Stocks Retreat Ahead Of CPI Data; GEO Group, Taiwan Semi, nVent Electric In Focus

0:00Look, when people start to gamify investing, right? So when you think about people being rewarded with balloons and fireworks for trading, which we know is the more you trade, the worse offer you're going to be in the long run. I'm Joe Davis.

0:12Ed Carson:And I'm Christine Kashkari. And this is Season 2 of Better Vantage by Vanguard, an eight-part video podcast series hosted by custom content from WSJ and Vanguard.

0:31Ed Carson:Good afternoon, everyone, and welcome to Stock Market Today. It's Alyssa Coram and Ed Carson here with a breakdown of the action in today's session. And we did see stocks retreat ahead of some key economic data coming up. And we have more big AI earnings out after the closing bell, Ed. That's right. I want to take a look at three stocks, GeoGroup, Taiwan Semiconductor, and Envent Electric. Okay, we'll take a look at those stocks and more. Get Ed's early read on some of the earnings action. But before we do that, as always, a closer look at the major indexes. And we'll kick things off with a look at the Nasdaq Composite.

1:17Ed Carson:So here's the Nasdaq down 0.6 % on the day, we had the S &P 500 and the Dow both down 0.3 % on the day. But honestly, these declines, not all too damaging if you put that into context of how far we came last week. So Ed, would you say that as of now, this continues to be a pretty normal, orderly digestion? I think so. I mean, you know, I think if we undercut the lows of Tuesday, which would also be undercutting some of those short-term highs, you know, at that point, I think that would be more worrisome than obviously there's always more levels you can go down. You can always go down more. But right now, this is in some ways you could say it's a shakeout.

2:04And there's different things beneath the surface. You know, software was down today. Chips were up a little bit. But still, the general pattern is this. I guess something else is that USO, if you looked at USO right now, USO rose a little bit, not crazy. But as you can see, I mean, the market, if you look to August 3rd and 4th, that's when oil really fell to the lowest, big drops. Those were like almost 6 % drops each day. Well, those were the days, that's when the NASDAQ, boom, and then the second day of that was the follow-through day. It just has an impact when you're moving that much. And we've rebounded a fair amount.

2:39So you can argue, hey, if we can rally on falling oil prices and sort of hold our ground when it rebounds, that's pretty good. Obviously, if oil goes to 100, you know, the market's going to fall. But, you know, it is, you can say it's somewhat encouraging, but it's just something we have to keep watching because crude oil and yields and such. But still, yeah, overall, still seems constructive right now. Yeah, the tender yield fell a little bit today, but has bounced off of lows. But again, the market has held up despite that. So, you know, as long as this goes sideways here and this stays in this little range, I think still positively, this is constructive.

3:16We're seeing more handles form. We're seeing some, you know, little pullbacks and other stocks that are outperforming. You can get relative strength. It was hard to get relative strength during that four-day stretch. You had to be rising, you know, 7%, 8%, 9 % just to keep up with the NASDAQ or so. But, yes, all this is going pretty well. Well, I think QQQE actually rose today or was flat. So there was definitely mega cap weakness today. Google was very weak. Amazon, SpaceX, and Google and Amazon are Dow, both Dow components too. They're Dow, S &P, and NASDAQ. So they were weighing on all the major indexes, not so much the RRSP.

3:59And SpaceX is dragging that. It's like 100. I mean, whatever. But there was some of that stuff going on. And so there was drags, there were, you know, there were some other things. So despite all that, despite oil going up, yeah, pretty good day or decent day.

4:14Ed Carson:Yeah. And Google definitely looking like a sell signal there to me with that break below the 50 day. Okay. So with oil being such a factor as well as yields, it seems like two potential catalysts outside of the AI leadership and the ongoing headlines from earnings season really do continue to be the Iran situation as well as the Fed's path. And we are going to get some CPI numbers tomorrow, right? That's right. And it is weird because it's sort of like, you know, you're getting a snapshot in time where oil prices were at a different level from where they were and then the feed through. So it gets a little confusing.

