For those not watching the market tick by tick, it probably seemed like a late summer session with most of the heavy hitters in the Hamptons or a yacht in the Mediterranean. If they were, they stopped partying when they heard their short positions were getting smashed yesterday, including the number one shorted stock in the market: Bed Bath & Beyond (BBBY).

I suppose that they assumed that kind of “madness” was over as individual investors had begun lining up to put this money in passive exchange-traded funds (ETFs) in the hopes of going along to get along. 

But there is still a large group of investors, including hedge funds that love the short squeeze game, which has been around since the dawn of the stock market. Those masters of the universe might have also been jolted by the overall resolve of the stock market, which has begun to feed on weak opening starts like ambrosia. Of course, many will write it all off as thin volume hijinks doomed to fail.

They have been saying that for a long time, however. Meanwhile, investors’ sentiment has inched into the greed territory. I prefer it to extreme fear, but this level doesn’t faze me; it just means we might have to be nimble. Remember, a few months ago, I wrote in a Hotline that investors would have to adjust and trade a little more than they’re comfortable with, but it’s been worth the effort.

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Heat Map

Nine of eleven S&P 500 sectors were higher on the day, but it was still about, as Utilities (XLU), and Consumer Staples (XLP) led the way.

Growth sectors were next, as Technology (XLK) kept plugging along, and Consumer Discretionary (XLY) names took the rally baton from XLP.  

Energy (XLE) names continue to stand out as decliners, but banks were more intriguing.

Key Charts

The S&P 500 tickled its 200-day moving average. The truth is the volume was too light to clear that hurdle. I continue to think it has to pull back and fill that gap (arrow).

Utilities (XLU) have rallied back from its 52-week low. That’s the comfort sector for sure, and big money will flow in from the so-called Inflation Reduction Act of 2022 and other “climate change” spending.

Portfolio Approach

We closed positions in Health Care and Industrial this morning to our Hotline Model Portfolio.

Today’s Session

Headline retail sales coming in unchanged against consensus of +0.1% but the news wasn’t all bad, unless you are rooting for the Fed to stop hiking rates.

• Ex-autos +0.4% consensus +0.0% prior +0.8%
• Ex-autos and gasoline +0.7% consensus +0.4% prior +0.7%
• Control group +0.8% consensus +0.6% prior +0.7%

July Monthly Sales Retail & Food Services	M/M	Y/Y
Headline	+0.0	+10.3
Motor Vehicle & Parts	-1.6	+2.1
Furniture	+0.2	+8.4
Electronics	+0.4	-9.9
Building Materials	-1.5	+10.1
Food & Beverage (at home)	+0.2	+8.4
Health & Personal Care	+0.4	+3.4
Gas Stations	-1.8	+39.9
Clothing	-0.6	+2.3
Sporting Goods	+0.1	+3.9
General Merchandise	-0.7	+0.5
Department Stores	-0.5	-1.4
Internet	+2.7	+20.2
Food & Beverage (away from home)	+0.1	+11.6

Sector highlights (prior month):  

• Internet +2.7% (+0.9%)
• Building materials +1.5% (-0.5%)
• Electronics +0.4% (-0.1%)
• Food & Beverage (at home) +0.2% (+0.9%)
• Food & Beverage (away from home) +0.1% (+0.8%)
• Department Stores   -0.5% (-2.4%)
• Clothing -0.6% (+0.9%)
• Motor vehicles & parts -1.6% (+0.5%)
• Gas stations -1.8% (+2.5%)

Bond yields are much higher, perhaps keying off developments in Europe but the 10-2 curve steepening.

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