Indexes Ceding Gains Amid Ugly AI Sell-Off; Credo, Targa, Eli Lilly In Focus

0:00There's a lot of hype and a lot of good news already priced into the marketplace today.

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0:41Ed Carson:Good afternoon, everyone, and welcome to Stock Market Today for Tuesday, August 18th. It's Alyssa Coram and Ed Carson here and some notable declines for the major indexes, particularly the NASDAQ composite today, Ed. Yeah, and a lot of damage in the AI trade. I want to take a look at one of those, Credo Technology, but also Target Resources and Eli Lilly. Okay, we'll check out those stocks. But first, a closer look at the major indexes. Let's assess the damage done today, Ed. The Nasdaq Composite down 1.3 % on the day, definitely taking the hardest hit of the major indexes. We also saw a notable decline for small caps.

1:25Ed Carson:Here's the Russell 2000 down 1.3 % on the day. You can see a little bit of a break of the recent trend here, even though we are still holding above some notable short-term levels there. Meanwhile, the Dow down two-tenths of a percent on the day, coming down to touch the 21-day moving average. And then the S &P 500 fell about seven-tenths of a percent on the day. We are still above that breakout day, August 4th, a key day in the market and the 21-day line there. But the NASDAQ starting to look a little vulnerable here. You know, Ed, we were on the verge of a power trend. I guess we technically still are as long as we hold above the 21-day.

2:15Ed Carson:But this is looking kind of more like a power outage at this point than a power trend. What say you? Yeah, it's a little bit like an NFL team that is one game away from the playoffs with four games to go. And then you start going on a losing streak. And what seemed like a sure thing, not so much. Yeah, all the indexes, they are above their 21-day line still, but they're all at two-week lows, essentially, or they're giving up most of their gains since the follow-through day. And often, you know, like, so if you bought at the close of the follow-through day, you're down. The NASDAQ has the additional thing, whereas the other indexes were getting up to highs.

2:52This one did not, and it's back below the marked highs of, like, mid-July. So there's just some levels there. Again, it's just a little worrisome, disheartening. You want to see that strength. We were sort of, okay, we were taking a break. We were pausing. And it seemed like last Thursday we were on the verge. Okay, here we go. We're just peeking out and the S &P was looking the same. And now we haven't. And it doesn't mean we won't strengthen again. But yeah, it's a little bit discouraging. If you bought recently, especially if you bought in the AI space in the last couple of days, boy, there could be some pretty big losses, even though the market is still in an uptrend.

3:35Yeah.

3:37Ed Carson:And I think that we talk a lot about the 21-day line because as active investors, that seems to be a pretty good level to know what side of the trend that you're on ed for the most part, especially in an uptrend, using that as a bit of a good guardrail, so to speak, for active investors. But with a gap down like this, I would say it does make you have to reassess your expectations a little bit here. Maybe an upside reversal at the 21-day would be constructive. But at this point, it seems like, you know, this is this is not the same kind of market that we saw in the at least as of now in that April May timeframe.

4:29Ed Carson:And to your point, AI stocks, the ones that are struggling here versus leading the market higher. So in terms of the catalysts at this point, because it seems like lately, oh, you know, if interest rates or oil, that seems to be the culprit. But today it really was just a lot of that AI weakness, it seems like, was sort of the main issue. Or what's your read on what was sort of driving the action? Yeah, I think there is this underlying treasury yield in oil. It's still there. You know, oil came off highs and treasury yields actually reversed lower. But I think that's in part because equities were down.

5:11So that sort of takes some of the, especially on the yield side, it's not like, oh, boy, everybody's happy about inflation or happy about where the trends are. I think it's more of that rather than really backing off. So I think that's still out there. But, yeah, clearly it was more of a sector thing. It felt like a localized tornado. It's like, yeah, OK, overall, the state had pretty good weather. But this town got hit by a tornado. I mean, and RSP looks fine. That's near at new highs. So it's hard to get, you know, IGV. That's fine. But here's where the damage is. And it's not the percentage losses are big.

5:49But what's really bad is that it was a rug pull, okay? And this one is less so. But a lot of stocks were just getting through their 50-day line, often flash or above short-term highs above their 50-day line, flashing buy signals. I mean, there were a lot of them. I'm not saying they were all the greatest, but I could see aggressive traders picking up a number of those, not that they necessarily should have picked up a number of them, but picking up some. And then the rug pull immediately, I mean, with a big drop. So it's in the context of the recent rebound the last several days, not necessarily that bad.

