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2/10/2022
STOCKS – ADBE, SHOP
MACRO – IEF, LQD, SPY, 2S
- RTM: Is It Time To Think Recession
- CPI Update
- RTM Exclusive: PayPal – A Big Bounce May Be In-Store
- RTM: A Trap?
- RTM: Will The Sellers Show Up At 3:15 PM ET?
- RTM: This Rate Hiking Cycle May Be More Similar To 1999 Than To Others
- RTM- Waiting For Midweek
- RTM Exclusive: Exxon’s Surging Stock May Fall Along With Oil
- RTM Tactical Update: Rate Shock
- RTM Live Event Links
Stocks finished the day lower after the CPI came in much hotter than expected. Bond yields exploded higher, along with real yields. The move in the bond market was jaw-dropping, with the 2-yr rate rising by more than 25 bps to 1.62%, while the 10-year was up 11 bps to 2.05%. It resulted in the spread collapsing to just 44 bps on the ten minus 2s as yield curve inversion comes closer to reality. Even the Fed Fund Futures surged with the December contract rising by an eye-popping 33 bps, to 1.72%. The Corporate Bond ETF (LQD) dropped by more than 1.3%. In the bond market, this was an absolute bloodbath.
Corporates (LQD)
The LQD closed below critical support at $124 and could very well now be on its way, even lower with no real support again until $120.80.
2s
Believe it or not, the 2-Year rate may still be heading even higher after cutting through significant resistance at 1.40% like it didn’t even exist. If the Fed Funds are correct, and Fed Fund Rates for December is over 1.7%, then the 2-year will have to go much, much higher, it could even end up at 2%, by the time things are all said and done.
Financial Conditions
Today also saw the IEF to LQD break out and push above resistance 0.89. It is essential because this ratio tells us that financial conditions are now tightening. The higher the ratio goes, the tighter the conditions are getting.
S&P 500 (SPY)
By comparison, stocks weathered the storm reasonably well, with the S&P 500 dropping by 1.8% and closing just above 4,500. The index managed to erase all of yesterday’s losses and then some. The S&P 500 is now very close to completing a double top pattern and needs to close below 4450 for that pattern to be all but confirmed. If that happens, the index should revisit the January lows and probably take them out.
Adobe (ADBE)
Adobe might be one to watch tomorrow as it is very close to breaking critical support. This is one of the stocks that led the market lower in January, and after a brief pause, it looks like it is ready to start another leg down.
Shopify (SHOP)
Shopify is another stock that needs to be watched closely, as it was also hammered and has taken a brief pause. If it starts moving lower again this time, there is a good chance this falls to $700.
Have a good one.
Mike
Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future results.