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It was an interesting day in the market, with significant price swings, soaring inflation expectations, rising rates, and even the dollar moving higher. The US-UK trade doesn’t look particularly exciting to me; if that was the best deal, it will certainly be interesting to see what the next couple of deals look like. Although Lutnick made it pretty clear that 10% is the best rate anybody is getting.
In any case, the market rose sharply as Trump was speaking. As noted in the intraday update for subscribers, this appeared like a volatility crush, based on the mechanical rise in the S&P 500 and the corresponding decline in the VIX.
Of course, as one would expect, that volatility crush ended around noon, and the rally stalled along with it. Although we managed to finish the day higher, we were up as much as roughly 1.5%, which shrank to about 60 bps.
Today’s price action, I think, again confirms that this area seems ideal for a reversal. The index is at the 61.8% retracement level, at the July 2024 highs, and just below the 200-day moving average. Additionally, the S&P 500 may have formed a 2B top—a technical pattern occurring when the index attempts to surpass the previous high but then closes below the prior high’s close, as we saw today compared to May 2. Of course, we’ll need to see further declines to confirm this pattern.
I’d say the scenario for the Nasdaq 100 could actually be a bit worse in some ways, as it also has a 2B top pattern in place, has stalled precisely at the 61.8% retracement level, and faces resistance from the March highs.
However, probably the most important feature on this chart is that the NASDAQ 100 has now failed to surpass its 200-day moving average on four separate attempts.
The closest comparable example I could find occurred from February to April 2022.
What’s interesting about this comparison is how closely today’s NASDAQ 100 is trading to the pattern we saw in early 2022, which we now know was a bear market. My analysis during 2022 showed that the market behavior at the time closely resembled prior bear markets. This suggests we might very well be in a bear market environment right now; it’s just that we haven’t reached that particular stage of the cycle yet.
In the meantime, one and 2-year inflation swaps rose today, and are now very close to breaking out and moving sharply higher, which will be something to watch.
It also looks like the 10-year rate broke out today too.
Only time will tell, of course.
-Mike
Terms By ChatGPT
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Volatility Crush
A sharp decline in implied volatility, often following a market-moving event, such as earnings announcements or economic data releases. Typically accompanied by a short-term rise in stock prices.
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61.8% Retracement (Fibonacci Retracement)
A technical analysis concept derived from Fibonacci ratios, where 61.8% retracement marks a key level at which prices often reverse after a previous trend, widely viewed as significant by traders.
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2B Top (Trader Vic’s 2B Top)
A technical reversal pattern described by Victor Sperandeo (“Trader Vic”), indicating a possible top formation. It occurs when the market attempts and initially exceeds a previous high but then reverses and closes below that prior high’s closing price.
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bps (Basis Points)
A financial measurement equal to 1/100th of a percent (0.01%), commonly used to express small movements or spreads in interest rates, yields, and other financial indicators.
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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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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