6:22But if you just now buy it and then bam, 5%, 10%, there were a lot of 10 % losers out there just when it's doing that. So I think that was more than a lot of chart damage in that AI trade, but it's not like the other index like IGV. Okay, it gave up gains, but it's after two pretty decent losses. So it's like, it didn't really have a handle, but recent buyers, they haven't had a great time. And it's just been tricky to buy and hold since the fall of today. I mean, if you bought something maybe on August 3rd, yes, but from August 4th, it's just been tricky to really make gains. Yes, there have been stocks that have made gains.

7:00Don't get me wrong, but you look at the indexes, you look at some of the sector ETFs, and it's just been tough to make headway. And that's not what you want to see. I mean, and that's a message. When the market is not making headway, you don't want to get too aggressive, even if we're still above, you know, we're still in this rally mode, and we could take off. Look, I'm not, you know, again, but just these last couple of weeks have ultimately been sort of disappointing and tough to handle for investors. Right.

7:29Ed Carson:It seems like this is a day to be taking defensive action, no doubt, Ed. And let's also just briefly take a look at the S &P 500 here, coming back to its breakout area, again, still holding above that 21-day line, but like you said, round-tripping the last couple of weeks of gains. And it seems like, you know, raising a little cash here makes some sense, obviously, if we do get some sort of power trend, which if we drop below that 21-day line, that would be ending that attempt. And I guess it's a good thing maybe that we wait for an up day and a little bit of time because we didn't officially get that power trend designation given the recent action.

8:26Yeah. And we're looking for a power trend. On the other hand, if we close below the low of the fall of the day, that is a pretty negative sign. It doesn't mean that the rally's finished, but that is a pretty bearish sign. And we're not that far away, you know, in some of these because, I mean, I mean, we're not right there, but it wouldn't take, I mean, another day like today on the NASDAQ, and we're getting pretty close. So, yeah, I mean, again, even if you don't do anything to reduce your portfolio for portfolio's sake, if you bought some AIA stocks, you might have needed to sell them because they were triggering sell rules.

8:59So there was – or maybe a day or two ago, you were selling software stocks if you bought them real recently. I mean, just, you know, there could have been stocks in the last few days that you had to sell for individual reasons. So you might be reducing exposure, even if that really isn't your goal.

9:15Ed Carson:And then a quick look at the NASDAQ 100 hit hard today, down 1.7%. It is just hanging on above that 21-day and the 50-day pretty much by a thread here. And then I heard you wincing it and the QQQE closing below. It's eight exponential moving average after an attempted breakout. So coming in a little bit, you know, if you take that step back, obviously, we've come up a lot since April. And it feels like a day like today, the potential for the scenario where we're in a sort of a chop higher, it feels like that scenario is a bit more elevated in my book. Given, like you said, the positioning of where a lot of chip stocks got turned away, that could be in the cards.

10:12Ed Carson:Just a lot of chop. Yeah, a lot of chop. It seemed like it. Okay. And you mentioned the 10-year. You also wanted to take a look at TYX. TYX is a 30-year. I mean, it is reversed lower, but it hit a fresh 19-year high. The 10-year yield matched a 19-month high. But again, this is where things, and there's a lot of things, global public debt in around the world, not just the U.S., AI demand for things like AI investment-grade debt, AI-related borrowing has just exploded. So there's a lot of demand for money, and that's pushing up yields, public and private. So that's a concern. That's a concern for housing.

10:55That's a concern for any business that doesn't have 100 % growth rates like AI and they say, I want to borrow some money. That's a headwind for the market. And yeah, it's definitely something to watch for. And if we break higher, I think that could be a real concern at these levels.

11:12Ed Carson:Okay. Let's also take a look at just a couple more sectors to help paint the picture and look at energy. The wind streak here continues now. topping its highs from March. So taking a look at a weekly chart here, you can see that breakout in effect. So a lot of money continuing to rotate to energy. Yeah. And it may be a little extended. It could be due. Again, this is so headline. There's so many headline risks on many and not everyone, not all one to one, but that's always the problem. That's one reason I tend to stay away from energy, but there's no doubt this is one of the strongest parts of the market right now.

