that made the Sarge-folio what it has been over the past 18 to 24 months. I do hope readers who are also investors, take heed when I remind them that we do take some action when target prices are breached. Our beloved Rocket Lab RKLB among others, have hit a rough patch this week.
Not like there was no warning. The Moving Average Convergence Divergence for the S&P 500 remains "iffy." Traders and investors are reminded of a line written in this column on Monday... "Readers will see that within the daily MACD of the S&P 500, the histogram of the 9-day EMA has fallen below the zero-bound, which is short-term negative. The 12-day and 26-day EMAs are also well above the zero-bound, but with the 26-Day line above the 12-day line. That's a new development and that is not a very bullish posture going into the week. I told readers last week to keep their eyes on that black line. The bulls will not do well if those two lines do not re-flip."
Nothing written there changed on Monday, despite that the S&P 500 was able to finish the day in the green. We are still cautious as we head into the meaty part of the week. Earnings ramp up significantly this morning. Readers are also reminded that despite the Fed being in a media blackout period that Fed Chair Jerome Powell will speak from a central bank-hosted banking conference at 9 a.m. ET to be followed by Fed Gov. Michelle Bowman at 1 p.m. ET. While it would certainly be inappropriate for either of these decision makers (who currently disagree on policy) to comment on monetary policy during this period, this is 2025 and I don't trust anyone concerning anything anymore.
Focus on Cybersecurity
In a "security alert" released over the weekend, Microsoft MSFT acknowledged a cyber-attack that affected versions of its "SharePoint" application. This service is primarily used by clients to build intranets and to manage files. It has been around since 2001 and is often part of the "Office" bundle. Clients using on-premise servers, not the cloud-based version of this software, were impacted. According to the Washington Post, U.S. government agencies and universities were among those most affected.
I think this story and others underscore just how important it is for investors to be exposed to the cybersecurity space. As loyal readers know, I have been a long-term investor in CrowdStrike CRWD. This firm is, in my opinion, best in the cybersecurity class. I had also added Palo Alto Networks PANW post Q1-earnings as a means toward broadening that exposure. Additionally, on Monday, I re-initiated SentinelOne S as I noticed that name out-performing its peers during the session.
At first, I thought this was in response to the Microsoft news. Only later did I learn from a report in Israel's C-Tech by Calcalist that SentinelOne may be in advanced talks to be acquired by Palo Alto. The potential deal being written about would value SentinelOne at about $7 billion. The stock closed on Monday afternoon with a market cap of just under $6 billion. By my math, that would put a $23 handle on the take-out price being discussed.
Did You Happen to Read...
The op-ed published by the Wall Street Journal over the weekend penned by Michael Doran and Zineb Rioua? The piece covers the actions of the "Predatory Sparrow" hacker group, which has been linked to the Israeli government, during the recent "Twelve Day War."
Apparently, and I did not know all of this, the group struck Bank Sepah, which is Iran's oldest and largest state-owned bank. This bank serves the IRGC (Iran's Revolutionary Guard) and Iran's regular military forces. Everything from salaries to pensions to sanction-evading funds are handled by this bank. The group claimed credit during the war for erasing banking data and rendering its systems inoperable. Transactions were halted.
Additionally, other banks, such as Bank Melli, that were untouched by the hacks, experienced a run and could not meet the demand for cash. Iran's central bank responded by printing fiat and injecting that fiat into the system, but the damage was done. The Tehran Stock Exchange plummeted as did the value of the rial relative to other currencies. In mid-June, Predatory Sparrow extracted $90 million in value from wallets owned by the Revolutionary Guard and destroyed those assets.
The point? When, not if, but when, will bad actors sponsored by the likes of Iran, North Korea, Russia or China -- or simply driven by the green-eyed monster -- pull off something like this against legitimate western government or banking institutions? We can't have our heads in the sand, and I am sure that we do not. When I enlisted as a kid, there was no such MOS (military occupational specialty) as "cyber warfare" but there is now. As a business, these firms have to do a lot just to keep up with those bad actors. I really do not know if I will have to have investment exposure to the cybersecurity space for the rest of my life. In my early 60's. I expect to.
Marketplace
On Monday, yields came in a bit as Treasury debt securities showed some strength in the wake of the Japanese election. Equities, as mentioned above, contorted themselves into something resembling the 1970s-era game "Twister." The S&P 500 posted a small gain of 0.14% after having given up a huge rally. The Nasdaq Composite gained 0.38% for the session. The Dow Transports, KBW Banks, and all of the small top mid-cap indexes closed out the day in the red.
Six of the 11 S&P sector SPDR exchange-traded funds closed out the day in the green, easily led by Communication Services XLC as Verizon VZ, T-Mobile TMUS and AT&T T all had string sessions. In a continuation of what we saw last week, Energy XLE led the losers for the day.
Losers beat winners by slightly more than a 50/50 split on Monday, but winners beat losers by a 5-to-4 margin at the Nasdaq. Advancing volume took a 45.6% share of composite NYSE-listed trade, but a much better-looking 64.8% share of composite Nasdaq-listed activity. Trading volume was a bit wonky on Monday. Aggregate trade across NYSE-listed names (where there was more weakness) decreased by 3.4% on a day-over-day basis. Aggregate trade increased by a whopping 28.8% day over day across Nasdaq-listed names (where there was more strength). Volume faded a bit across the membership of the S&P 500 as well.
One reader did ask if Monday counted as a "Day One" bearish reversal of trend. I will admit to feeling like it might have been, after a few of my favorite stocks had been beaten up during the session. Being in the wrong stocks on the wrong day does not make a bearish market-wide turn, though. With both the S&P 500 and Nasdaq Composite up on the day and with the increased trading volume at the Nasdaq, I cannot yet make that call. As I wrote on Monday, the trend is still in rally-mode until it is not. We are seeing signals, such as the daily Moving Average Convergence Divergence of the S&P 500, but no, the turn has not yet been made, technically.
Economics
(All Times Eastern)
08:55 - Redbook (Weekly): Last 5.2% y/y.
10:00 - Richmond Fed Manufacturing Index (Jul): Expecting -3, Last -7.
4:30 p.m. - API Oil Inventories (Weekly): Last +19.1M.
The Fed
(All Times Eastern)
08:30 - Speaker: Federal Reserve Chair Jerome Powell.
1:00 p..m. - Speaker: Reserve Board Gov. Michelle Bowman.
Fed Blackout Period.
(Not a misprint)
Today's Earnings Highlights
(Consensus EPS Expectations)
Before the Open: KO (.84), DHR (1.64), GM (2.47), HAL (.56), KEY (.34), LMT (6.47), NOC (6.84), PM (2.93), RTX (1.43), COF (3.72)
After the Close (3.72), TXN (1.37)
At the time of publication, Guilfoyle was long KEY, NOC, RTX, RKLB, MSFT, CRWD, PANW, S equity.
