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Michael Kramer and the clients of Mott Capital own Netflix
Michael Kramer owns SMH March 15 $101 Calls
The Week of February 11
Monday will deliver US GDP, followed with a speech by Fed Chair Powell on Tuesday. Wednesday brings the consumer price index, followed by the PPI on Thursday.
As if that wasn’t enough for you, on Wednesday, you also get EU industrial production, with GDP on Thursday and you better pay attention to that number out of Germany. The pace of economic growth in Germany has slowed materially since the beginning of 2018. But we already knew that.
China will have total vehicle sales on Tuesday and inflation data on Thursday.
So if you are in the bear camp, there is plenty of events out there this week to get your juices flowing.
This is Why Stocks Are Heading Higher
So where do stock go? It is an excellent question. It seems like I still get so much attention from the bears when I post a bullish article. It is as if you aren’t supposed to be optimistic. I was listening to a “show” on Friday late afternoon where the argument was about how we still need to retest the lows from December. My question is why? Why do we need to retest the lows?
I think the S&P 500 is heading to 2,800, and this week will be a positive one for equity prices. 2,800 will be the principal level to watch, and at this point, I’m not ready to say what happens, although my instincts tell me we continue higher after 2,800, with a move on to 3,100. Oh I can hear the screams and the name calling.
I came across these interesting charts of the S&P 500 when I was doing my daily analysis. When I glanced at it became clear what the problem was in December –Liquidity. Volume levels dried up the further the market fell.
So do the markets “have” to retest the lows? No. The market doesn’t “have” to do anything. The market does what it wants. Could the S&P 500 fall back to say 2,630? Yes. Would it be the end of the world? No.
Look the same thing happened the Dow Jones Industrial Average. No volume.
I know someone is going to ask well then why on daily volume charts is volume rising. Good question. My reasoning for that is rather straight forward, at higher prices there was plenty of liquidity, but as prices fell volume thins out. In the absence of buyers or sellers, it takes fewer shares to make stock rise or fall. In this case, there were simply no buyers.
What I found most interest on Thursday and Friday is how the bulls and the bears battled things out. The bulls won both days. The chart below shows the amount of volume that traded around support versus at higher level.
The chart below shows there was a lot of volume trading around the 2,690 to 2,695 region.
But notice how Friday is very different. On Friday we find a surge of volume as the index lifted into the close at the end of the day, and the strong volume comes despite the index trading at that higher price only for the last hour. It would suggest that buyers stepped into the market to close out the day and the week.
Additionally, when we look at the current trends in the index, they are still positive. The RSI for the S&P 500 continues to trend higher and recently broke above what had been a year-long downtrend.
Russell 2000 (IWM)
However, it is worth noting that at this point the Russell has not confirmed a change of trend yet for the RSI.
But there has been that break out in the Semiconductor ETF
Global Growth Is Coming Back? Yes It Is
Some real signs are emerging that global growth may be on the rebound. Very quietly some essential commodities are showing some signs of life.
Copper which is followed by many as a leading indicator for global growth has been on the rise since the beginning of 2019. The metal’s price has risen from around $2.55 to $2.80, a jump of almost 10%. The chart would suggest there may be more gains on the way.
If the metal continues to rise above its current region of resistance around $2.80, it would confirm that a double bottom has formed, and with the next level of resistance not coming again until roughly $2.92.
Silver is another metal with industrial uses, and it too is starting to rise. If Silver manages to climb over $16.30, it could very well be on its way to nearly $17.50.
Iron-ore prices are surging due to the disaster in Brazil and Vale. So limited supply is behind this move. But there are signs the price of the metal was rising ahead of the disaster. The metal could be on its way to $110 a price it has not seen since 2013. Remember China was closed all last week for the Lunar new year. Watch the metal this week.
Anyway, lets move on. Enough with all the reasons to be bullish on stocks. I know it’s not in vogue these days to be optimistic. So let me bring the mood down for you.
You want something to be bearish on? Amazon is one stock that I am not bullish on, and as I have said for some time now, I still see the stock falling further, and $1520 seems like a real possibility now that the stock is below $1,600. The RSI is pointing to lower prices and a drop below $1,520 send the stock to $1,450.
Nvidia reports results this week, and the options market is looking for a rise or fall of about 13% from the $145 strike price by expiration on March 15. It places the stock in a trading range between $126 and $164. Talk about a big range! The problem for Nvidia is that the puts outweigh the calls not only at $145 strike price but the $150 and the $140 strike prices. Talk about bearish betting.
If there is good news it is that demand for their GPU’s does seem to be on the rise. The prices for the GeForce GTX RTX 2080 Ti Founder’s Editions are rising since reaching a low in mid-January. But it may be too late for their second-quarter guidance.
It will be the commentary that will matter. I expect weak second-quarter guidance and commentary about how the channel is clearing out, but is still taking longer than expected.
The chart is still pointing to lower prices, and what appears to be a bear flag forming. The RSI suggests the shares fall too. I think this one is heading towards $104. There is a bearish call for you.
Micron got clubbed last week, but don’t expect the pounding to last. The stock is trending nicely higher and has a visible higher trading channel.
It looks Roku may be gearing for its next leg higher on to $53.
All signs are pointing to JD.com recovering and continuing higher towards $29.30.
I think Netflix makes another pass at $360, and this time breaks out and goes on to $380.
That’s going to be it! Be sure to tune in tomorrow morning to get caught up on international trading.
Have a great week!
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