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1/8/2022
STOCKS – NFLX, MU, NVDA, AMD, HD
MACRO – QQQ, LQD, HYG
- Access To Live Q&A
- Live Q&A Session Friday, January 7 @ 12 PM ET
- RTM: A Pause In The Middle Of The Storm
- RTM- The Fed Is Going To Be Much More Aggressive Then The Markets Thought
- RTM: Beware Of Quantitative Tightening
- RTM: Don’t Rush Into The Reflation Trap Yet
- RTM: Evidence Of Further Economic Slowing
- RTM- Topping Patterns – Video
- RTM First Look: Adobe’s Shares May Have Significant Downside Risk
Stocks had another awful day on Friday following that very strong job report, with the S&P 500 dropping by 40 bps and the Qs falling about 1.1%. For the week, the Qs fell about 4.5%, and from what I can tell, that was the worst first week of the year since the week ending January 4, 2016, when the Qs fell 7%. (Should be free to read – The Fed Is About To Make A Massive Policy Error)
NASDAQ 100 ETF (QQQ)
The ETF did manage to hold some essential support around $379, and once that level breaks, I think there is a good chance we will see the ETF plunge to the October lows at $359. The RSI is firmly trending lower and has yet to hit oversold levels below 30 yet, so there is certainly more work on the downside.
The more significant question is what happens after the long-trend uptrend breaks, which seems bound to happen.
10-yr (IEF)
There was also a massive move in the 10-yr yield, which rose back to the highs of 2021, at 1.76%. That is a considerable level for the 10-year with the potential to move to around 2%. A CPI that comes in hotter than expected this week could quickly help to push the 10-yr over this big resistance area. However, I am not expecting that to happen.
Corporate Bond ETF (LQD)
Also noteworthy is that LQD ETF has fallen below essential support at $130. It is an indication that yields for corporate bonds are also rising sharply.
High Yield Bond ETF (HYG)
Rates for high yield bonds rose sharply this week, as noted by the sharp decline in the HYG ETF.
Financial Conditions
These changes in rates are also helping to confirm my belief that the Fed tapering would lead to tighter financial conditions. While financial conditions have not tightened the past two weeks, it seems highly likely they began to tighten again this week.
We care about financial conditions because easy financial conditions allow for expanding margin debit balances. While tightening financial conditions makes it harder to get margin and leads to the contraction of borrowing.
As I have shown before, margin levels and changes in the equity market are highly correlated. Rising margin levels lead to higher equity prices, while the removal of margin leads to lower equity prices and greater volatility.
Netflix (NFLX)
Netflix fell sharply last week, nearly 10.2%. What is worse is that the stock gapped below the March 2020 uptrend, falling out of its rising wedge. It also saw its RSI break below a very long-term uptrend that started in July 2019. The stock is probably heading towards $480 over the next few weeks, but ultimately it is probably heading lower than that.
Micron (MU)
Micron has formed a bearish divergence, with the price reaching a new high, while the RSI made a lower high. It should look familiar because it is the same thing that happened in December 2020 and January 2021. Additionally, the stock has been unable to break out to a new high and instead has been stuck at the old highs around $95. This one is probably on its way to filling the gap at $86.
AMD (AMD)
AMD fell to support this week at $131; the stock broke the uptrend and then retested that break over the past few weeks. The stock is sitting on support and now finds itself in a downtrend. What makes matters worse is that the RSI is now on support at 39.20 and signals that a further drop in the shares is coming. This one is probably heading back to $117 over the next couple of weeks and ultimately on its way back to $100.
Nvidia (NVDA)
Nvidia is no different, with the shares also sitting on support at $270. The trend is lower for both the price and the RSI. The stock isn’t even close to oversold yet, so it will probably push lower and fill the gap at $230 over the next few weeks.
Home Depot (HD)
Home Depot is just screaming to fill the gap at $375.
That’s all. Have a good weekend.
Mike
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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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