6/3/23

#STOCKS – $AAPL $META $AMZN $TSLA

#MACRO – $SPY $NDX, $VIX, $XLK

Mike’s Reading The Markets (RTM) Premium Content –  $70 per month or $600 per year – First two weeks are free to try!

• Stocks Hit Overbought Levels On S&P 500 And NASDAQ

• RTM: Zoom Replay

• RTM Lite: Stocks Rally Ahead Of Pivotal Jobs Report

• RTM: Testing The Upper Bound, Again

THIS WEEKS FREE YOUTUBE VIDEO:

MICHAEL KRAMER AND THE CLIENTS OF MOTT CAPITAL OWN AAPL AND AMZN

The S&P 500 moved above the resistance zone I have been watching at 4,200 to 4,225. No breakout is complete unless it is confirmed, and for that to happen, you don’t want to see the index slip back below 4,225. I have doubts about Friday’s rally for several reasons, but the biggest reason is the volatility crush that sent the index higher, as VIX tagged its lowest in nearly two years.

You just have to wonder, though, how much more downside is left in the VIX at this point, with most of the gamma now at higher levels and the most likely pain trade for the VIX index is higher.

Meanwhile, we have seen the SKEW index rocket higher, and that is likely due to traders buying out of the money volatility to protect their short volatility positions. This was seen a lot in 2021, as the Fed was pumping in tons of QE and acting as a market volatility damper. This same trade emerged in mid-March, as the Fed allowed its balance sheet to expand by giving banks loans and increasing reserve balance. The debt ceiling limit allowed reserve balances to stay elevated, which allowed this trade to continue. But now, the TGA will start to be refilled this week. If the money in the reverse repo facility stays unchanged, reserve balances are going to start to drop quickly, and that liquidity that has helped dampen volatility is going to be over with, which could result in a further unwind of this trade.

For some reason, this period of time reminds me of January 2018, when we saw a massive blow-off top on the indexes and a very sharp drawdown. On January 29, 2018, I wrote a story that noted the 4 signs the stock market was ready to fall. I noted that the S&P 500, Microsoft, Amazon, and Alphabet had all seen their stocks advance dramatically, and RSIs were well over 80. Today is not dissimilar; while the RSIs aren’t as high, their stocks and index trade with RSIs well over 70 and hitting their upper Bollinger bands on the daily and weekly charts.

The NDX has been trading above its upper Bollinger band on the weekly chart for two weeks and has an RSI of over 70.

Apple (AAPL) is trading over its upper Bollinger Band on the daily chart with an RSI over 70.

Amazon (AMZN) is trading at its upper Bollinger band, with an RSI over 70.

Meta (META) is trading at its upper Bollinger band with an RSI of over 80.

Tesla (TSLA) is trading at its upper Bollinger band with an RSI above 70.

The XLK is trading at its upper Bollinger band and RSI over 70.

Sure, these are conditions, and conditions can grow even more over-bought. But these aren’t the type of conditions that one generally wants to see when the market is trying to advance after a long consolidation on the S&P 500, especially when it comes from the biggest stocks in the index. Because it means a lot of energy and buying power has already been spent.

Additionally, there has been a big grab for calls in this market, and that is most noticeable in how IV for calls on the S&P 500 holds up much better than the IV for puts when looking at the SKEW for the S&P 500 across strike prices for the June OPEX.

This market has become extremely overbought the undersurface, and I am skeptical that the Friday rally can last.

-Mike

Charts used with the permission of Bloomberg Finance L.P. 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.