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It will be a holiday-shortened trading week filled with plenty of market-moving news. The first big news event will be the Fed minutes on Wednesday. The other big news item will come on Friday: the final reading of the University of Michigan inflation expectations and then new home sales. Remember, the market is closed on Thursday for Thanksgiving, and the session ends at 1 PM on Friday. So plenty of essential news to move through the market on thin trading volumes.
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I will start with bitcoin because this has just been consolidating for some time. A breakdown will probably not be a good risk indicator for any asset class, as it likely suggests further trouble in crypto land. Given the recent problem with FTX, if more bad news does come out, I have to think the magnitude of that bad news gets larger. There is what appears to be a pennant formation in Bitcoin, and that would suggest that lower prices are likely to come.
There is a decent chance that if Bitcoin breaks down here, it could head to around $11,000. Those who have read me long enough know I have never believed in Bitcoin or any crypto asset. These assets go up and down on sentiment, with no fundamental bearing. They produce nothing, have no revenue, no earnings, no cash flow, no dividend, are not a form of legal tender, and have no government backing. They can be created out of thin air and are a worthless asset class. The only thing that gives Bitcoin or any crypto value is if people think they have value; in this case, that is even disappearing.
On the other hand, the dollar has value because the US government says it has value and is the global reserve currency. The dollar is very close to moving higher, as it puts in a nice bottoming pattern, and if it can clear resistance around 107.50, it has a very good chance to run back to 111.
Fed board members were out in full force last week, talking up rates, which will continue this week. With Mary Daly on Monday, Loretta Mester, Ester George, and Jim Bullard on Tuesday, followed by the Fed minutes on Wednesday. Just for good measure, Jay Powell will be speaking on November 30. My guess is all these speakers will be calling for higher rates in the 5% or higher range. That should keep the dollar moving up and should help to push short-term rates higher as well.
The 2-year could even be putting a double bottom pattern, and if the 2-year makes it back to 4.65%, we will find out quickly if the 2-year has a 5% handle coming in the near term.
S&P 500 (SPY)
Higher rates and a strong dollar mean tighter financial conditions, which is bad for stocks. People ask why are you still bearish, Mike. I am still bearish because the Fed wants financial conditions to tighten more, and as long as the Fed wants financial conditions to tighten, being bullish means you are fighting the Fed, which is something I have no desire to do.
The S&P 500 pattern looks similar to August’s, and I think we are heading lower to fill the gap at 3,750.
Nvidia deflated some more on Friday, and it probably has further to fall. Nvidia is a company that is sitting on $1.7 billion in finished goods and another $1.9 billion in raw materials, both its most extensive amounts ever. There is a ton of inventory, and that “channel” still has much clearing to do. Good luck here.
Tesla is at a pretty big inflection point here. If this $180 level ends up breaking, there is not much support for this stock until it gets to $136, which would also fill the gap. The RSI is pointing lower, suggesting there is still more downside risk.
ADM is consolidating, and the momentum based on the RSI appears to be higher. This is important to watch, given how closely tied the stock seems to be to inflation. Archer-Daniels could even be heading to a new high.
Have a good one
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. Past performance of an index is not an indication or guarantee of future results. It is not possible to invest directly in an index. Exposure to an asset class represented by an index may be available through investable instruments based on that index. 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.