5:01Right now, the last time I looked, and it's been a little while, but it was about 50-50. And we're a month away from the Fed meeting. So it's close enough to 50-50 that it's 50-50. Yeah, it'll be important. But yeah, also just oil prices. And it's just, you know, they may sort of, the market may backwash into a corner to at least do some kind of token rate hike to usually new Fed chairman raise rates early on and just to sort of just approve to markets. And in this kind of environment, there may be pressure on Warsh to do that, to build that credibility. But we'll see because again, yeah, I mean, oil prices could plunge.

5:37I mean, who knows where things are going to go over the next month? I have no idea on oil prices. If oil prices fall to 60 and people feel like we're low and they think that's going to stay, I think then the Fed probably will probably decide to stand pat. If it goes up to 100, it's going to be hard not to. So it's a lot of things in flux and it's hard for the Fed to make policy off of that.

5:59Ed Carson:Yeah. So there I don't think there will be a shortage of headlines over the next month. I mean, there never is. Right. But between now and that key decision. So thanks for your thoughts on that, EconEd. Had to get you to put on your Econ hat there for a second. We appreciate it. And let's move on and take a quick look at blue chips and small caps. So here's the Dow. You mentioned some of the mega caps are in this. The Dow is still holding above its gap up from last week and its shorter term moving averages. And here's a look at the IWM ETF. We're still here too, trading in a range near high. So quieting down, our senior market strategist, Mike Webster, has called this sort of action previously that equilibrium.

6:53Ed Carson:So seeing the volatility contract, you're seeing a bit of that equilibrium there. Which way will we break. And if and when we do, we could get some clues as to where this market might be headed next. And when it's tight like this, if it does move up or down, it becomes easier. I mean, I will say on the sector and especially stock level, it isn't always so calm. But yeah, if this one moves out, it doesn't have to move out a crazy amount to say, hey, that's making a move. With this or swinging up and down, you've got a pretty big range. And then by the time it gets up to that top, it's like, well, now do I go?

7:32But here, when it's tight, and you can imagine this with handles and other things, it's like, okay, I can see buy points. I can see things that seem like a clear entry in a way that wider, looser markets, I mean, sometimes there are opportunities and they work, but other times you get caught into things and then we whipsaw it down. So this is really nice to see.

7:52Ed Carson:Yeah. Constructive for sure. A couple of ETFs to highlight before we move on. Here's the ITA, Aerospace and Defense ETF. What are you seeing here, Ed? I mean, this is just doing pretty well. Look, the RS line still needs work to do, but there are a lot of aerospace firms that are around buy points, IPOs, that are reporting this week. And I just wanted to bring this up. It's hitting new highs. It's been trending up okay in the last couple of months, but it doesn't have a great track record over time as well. I don't want to make too much of it, but I just wanted to bring it up. Yeah, an area to hunt for potential leaders.

8:30Ed Carson:Okay. And then you mentioned what was going on with chips and software today, which we've really seen in this larger technology space, a rotation, I would say, out of the chips and into software. But chips have come off their lows, trying to put in some repair work there of about six-tenths of a percent on the day. Meanwhile, here's a look at the IGB ETF down 1%, but it had a big day yesterday, the software sector did. Yeah, the uptrend is clearly intact, well above the 10-day line a lot. So, yeah, this still looks very good. And I think overall breadth was positive today, which, you know, reflective in RSP and QQQE and, you know, and IWM.

9:13I mean, those things were, you know, there's generally some positive things. A lot of it was dragged down by a few mega caps.

9:20Ed Carson:All right. So a breadth check there. We like that. And let's go to Gio in the security software group. an attempted breakout today, shares up 3.6%. RS Line Blue Dot, so that's really underscoring the price outperformance versus the S &P 500 right now, Ed. And I think this stock really came back on our radar about a quarter ago with that triple digit earnings growth, strong reaction, getting itself out of a downtrend, and it's had a nice run since then, since that earnings report and now potentially offering investors another chance to get in with this base formation. Yeah, sometimes a stock will move.

10:10And if you look at great stocks in history, I remember looking at these model books and sometimes they'd show these charts and it was actually, well, wait a second, there was actually an uptrend before that. That actually didn't show like, and so this has come up and it's a pretty tight base. I think if you look on a weekly, It's sort of like, you know, moving off of like sort of this long consolidate, almost treat this as a handle to a huge consolidation. It found support of the 10 week, 50 day line. This is in the private prison, but more the immigration detention space. And there's a lot of government contracts.

