This column is my opinion and expresses my views. Those views can change at a moments notice when the market changes. I am not right all the time and I do not expect to be. I disclose all my positions clearly listed on the page, and I do not trade my account on the stocks spoken of in this column unless fully disclosed. If that does not work for you stop reading and close the page. Do not bother me or harass me.
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STOCKS – AMZN, GOOGL, NVDA, JPM, KBH
MACRO – SPY, QQQ, IEF, TIP
- RTM Tactical Update: Rate Shock
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- RTM: Real Yields Fall, Resulting In Market Rally
MICHAEL KRAMER AND THE CLIENTS OF MOTT CAPITAL OWN GOOGL
Rates Will Determine The Next Move For Stocks FREE VIDEO
It won’t be a big week for economic data, but it will be an important week with a 10-Year auction on February 9 and a CPI reading coming on February 10, along with the 30-year auction. Forecasts saw the CPI rising by 7.3% in January versus 7% in December. The 10-year auction may prove tricky and something to watch on Wednesday because it is done the day before the CPI, and there may be some nervousness ahead of that CPI report the next day.
10-Yr Yield (IEF)
The 10-year already had a big move on Friday following the strong jobs report, rising to its highest level since December 2019 to 1.92%. At this point, once the 10-year rises above 1.95%, I don’t see anything keeping the yields from rising to 2.15%. The globe is shifting from a low rate environment to a higher rate environment, which means the US will no longer have those external forces keeping yields down.
10-Yr TIP (TIP)
But the big news on Friday was the run higher in the 10-year TIP rate. The yield broke above resistance at -55 bps and now has an apparent path to around -30 bps, potentially as high as -10 bps. A move like that will have a massive impact on equity prices. Rising real rates will harm equity market valuations, as discussed on multiple occasions until PEs return to historically normal levels. (Should be free to read- Strong Jobs Report May Push Stocks To New Lows Amid Rising Rates)
S&P 500 (SPY)
At this point, the S&P 500’s RSI is still firmly trending lower, with the indicator reaching the downtrend and unable to push above it. It indicates that the bears are still firmly in control of this market. Meanwhile, the S&P 500 tried to break out and rise above the downtrend, this past Wednesday but failed to maintain it and dropped below. Additionally, when the index tried to push above that same line again on Friday, it could not hold and finished below. It looks like a failed breakout attempt. Coupled with the negative sloping RSI and rising yields, we should see lower levels this week with a move down to 4,330.
You can see the same thing when you look at the chart on QQQ especially, with the RSI and its attempt to break the upper side of the downtrend. Grounded on the idea that rates are going higher and the negative impact on stocks. Based on the matrix below, it would seem that the QQQ is heading back to roughly $282 over the next few months, which would fill a gap from November 2020.
Amazon rose a lot on Friday, and really for no good reason. The results were horrible and the guidance even worse. The most important metric out of Amazon is the FCF from operations, and that number fell sharply in the fourth quarter. I think the stock’s gains are unsustainable. When a growth company provides back-to-back-to-back weaker than expected results and guidance, their stock’s typically don’t rise, and at this point, there are no indications that the trend is changing. The stock rose right to the bottom of the long-term uptrend, stopped, and reversed lower on Friday. The equity is going lower and is likely to retest if not exceed the current lows of $2,800. (Should be free to read – Amazon’s Big Post Earnings Gains Won’t Last)
Alphabet reported strong results, and I love the company and own it, but they weren’t as good as they seemed. A significant gain from their equity holdings gave the earnings beat a massive boost, and their TAC number was higher than expected. I think the stock refills the gap and returns to $2,750.
Nvidia was in a downward sloping channel, and it hit the upper end of that channel last week and is now likely to start reverting to the lower end of that channel this week.
If yields keep rising as I think they will, and spreads can avoid contracting, then JPMorgan has a lot of ground it needs to recover. With two giant open gaps up to $167. But it’s all about yields at this point.
KB Homes (KBH)
Rising rates are probably one of the worst things for these home building stocks, and they have been getting smashed. KB Homes is one and sitting on a massive level of support of $38.80. But once that breaks, there is nothing until $33.90.
Have a good one.
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