Was That Panic or Just Old-Fashioned Profit-Taking?
Alarms bells went off for those deep in the AI and tech trade on Tuesday. But there's another way to look at what happened. Here are my rules for investing, what to watch for the retailers and the gut-punch to Palantir, Marvell and more.
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It sure smelled like panic on Tuesday.... But, no, what happened was not widespread panic. Not even close. There was a rotation as sharp as a razor's edge. That was for sure. That's one thing, for better or for worse, that algorithms do differently than humans. With human traders, there was always, at least across a minority of Wall Street, some hesitation. Less certainty. With algorithmic, momentum-focused trading, price overshoot is not just a byproduct, price overshoot is the intention or goal. Forced inefficiency rather than inefficiency by accident, chance, or the inconsistent dissemination of information. Oh joy.
That precise, lightning-fast way by which decisions are made in 2025, as human traders have ceded point of sale decision making to their electronic, robotic replacements does not mean that this rotation is over. The machines will decide which way the wind blows after the wind starts blowing. Peace seems to have a chance in eastern Europe though many rightfully still have doubts. Fed Chair Jerome Powell still has to address his audience, the nation and the planet on Friday.
That said, one of Powell's potential successors, Fed Gov. Christopher Waller, who is quite dovish these days and already at Jackson Hole, will speak this morning at 11 a.m. ET. Then the Fed Minutes of the policy meeting that culminated on July 30, will hit publication at 2 p.m. ET this afternoon. Before we even get there, several well-known retailers will report. TJX TJX reloads their inventories after market. They are generally not the importer. It will be interesting to see how different that company's tariff story will be from what we hear this morning from Target TGT and Lowe's LOW and tomorrow morning from Walmart WMT.
What happened on Tuesday smelled like panic, and it may have caused some adjacent panic among those of us still manning the lines the old-fashioned way. In itself, though, what happened on Tuesday, was hot steel cutting through soft butter. What happened was merely a postmodern-style of profit-taking. Create capital where the profits are. Move that capital to where the profits have yet to come so easily.
The late, great Arthur Cashin used to walk around the trading floor of the New York Stock Exchange at times like this and remind those of us who were then young pups, to merely "stay nimble." Now the trading floor is as much virtual as it is physical. Us young pups are now the older traders. The way stocks trade has changed dramatically. Arthur's message has never mattered more. Stay nimble.
Sarge's Rules For Investing, Trading and Life...
Every once in a while, I have to dust these rules off for nervous traders or for traders who just need to be reminded. Old infantry types will vaguely recognize this section, for it is simply a reworked version of a five-paragraph order. I rely on this list myself when I need to. It may very well help one or two of you.
Understand Understand everything we do or do not do. We do or do not do everything for a reason that we could explain to a child. If we do not understand something, then we do not expose ourselves to it. Period.
Identify There are three items that need to be identified as we move along. We need to be able to recognize perceived threats, avenues of approach or attack, and targets of opportunity. Identification is the key to doing the right things at the right times. Do not fear. Fear is but for the wicked. The wicked shall tremble before us. We are the baddest brothers and sisters in the valley.
Adapt Environments change. So must we. There are no standard operating procedures. There are ways of getting things done and these methods evolve. This is why creating levels and understanding pivots are so key to success. Become what is required when necessary. No excuses. Your families are counting on you. There is "I've got this" and there is "I don't understand this yet." There will never be "I can't do this." Failure was never an option.
Overcome Find a way, even in the face of persistent struggle or constantly changing obstacles. Improvise. Expect victory. Make it happen through discipline and strategy. Plan, calculate and act when the probabilities are in your favor. Fade and play defense when they are not. Scared money does not make money.
Carry On OK, you won one or you lost one. No emotion. Your family can not tell when you win or lose. You've been there and you've done this before. Act like it. Carry on with the mission. Then on to the next mission. The game is not over.
Never forget: You are a competitor. You will have to fight for your family and their way of life. No one will ever hand us anything. High-speed, keyword reading algorithms are designed to force market overshoot. Trades are timed in microseconds, because milliseconds are too slow. That's one millionth of a second, because one thousandth of a second is too slow.
Understand that this is what your enemy thinks is their advantage. Speed is their edge. They will be reading the sports pages, watching videos of 13-year-olds falling off skateboards and eating lunch while we hunt. We're still smart. Knowing the landscape better than them is to our advantage. Hunt with a hunger that they have forgotten or never even understood.
This current market model is designed to intentionally shield large players from market transparency and prevent fair price discovery by spreading the last sale across a number of fast-moving market centers while the key players hide in dark pools. You already knew that the scales were imbalanced. Get over it. The First Marine Division was surrounded by eight Chinese Army Divisions at the Chosin Reservoir. The late, great Lt. (then Brigadier) General Chesty Puller is quoted to have said, "They're on our left, they're on our right, they're in front of us, they're behind us… they can't get away this time."
