Michael Kramer and the clients of Mott Capital own Apple and Netflix

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The move in the euro was huge, falling over 200 pips, huge. But the most important piece here is that the euro broke essential support at 1.13.  I wrote up my thoughts on why the euro could even fall to parity, and why the Fed may need to cut rates later this year.

Draghi was very dovish today with his outlook, so much so that German Bunds fell to around 6 bps from 13 bps. Our 10-year fell to 2.63%.  A break below 2.62% sends the 10-year back to its December lows.

Over time investors should come to realize that rates will remain low and that the Fed will need to stay on hold to avoid having the dollar strengthen too much. Should the dollar rise, it will kill off whatever inflationary forces there are while hurting our multinational companies.  The result may be a Fed that needs to cut rates by late 2019 to keep the dollar in line versus the euro and avoid this scenario.

But this should be good for stocks as investors move out on the risk curve, and low interest rate foster multiple expansion for stocks.

S&P 500 (SPY)

Stocks did end up falling some, with the S&P 500 dropping by roughly 80 basis point to 2,748. Certainly not the end of days, but a decline worth noting. The S&P 500 did manage to close at a pretty substantial level of support around 2,750. Remember this was one of the reasons I had some hesitation a couple of weeks backs about the market, and a level I tried to keep in the back of everyone’s mind. Now that gap is filled,  what next?

From my point of view, it is now crucial for the S&P 500 to hold support around this 2,735 level.  A drop below that support zone gets things moving to the downside with the potential for a drop below 2,700.

Russell 2000 (IWM)

The Russell’s decline was the most noticeable because it did fall below that level of support I had noted last night at 1,535. The Russell’s drop has me much more concerned than the S&P 500 at this point. The chart now suggestions that the index could drop by another 2% to around 1,492. There is a minor support level about at 1,520, but I have no confidence in that level acting as anything substantial.

I know 2% doesn’t sound like much, but consider that the Russell was at 1,600 on February 23. When you think about that way, we are talking about a nearly 7% drop from that peak.

You can even make a case for the Russell to drop back to around 1,450 a full 9% off those February highs. But it would create a very bullish pattern known a reverse head and shoulders. That could eventually lead to higher prices down the road.

Again, my outlook for the full-year continues to suggest stock will continue to head higher. That is not to say there will not be pullbacks along the way.

Nio (NIO)

Nio continues to deflate, and it looks like it may be possible now for a drop to $6.50.

Splunk (SPLK)

Splunk is nearing a potentially big breakdown should it fall below $123, potentially to $108.

Facebook (FB)

Facebook was lower today, and the stock is looking more and more as if filling the gap at $148 is around the corner.

Netflix (NFLX)

Netflix was also down today, falling back to $352. The stock has looked very weak, and a drop to $337 seems possible still.

Apple (AAPL)

Apple got as high as $178, pretty close but no cigar to the $182 I was looking for. Now the stock is sitting on an uptrend and a break of that uptrend pushes the shares back to $165.

JD (JD)

JD is still looking as if it could drop to around $26 over the coming days.

Nvidia (NVDA)

Finally, Nvidia did fall below $150 today, and I’m still looking for that $139 to $140 region.

See you on Jobs Friday.

-Mike

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