11:50Ed Carson:Yeah, I mean, when the headlines are in your favor, this is absolutely the place to be, it seems like. But you do have that added risk of, you know, like with some things, you can get a little bit more of a sense of the timing, not always, but, you know, earning season of when those risky headlines are coming. But when it comes to the geopolitical landscape, not always the case by any means. No, no. And then let's go to healthcare. This performed particularly well today. Ed, what was going on here? They say that every day your business is late to AI, you fall two days behind. The competition is only moving faster.

12:33Ed Carson:Fortunately, there's NetSuite Next. NetSuite Next is where your business meets AI because AI is built into everything you do. It automatically surfaces custom insights throughout your day. AI agents work alongside you to solve problems and handle routine work. And anytime you have a question about anything, ask, just like you're having a conversation with a colleague. If your revenues are at least in the seven figures, try NetSuite next for free. Go to netsuite.ai slash Wall Street. Lily and other big pharma seem to be the big driver. Other things were sort of going, hanging out, but it really seemed to be big pharma today.

13:04Ed Carson:Okay. And Lily, we will take a look at soon. I do have a position in that. And then let's take a look at defense stocks continuing to hold up well here at near highs. Yeah, I'm not sure how many buying opportunities there are, but ITA and DEFEN are both, I mean, this is maybe a case where ETFs are not the worst thing because a lot of things are moving if you wanted to get into this space because I don't know how many individual names are actually in position. But, yeah, this is just a reminder. If nothing else, go through sector ETFs to just like, oh, that's right. This sector is doing really well.

13:40We all have this gravitating, oh, I want to go into growth stocks, tech stocks, but even just scrolling through a handful of sector ETFs can give you a handle on maybe areas that should be paid more attention to. Well said.

13:55Ed Carson:Okay, well, let's take a look at an AI name that got hit hard today, and that is Credo Technology in the Semi-Fabulous group, down 13 % on the day after an attempted breakout just in the prior session, Ed. So getting whipped around here. Yeah. And honestly, now I think about it, I picked this one because it's such a big loss, but honestly, it's less damaged than a lot of them because it did hold the 50-day line. Again, if somebody bought the breakout, that's a 10 % plus loss. That has to be a sell signal. So, I mean, regardless, but there's a lot of names that really got hit there. So, this is just what's happening.

14:42And it just happened so many times. stocks that were above there, I mean, prior to 20, 30, 40, they were just above or just below and just got hammered today. And, you know, as much fun it is to see a stock like yesterday or in the gains that it's had, but it can go away in really an instant. And so this sector with ATR and honestly, the ATR of 9.5 on a down like day like it's had, it could have been worse. It could have been worse. You know, if it has been down 15, 20%, you know, you would have understood. So it's just a tough situation here. And I just, given this choppy market and given the scenes back and forth, it's just like, you probably want to keep your AI exposure limited until there's more of a foothold.

15:33I mean, it just, this is not April, May. Now, again, this could be the day that everything turns around and anybody who bought and triple levered everything at AI, oh, look at me, I'm so smart two months from now. But there's just been too many of these days. When you're in, you can be super smart. You can be in the right stocks generally, but you have to have exit strategies for all these things, especially if you're on margin with that one situation awareness. You can be in the right things. But if you don't ultimately have some exit strategy, whether it's short term or long term, you will get blown out.

16:06And that's happened to some great, amazing investors over time. And you just don't want to be one of them to get that. You don't want to be wiped out. Yeah, well said, Ed.

16:17Ed Carson:And I think that adding to how you said it, how tough it is, a lot of these comebacks in the AI ecosystem have been outperformers, right? You look at that short term relative strength, I can see absolutely the temptation for something like this. I think in terms of risk management, you know, looking at the ATR, average true range, hopefully that helps with position sizing. And then on top of that, it seems like this is a good reminder, not a fail safe, but a good reminder of why buying close to the 50 day line, if you can, can help you with where to set that stop. Like he said, have an exit strategy.

17:04Ed Carson:And if you are buying into strength, more of a breakout, using a percent stop. So we'll have to see if it can find support here around that 50-day line. But making sure you have either a dollar risk amount that you're comfortable with or a percentage risk when you're going into something like this. But I think a good reminder, try to buy close to the 50-day and even still, you can get a high-octane mover going against you. So the AI water's not safe. And I'll just add one thing on that. This one was tough to buy on the 50-day line. Some have been cleaner, but like, I mean, this reversal's up and down.