10:44I mean, there just are. And there's just a lot of growth there. I mean, there was originally that big spike after 2024. And then it was like, well, where's the business? Is it really coming in? And they were so it fell off. But now it is coming in. And sometimes that happens. I mean, there may be an investing story, but if the story isn't playing out in the stock, you need to wait for that. Now it has. I like this tight action. It did come off the highs of the day. And that's one reason why the RS line, when we got the blue dot, the RS line doesn't look like it's a new highs on a daily, but that sometimes happens.

11:12If it triggers it early on and then pulls back, that happens. But it's still a signifier. It is trending pretty darn well. And again, strong growth in a non-tech field. It's always great to see that. So you have an opportunity for diversity of your holdings.

11:30Ed Carson:Exactly. And Ed, you talked about the tight action here. I've got to say, it looks like a record for me seeing seven weeks tight. I don't know. It's pretty rare or two, pretty much, right? Maybe there was one week in here separating two, three weeks tight periods. But yeah. Yeah, there is a lot. Tight action over the last eight weeks or so. And like you said, now finding support at the 10-week. Okay, so today's breakout attempt did fade a little bit. So we'll be keeping an eye on that 32 area for potential resistance or if it can add on to the gain tomorrow with a full-fledged breakout. Let's pivot on over to TSN.

12:16Ed Carson:This is a big name in the semiconductor sector at Taiwan Semi. Looking like it's kind of stuck under a flat 50-day. What do you make of it? Yeah. I mean, there's a few things. Like, if this works, you know, you could see a clear line move over the 50-day line. That could be a positive. Not just a peak above, but you'd want to see a decisive move. And you might even want to start slowly because we've seen a lot of reversals. So stocks will get above the line and then slip back. I also like it because its ATR isn't that extreme. Some of the AI names that are coming up are like 10 % ATRs. And so when they whip lower, if it doesn't work, in a matter of minutes, you can be down 8%, 10%.

12:57But this is something that is setting up as a long and as a short. I mean, let's be clear. I mean, it could easily sell off here. The volume hasn't been tremendous on the way up. The RS line has faded. Looking for weak rallies, this is the second time it's come up to the 50-day line. And we'll have to see if, you know, again, it may be reflective of AI stocks go down. So I think this is one that there's a lot of AI stocks that look like this that are either just below their 50 day line or hovering around their 50 line, but maybe just below short term levels. And we're going to look at another one that's sort of like that, a little stronger, but still the same basic thing.

13:34And it's just, you just have to balance out. You want to watch them, but also know this is not at all clear. The direction is not at all clear what's going to happen here. So that's really it. I'm not, it's not rah-rah, but it's definitely watch to see which side of the hill it falls down, I guess.

13:52Ed Carson:Right? Because I feel like, you know, we're going to look back in a couple of months and we're either going to say, oh, wow, look at those bases that were forming. Or we're going to say, wow, these stocks kind of topped. So it feels like we're at that critical juncture for a lot of these names. Yeah, I think so. And again, if some of these come through, I'd be really reticent about making a whole lot of these buys. I mean, there may be 20 stocks, if it starts working, that go over their 50-day line. But man, it still feels like it's something where you might want to just nibble back into that space rather than let's just put all my portfolio into 10 chip and AI stocks because they're making individually some positive moves.

14:33So just something to watch. I'm just keeping an eye on this because it also seems a safer name, but safe does not mean safe by any means.

14:44Ed Carson:You're right. And yeah, we spent a good amount of time on yesterday's show talking about that key 50-day and getting above resistance there, that being a potential buy area, but also just because a stock clears that level doesn't mean the coast is clear at that point too. So I like what you're saying about making sure that investors are thinking about portfolio construction, you know, when they see some of these stocks trigger those entries. All right, let's take a look at NVT.

15:20Ed Carson:You know, my chart doesn't want to bring that up. I was having some trouble myself, actually. I was trying to call something up and I thought it was me. Yeah, but tell me a little bit about, here we go, this stock. Like you said, similar, I feel like if we did an overlay of the price action over the last couple of months between NBT and TSM, they'd be tracking pretty closely with the exception that now NBT is above its 50-day versus pinned below it. Yeah. And it's right at those short-term levels is what I think is important here. I think when it was at the intraday high, you could have told yourself, okay, I could make a buy here.

