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STOCKS – JPM, XOM, CVX, TSLA
MACRO – SPY, VIX, RATES
- RTM: All Eyes On The Vix
- RTM Tactical Update: Range-Bound
- RTM: Today’s Rally Doesn’t Seem Real
- RTM: Will The Market Flip The Script? [Daily Update]
- RTM: Stocks May Drop Into Mid-June [Audio]
This week’s free YouTube video:
The Week of May 31, 2022, Will Be Pivotal For The Stock Market:
Stock markets are closed here in the US but are open everywhere else on Monday, May 30. The S&P 500 futures as of this writing are up around 30 bps and were as high as 4,200. Additionally, the VIX index is trading higher today to 26.45. The VIX may hold the key to how the week’s trading goes because the VIX closed at a pretty critical level on Friday, just below 26. That level has been crucial over the past few weeks. A break below the 25 to 26 zone likely further meltdown for implied volatility and push back towards the low 20s.
S&P 500 (ES)
A VIX pushing to the low 20s would be very bullish for stock and help push the S&P 500 much higher. There wouldn’t be much keeping the S&P 500 futures from rising to 4,300.
But for that to happen, several factors need to go right for the market this week. Most notably is the slew of economic data starting on Wednesday, with the ISM manufacturing PMI, followed by the employment report on Friday. Additionally, several Fed governors will be talking this week, which may be working hard to correct any misconceptions the equity market may have taken away from the Fed minutes. I covered the topic in this article which should be free to read QQQ: The Stock Market Gains May Melt Away Quickly
Yields on the Rise
The economic data and central bankers pose one risk for stocks, and it may work to keep a lid on prices, preventing the VIX from dropping significantly. The other risk is that yields may find themselves starting to rise again. The spreads between US and German yields have contracted considerably over the past few weeks and now find themselves at the lower end of the historical trading range at 1.7%.
This tells us that if rates in Germany continue to rise, as they have recently, they are likely to drag US rates higher. Additionally, it is possible that the spread between US and German also begins to widen again. The narrowing of this spread is one reason why the dollar has weakened materially against the euro in recent weeks.
A combination of rates starting to move higher again, the dollar strengthening, and economic headlines likely keep the VIX moving much lower. Additionally, if the Fed’s intention is not to pause come this September, and Bostic’s comments were only meant to slow the pace of financial conditions tightening, then the steady stream of governors this week will likely correct that message.
These factors are likely to keep this market contained, and now that the holiday weekend is over, news flow and events should start to pick up once again. I think we will see much of last week’s gains reverse. The rally structure is fragile, on big vertical moves higher. We have seen these moves multiple times, even going back to March, and each time the big moves have returned to their origin. I don’t think this time will be different. I think the S&P 500 futures will drop back to 3,980, which is where technical support is, and potentially as low as 3,885 before it is all said and done.
Additionally, a falling wedge pattern is now present in the US 10 Yr, which could indicate that yields are also due to rise, potentially back to around 3%.
A similar pattern has also formed in the US 2 Year yield, and this too would indicate that rates are likely to push higher, potentially back to 2.75%.
Dollar Index (DXY)
The dollar index also has the same falling wedge pattern and suggests the recent dollar softness is over, with a big push higher likely to come.
Tesla shares have risen sharply, but it is about to encounter a zone with great resistance, around $775. I think that price point will be challenging for Tesla to get through and will likely result in the shares moving back into the low $600.
JPMorgan was one of the stocks that helped to turn the market tide last week, after its investors’ day. But that move-up has probably run its course and nearing its end as it approaches its 61.8% retracement level from its drop that started on March 29. That 50 to 61.8% retracement zone has been resistance on two prior rally attempts.
Exxon has been quietly moving higher as oil prices have been moving higher. Exxon has a giant gap that lives around the $103 price level. Given the steep ascent in the stock, that appears to be a nice spot for the stock to gravitate towards.
Chevron has already reached its all-time highs, and after three months of consolidation, the shares appear to be breaking out. If the pattern proves to be a bull flag, then a measured move may result in the share climbing significantly higher.
Have a good day! See you tomorrow.
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.