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It will be an action-packed week, that’s for sure. There will be plenty of data, including new home sales, pending sales, PCE, and the University of Michigan. On top of that, there will be a slew of Fed officials talking daily. There will also be multiple Treasury auctions which have become must-watch events, especially with a 2-year auction on Monday, a 5-year auction on Tuesday, and a 7-year auction on Wednesday. These can all impact market directions, for better or worse.
The S&P 500 fell nearly 5% this week and finished at 3,693. It would have been worse if not for an end-of-day, short-covering event, with traders’ monetizing puts heading into the close. It is relatively easy to spot when the VIX drops drop more than 7%, starting precisely at 3 PM.
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S&P 500 (SPY)
Currently, the S&P 500 may have finished wave three down and may now be entering wave 4. I think it is more likely that this wave 4 plays out as a sideways consolidation, perhaps for a couple of days. If that is how this goes, a wave five that equals the length of wave 1 could take the index to around 3,200 to 3,300 by the end of the first week of October. That would work nicely with the ascending broadening wedge pattern we have talked about now for several weeks.
It would also work with the 2008 analog we have been tracking for some time. The analog suggests the S&P 500 bottoms around the third week of October, but the 2022 S&P 500 has been running about 2 weeks ahead in some cases. So a low in the first or second week of October would not be all that surprising. The analog also suggests there should be a pause at this point in the move down, which lines up nicely with a potential wave 4.
Additionally, this week reserve balances fell to $3.0 trillion, the lowest in the cycle and levels not seen since November 2020, when the S&P 500 was trading around 3,500.
QQQ Vs. TIP.
Plenty of items have been good indicators to suggest the June bottom would not hold, with the TIP ETF being one. The TIP ETF made another new low on Friday, and the QQQ has been trading about 12 days behind the TIP, suggesting the QQQ has further to fall.
Also, this week, we saw a massive move higher in credit spreads, with the SHY to HYG ratio ramping up. It is probably a good indication the VIX is heading higher, should those spreads continue to widen.
The JPMorgan CDS hit a new cycle high on Friday, and this is worth watching as the higher the swap rises, the lower the stock price shall fall. The chart below shows an inverted price for JPM’s stock and the CDS. The CDS is historically a low value for the CDS and does not suggest a credit event is likely to happen. But what does tell us is that volatility is rising.
Shopify is showing a bullish divergence, with an RSI trending higher and falling stock price. The good news for the stock price is that, thus far, it is holding support.
ServiceNow broke support this past week at $400 and is trending lower towards $350. There is also a gap to fill, about $325.
Costco, the stock with a head-and-shoulder pattern within a head-and-shoulders pattern, is getting closer to completing the smaller H&S pattern at $454.
Finally, AMD is close to completing that gap fill around $62. With support at $73 broken, there is a chance it could fill that gap soon.
Charts used with the permission of Bloomberg Finance LP. This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.