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STOCKS – AMD, NVDA, QCOM, TSM
MACRO – SPY, COPPER, DIA
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Stocks fell sharply the week ending June 17, with the S&P 500 falling by more than 5%. The index finished the week at 3,674 and should be ready for a least a short-term bounce when the markets reopen for trading on Tuesday morning.
From a short-term perspective, there are signs of a potential reversal, mainly with a diamond bottom reversal. It may lead to a gap-filling up to around 3790. We saw a bigger version of this the last few days of May and the beginning of June. In that case, it was a pattern that led to the market’s dropping and retracing gains.
Don’t get me wrong, I think we are still very much in a downtrend, and that move lower should persist for some time longer.
There is a similar pattern that is present in the Dow Jones Industrial Average presently, and that too would suggest a gap up to 30,600 or so.
While the S&P 500 is now considerably cheaper on a PE multiple basis than when it started the year, it still appears to have some room to fall. The multiple has bottomed around 13-14 times earnings on several occasions, such as in 2018 and 2020. Additionally, following the dot.com bust of the early 2000s, the PE ratio bottomed around the 13-14 region.
That gives me enough to think that we see a decline around the 13-14 area again this time, which would place the S&P 500 bottom around 3,200 to 3,300.
Additionally, liquidity continues to come out of the markets, with reserve balances falling to a new low this week. The drop in reserves also suggests that any rally in the market is likely to be a short-lived relief rally.
If we are following the 1998 to 2002 cycle, which has worked as a very nice roadmap, then we are due for at least a short bounce, followed by a lower low.
Copper prices may be heading lower, a positive aspect of the inflation outlook. We can see that copper prices have peaked on two occasions around the $4.80 to $5.00 level. It has more recently broken an uptrend and has now started a downtrend, with a series of lower highs and lower lowers. There is some support for the base metal at around the $3.90, but I think copper will ultimately break.
Taiwan Semi (TSM)
What is also interesting is that the chart of copper resembles that of Taiwan Semiconductor pretty closely. It almost looks like Taiwan Semi leads copper by about 2-3 months. When you think about it, copper and semis are two gauges of economic demand cycles.
If the pattern continues, and Taiwan Semi leads copper prices, then copper prices still have further to drop.
Qualcomm has been under a lot of pressure lately, and the shares made a new low this past week. The $124 region has been an essential level of support for Qualcomm, and now that the stock has fallen below that support region, the shares look poised to drop further, potentially below $110.
AMD also fell below a critical support level this week at $85.50, and it looks like $73.50 would be the next significant level of support for the stock.
Nvidia is also at crucial support at around $155. AMD and Qualcomm appear to be leading the way here, and if it turns out that they are, then that support level for Nvidia should break, and the stock should start heading towards $135.
Have a great day
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. 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.