Like There Was Enough To Deal With Already, Now We Have To Deal With Trade?

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MAY 15, 2020

STOCKS- AMZN, AAPL, NFLX, MSFT, GOOGL, FB

MACRO- SPY, HYG, QQQ, TLT

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MICHAEL KRAMER AND THE CLIENT OF MOTT CAPITAL OWN AAPL, MSFT, GOOGL

Stocks are falling sharply this morning on, oh here we go again, trade tensions with China. Oh geez. Like we didn’t have enough to already worry about. These negative headlines come ahead of some significant economic data this morning, which include retail sales and business inventories. It is also an options expiration date, so there is likely to be some added volatility.

We saw some of that volatility play out yesterday, and I hesitate to bring this up here, but it is worth noting. Yesterday’s sudden rally may have been more about a Volatility reversal than a buying spree. Heading into yesterday, there was a great deal of open interest at the 2,800 level for the SPX. Once the index fell below 2,800, it seems possible that those traders long puts at that strike price may have started selling those puts. As puts get sold, volatility falls rapidly, and that means the VIX starts falling, and of course, that declining VIX puts upward pressure on the SPX, and well, you get a rally. Then factor in a massive end of day imbalance gets you that nice rally. It likely means that much of today’s options activity may have taken place yesterday. Anyway, this is a topic reserved more for subscribers because it is a topic I have spent much more time reviewing with them, and harder to do in this format.

Not much has changed from a technical standpoint or a fundamental standpoint this morning. The one thing worth noting is that the NASDAQ Qs got to resistance around $223, and to this point have failed. It makes the uptrend in the ETF between $217 and $218 all the more important should we see a retest later today.

Financials (XLF)

The financial ETF XLF got back to resistance yesterday in that $21.10 to $21.20 region and has failed at this point. So we can watch and see what happens today. But it is not looking good for this group.

HYG

Pay attention to the HYG today, as it gets closer to support. A break in the HYG at support, the more likely the S&P 500 is too fall.

US 10-Year

Watch the 10-year it is getting closer to support at 55 basis points.

FAAMNG

Anyway, I’m going to leave you with this one chart instead of all 6. Facebook, Amazon, Alphabet, Apple, Microsoft, and Netflix. They have one amazing thing in common. They are all sitting on their uptrends, and a break of those uptrends likely breaks the uptrends I noted in the Qs, and that likely leads to a sharp decline in all the major indexes. Again, I own half of these stocks, and I would prefer for this not to happen, but my job isn’t to root or cheer for stocks to do something, but to point out where stocks may go. In this case, if these stocks break the uptrends, it means they start to decline and take everything with them, because of 5 of these stocks are the five largest stocks in all the indexes. So watch them very carefully, especially now that trade tensions are back swirling in the air along with the coronavirus.

-Mike

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