As a retail investor/trader, these puppeteers have decided that you and I are fodder for their profit. Take offense to that. Let it burn in, while remaining in control of thyself. Lay in wait for them. Do not show your hand. Let their algorithms walk into your ambush. Be where they are going before they get there. Their hired guns look at the same charts we do. They were taught the same stuff we taught them. They don't care like we do. They make mistakes too. Let them try to come and take what's ours. For we are the mighty. We are.... Always Faithful.
Marketplace
Tuesday only felt awful if one, like myself, has lived and died by the AI / high-tech sword. When one lives by the "AI" trade, one must be mentally prepared to take casualties on days that those names are harvested for cash and that cash is deployed elsewhere by the puppet masters. Treasury debt securities continued to show some mild weakness as the slope of the yield curve steepens ahead of Powell's speech this Friday.
That tells me that Powell will indeed signal a rate cut at the short end of said curve while permitting the forces of free-market capitalism to price in the increased probabilities for both higher inflation and more explosive economic growth at the long end. You think this is wild. If we end up seeing both consumer-level inflation and economic activity averaging annualized growth of more than 3%, this place is going to turn into a carnival. We won't like the inflation, but we will make some dough.
Very interestingly, only high-tech got their collective butts kicked on Tuesday. The S&P 500 gave up 0.59% on Tuesday. Know what? The Equal Weighted S&P 500 actually gained 0.45% for the day. That's right. If all members of the S&P 500 were equally weighted, Tuesday was an "up" day.
The Nasdaq Composite gave up 1.46% as the Dow Jones U.S. Semiconductor Index lost 2.97%. Marvell Technology MRVL, Advanced Micro Devices AMD, and Arm Holdings ARM all surrendered more than 5% on Tuesday.
The Dow Jones U.S. Software Index was taken 2.03% lower. The downshift there was led by my beloved Palantir Technologies PLTR at -9.35%. I wrote to you twice on Tuesday, keeping you informed on how I was handling the selloff. I hope all of you that have followed me into that name, read those notes. Yes, I bought back some of the shares I sold last week. I have left plenty of room to buy back some more if need be.
Anyone else notice the 1.45% gain across the Dow Transports led by the truckers? Anyone else notice the small gains across the S&P SmallCap 600 and the S&P MidCap 400? What does that signal if these conditions persist? Yes, you in the back.... that's right. Improving prospects for economic growth. Rock on, my friends.
Breadth
Ready for this? Seven of the 11 S&P sector SPDR exchange-traded funds closed out the Tuesday session in the green. The four defensive sectors placed first through fourth on the daily performance tables, while the cyclical sectors placed fifth through ninth. The growth sectors? Tenth and 11th. What does that signal? That signals some fear, but also a rotation out of stocks viewed as expensive by traditional metrics and into value stocks or stocks seen as undervalued by traditional metrics. Nobody had been invested in Health Care XLV all year. They are now. Psst. I'm still not. Health Care does nothing for me right now.
Winners beat losers (you heard that right) by a 5-to-4 margin at the NYSE, while losers beat winners by about 9-to-5 at the Nasdaq, which is tech heavy. Advancing volume took a 44.9% share of composite NYSE-listed trade and a 39.7% share of composite Nasdaq-listed activity. Trading volume was heavier, but still not heavy across the listings of both exchanges as well as across the membership of the S&P 500.
Was Tuesday a potential "Day One" of a bearish change in trend? Absolutely not. While it may look like it if the Nasdaq Composite or Nasdaq 100 were to be taken in isolation, we do not take markets in isolation when making these kinds of assessments. The fact is that a majority of stocks listed at the NYSE closed up on the day as did a majority of sector SPDR ETFs and volume has only slightly increased. No, not a big deal broadly. Certainly, a big deal for those less diversified, but then again those who've been less diversified are most likely absolutely crushing the S&P 500 this year as they have for a few years now. We can live with a gut punch now and then as long as we don't start acting like a deer in the headlights when the ground starts shaking.
Economics
(All Times Eastern)
07:00 - MBA 30 Year Mortgage Rate (Weekly): Last 6.67%.
07:00 - MBA Mortgage Applications (Weekly): Last 10.9% w/w.
10:30 - Oil Inventories (Weekly): Last +3.037M.
10:30 - Gasoline Stocks (Weekly): Last -792K.
1:00 p.m. - Twenty-Year Bond Auction: $16B.
The Fed
(All Times Eastern)
11:00 - Speaker: Reserve Board Gov. Christopher Waller.
2:00 p.m. - FOMC Minutes.
3:00 - Speaker: Atlanta Fed Pres. Raphael Bostic.
Today's Earnings Highlights
(Consensus EPS Expectations)
Before the Open: ADI (1.95), EL (.09), LOW (4.24), TGT (2.04), TJX (1.01)
After the Close: NDSN (2.63)
At the time of publication, Guilfoyle was long TJX, AMD, PLTR equity.
