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12/5/21
STOCKS – ROKU, TSLA, AMZN, SQ
MACRO – SPY, QQQ, BTC
- RTM: Global Market Deleveraging Event Is On The Horizon As Market Prepares For Faster Fed Taper
- RTM- Market Has Woken Up To The Reality
- RTM- Snapback From Oversold
- RTM: The Fed Is Tapering Into Slowing Growth Narrative Has Arrived
- RTM- Taper Still On And Is Not Going To Sit Well With Stocks
- RTM- Replay Of Live Session
FREE VIDEO: A Massive Deleveraging Process May Be Set To Begin For Global Markets
MICHAEL KRAMER OWNS SPY PUTS
MICHAEL KRAMER AND THE CLIENTS OF MOTT CAPITAL OWN TSLA
The S&P 500 fell by 1.2% the week ending December 3; it could have been worse if not for a near 80 bps rally off the lows in the final 15 minutes of the day. The rally coincided with a sharp move lower in the VIX, which probably suggests many traders closing out profitable put options and a short-covering rally ahead of the weekend.
S&P 500 (SPY)
From a bullish perspective, the 4,500 level did hold, and as I had noted throughout the day on Friday, that was a critical level, that once broken, will lead to a flush lower to about 4,360. There is a clear downtrend in the market, but a rally back to the trend at 4,600 can’t be ruled out. However, the S&P 500 is very far from even being oversold, and given the developing change in Fed monetary policy, the risk is further downside. As I have stated more recently, it seems highly likely that the highs for the year and potentially the next few months are in.
The change in Fed policy for faster tapering will lead to even tighter financial conditions, making it very difficult for the stock market to advance. I have been telling you for months that the Fed taper would tighten financial conditions and that, coupled with slowing earnings growth, would lead to multiple PE contraction. That is what is now happening. The faster the Fed tapers, the worse this experience will be.
Financial conditions have already tightened by nearly 13 bps over the last 21 weeks. While you will read in other places that financial conditions are still easy, which they are. It isn’t about the actual financial condition; it is about the absolute change in those conditions over time. The chart shows when financial conditions tighten by about 10 to 15 bps, it is accompanied by a market drawdown. The more the conditions tighten, the more significant drawdown.
As I talked about in my premium commentary this weekend, conditions based on several factors only tightened further this past week. Given the speed at which the bond and currency markets have re-priced and will re-price further, rallies in the equity market are likely to be sold relatively quickly as markets look to deleverage. All you have to do is look at the TLT/LQD ratio to see why the VIX is rising so sharply and why it may not be so quick to come back.
That means if you are “buying the dip,” you do so at your peril because the VIX is a critical component of why “buying the dip” has been such an easy trade. As I warned in October, the market dynamic for buying the dip has changed. (Should be free: Buying The Dip Is Dead)
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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.
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