17:45So it wasn't like, sometimes it's just like, it's just really tough. I mean, it's just like, and that's the lesson. When it's really tough to buy stocks, that's a message for people too.

17:58Ed Carson:Exactly. It tells you something. It tells you about the kind of environment that we are in. Let's go to TRGP. This is Target Resources. A great day here in the oil and gas area. Up 7 % looks like a pretty clear day of strength, outperformance, breakout. out if you want to call it that, even though pattern recognition didn't quite identify a pattern here, relative strength line in the short term, also looking pretty good here. Ed, what say you about this one? Yeah, I think I'd like to see it pause for a few days. You know, that might let some things catch up just a little bit. This one had announced a deal with Exxon, like a long-term deal related to natural gas processing, transportation.

18:48One of the things I like about it is that it's probably AI related in some way, you know, like some of that stuff because natural gas in there. But this is not natural gas prices are domestic focused. They're not really swinging all around. I mean, they will swing all around, but they're not headline driven by stuff that's going on in Iran or Russia in that same extent. Natural gas is still relevant with what's going on, but it's not going to swing the way oil is, which, again, it's much more domestic focused. So if oil plunges 30 % over the next three or four weeks, Targa is not going to. I mean, I'm not saying that Targa is going to have a great time.

19:22There may be some kind of pressure. But it's just something that would make me more comfortable in that sense. Again, I would like to see this pause. But it's a nice, it's solid grower. You know, this is just one. It's not going to be one that has this amazing kind of growth, you know, like, you know, year to year. But it's supposed to have solid performance over the next couple of years. You know, it's based here for a little while. You know, yeah, I'd like to see it pause. But yeah, this one, this one, I guess, is a little less headline driven. So that makes it a little bit more attractive to me as well.

19:55Great point.

19:56Ed Carson:And I do like the acceleration of the earnings growth from 25 % to 53 % to 67 % to 68 % in the most recent quarter. Top line growth a little lumpier here, Ed, but it was positive in the most recent quarter. And again, in terms of the earnings growth, you can really see the successful earnings line there. So something else to note on the fundamental side. In addition to that, the reasons that you were saying this stands out in the space and the technical picture looking pretty good here. So a pause would be nice to see. And let's now go to the medical sector. Eli Lilly up 3.6 % on the day. I did initiate or reinitiate, I guess, a position in the prior session.

20:50Ed Carson:Ed, I think conquering that$1 ,200 is a good first step. It's had a lot of chop around that area over the last couple of months. And then the recent marked high and a couple of the downside reversals from recent sessions, of course, we'd want to see the stock get above that on its way to breaking out just shy of that$1 ,250 level earnings out of the way here. And this is one of the heavyweights in the medical sector, right, Ed? Yeah. And this is our stock of the day today. I think this is a situation where buying stock and steps might be good because you could have bought it yesterday or today as it got above the 21-day line.

21:32Either way, but it wasn't like a clear, aha, I'm breaking a trend. I mean, because there is a lot of days. And there has been a lot of chop in the last couple of weeks. It wouldn't be that surprising, especially if there was a good day for AI that we shift out of big pharma and Lily goes down three or 4 % tomorrow. I don't know. So there's that risk. It doesn't feel like sometimes when you get that clear break and the 50 line moves up there, but it's a way to maybe start. And then as it gets above, say those marked highs or that 1220 kind of area, and then maybe with a real breakout and fill out a position.

22:04I mean, that seems like a way that a lot of people could be doing that. Again, it's a heavyweight, just a massive growth, It's continuing to grow. It's huge on the weight loss, and it seems like its weight loss pill is gaining ground a little bit now on Novo Nordis. That was one area of weakness. I think that's one reason why it had a little bit of trouble a couple months ago, but doing very well. And you're not sacrificing anything. This is not like a J &J or Merck or something with more real modest growth or no growth at all. This one has really powerful growth. If this were a fiber optic firm, nobody would bat an eye if you saw that growth.

22:44It's like, yeah, that's good growth. That's the kind of thing you expect. This is impressive. And yeah, the growth will slow down at some point, but it's supposed to be solid next year. And I'm sure it seems like it'll still be some runway just on its weight loss side from other things. And yeah, clearly the top big pharma stock out there.