16:01You could have. And it has made a little bit more of a rebound to that, but it pulled back just a little bit and it's just tricky here. It's just tricky. We'll have to see how it goes on this one. The growth has been strong with this name. You know, so I like this name a lot. It's, you know, it didn't do that badly. It made this big run, gapped up on earnings and gave up some of those, but it didn't really do it until that very last bit when all the AI stocks were selling off. So, you know, it did a reasonable job of holding its earnings thing. I'm just trying to be, you know, obviously I'm sort of dusting off something that looks a little dirty and say it doesn't look too dirty.

16:41but I like, you know, so this one could be one of those. It seems a little bit closer, but yeah, it's just, it's just tough. And, you know, so, I mean, I may have said the same things again. The RRs line has fallen off. It probably isn't that weak when you look at AI stocks. That's the thing. You know, it's sort of like AI stocks have been out of favor. So they are now lagging. A lot of the market has rallied when the AI stocks have not. So there's going to to be some, I'm going to be a little bit more forgiving if they go initially, because I get why these individual stocks are down because the whole sector was out of favor, even if it's just for a short run.

17:17But so we'll just have to see. Again, it could work or it could not. And some of them may work, some may not. And some of them could do what they did today. Like we've seen a lot of these pop-ups and then cop down. I did that a couple of weeks ago when it had earnings that popped up. Here we go. Look at this. And then it faded. Boy, we've seen a lot of earnings where, of all things, not just tech, where they jump out and then they retreat. And then sometimes they come back the next day. It's just tricky.

17:44Ed Carson:It has been. All right. Well, we do have more earnings out after the closing bell that we want to take a look at to see what the early reactions are like. And we do have Lumentum reporting after the close, L-I-T-E. I'm seeing the stock up. It's jumping around, Ed, but not, you know, big percentage-wise. I'm seeing it moving between up a half a percent to three quarters of a percent at the moment. Yeah, I'm not sure. It seems like they beat views and they guided above views. So for the next quarter right now, but obviously it shows you how things are tough. We'll just have to see. It could be on the conference call because this moves a lot.

18:29The idea that this is going to trade tomorrow So up or down 1 % seems a little unlikely. Yeah.

18:37Ed Carson:With the average true range of almost 11%, one would think it would be a mover on earnings. Yeah. So we'll see on that. Another one is super micro. Now, this is not one that has been doing particularly well. They've had all sorts of issues. It's popping today. I already gave preliminary results a couple of weeks ago. And you can sort of see that on the chart. You know, punching above the 250-day line, but there's been a lot of weakness. This is probably more relevant. Just one, it's good for the whole AI sector to see positive results, but it's also good for Dell and HPE because it sort of competes with those names, especially on the server front.

19:10So Dell and HPE are up a little bit after hours and probably on this report. Another name is CoreWeave. Again, this one's sort of a laggard in that space of NeoClouds. So again, it's going to punch above some key levels, but...

19:27Ed Carson:Up 8 % for our Spotify listeners, Ed. Sorry, sorry. Yeah, and so nice move there. And so we'll see how that one goes. But, you know, see if the Neo clouds can rally off of that. And then there's outside of the tech spaces, ATRO, Astronics, that one was making a decent move. So we'll see that sort of a pseudo handle. I'm not sure where that is in the base, if that's high enough, but it's close to getting it to be a handle, it looks like. So those are some names out there that seem to be moving on earnings and could be relevant for, we've got a number of other AI type names, but it's definitely a lot of AI type hardware that's coming out right now.

20:06It is.

20:07Ed Carson:So, Astronics here up about 8%. And for some of the AI names, NVIDIA partners, right? So, what could be the potential impact if, you know, we see positive reactions to these earnings? Does that say anything about NVIDIA or anything exciting for the broader AI ecosystem? them. Yeah, I don't know if NVIDIA will move a whole lot because it's just so gigantic, but I think it matters a lot for those optical names and for Lumentum, but like coherent will be tomorrow, which is even wilder than Lumentum. So we'll see how that one goes, you know, tomorrow. But yeah, I think that the server, this is, there's a lot of AI hardware plays and, you know, and see how the market reaction, they seem to be generally positive results.

20:54So, and so far, most of them are reacting well. So that's a positive. But again, so many names have popped out and then fade, and we have the CPI, and we have all these other things out there just tomorrow.