Home ยป Options Expiration And Earnings Could Provide A Huge Turning Point For Stocks The Week of April 17, 2023

Options Expiration And Earnings Could Provide A Huge Turning Point For Stocks The Week of April 17, 2023

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4/16/23

#STOCKS โ€“ $NFLX, $TSLA

#MACRO โ€“ $SPX, $VIX

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I was on Fox Business News this week with Charles Payne. You can see my interview segment here:

Earnings season takes center stage this week, with numerous prominent companies reporting results. Last week, economic data reinforced that the Fed will likely implement one more rate hike before the situation becomes more uncertain. The market anticipates an 82% chance of a rate increase at the upcoming May FOMC meeting, bringing the Fed to its target rate of 5.1%. Furthermore, the declining use of the Fed’s discount window suggests the crisis is easing. If true, there would be no reason for the Fed not to pursue another rate hike at least once more.

The future direction of rates will largely depend on economic data. If the data cools down, rates will likely remain at 5.1% for the rest of 2023. However, additional increases may be expected if the data stays strong and warrants more hikes. Post-May 3, volatility will likely rise as the monetary policy path becomes less predictable and more data-dependent. The current low level in the VIX may be the last gasp for volatility sellers, and with the VIX expiration this week, the low level may not endure.

The spread between the VIX spot and the three-month futures contract stands at -4.6. Once it reaches -5, it typically signifies a bottom in the VIX and a peak in the S&P 500. Watch for a reversal in the S&P 500 and the VIX index this week if the VIX approaches 16.5.

Moreover, examining the 5-week change in the S&P 500, the index shifted from a negative -257 points to a positive 276. Generally, during such cycles, we have only observed the index reach around a positive 300 before declining. Therefore, this could be an area where we might anticipate the S&P 500 to trend downward.

 

In conclusion, the call wall for the S&P 500 stands at 4,200, and the significant gamma level is at 4,000. Unless the call wall moves higher, it appears improbable that the S&P 500 will climb much further. The index may be more likely to revert to the 4,000 big gamma level rather than continue advancing as the war between the major gamma level unfolds. Additionally, strong resistance exists around this level, making it difficult for the index to break through, particularly given the uncertainty surrounding the earnings season. I am looking for a drop back to 4,000 this week.

Tesla is one of the companies set to report its earnings this week on Wednesday afternoon. Analysts predict a 29.1% decline in earnings to $0.87 per share, while revenue is expected to grow by 25.2% to $23.5 billion. Automotive gross margins are projected to be 22.97%, down from 29.1% last year. Earnings estimates for Tesla this quarter have dropped significantly from a peak of $1.37 back in October, resulting in a substantial decline in the stock price. Consequently, earnings and, more importantly, gross margins for the company will be crucial. Given the recent price cuts, the potential effects on margins for the remainder of the year are worth considering.

The chart appears relatively weak, displaying a downward-trending RSI and a declining stock price. Additionally, there is still an unfilled gap at $145. However, the critical support level for Tesla is at $165, which is where the stock could potentially settle following the earnings report.

Netflix is scheduled to report its earnings on Tuesday, and the expectations seem pretty modest, with analysts forecasting 2.3 million net additions. This figure has significantly decreased over the past few months. Given that the first quarter has historically been a strong period for the company, it would be surprising if they missed this target. Although Netflix no longer provides net additions guidance, which complicates matters, investors will be more interested in determining whether the company has successfully pivoted to an ad-supported model to help boost growth.

The stock has formed a rising broadening wedge, which is typically not a bullish pattern. Consequently, the crucial level to monitor in Netflix is $310, as breaking below this price would breach the bottom of the rising broadening wedge and potentially lead to the stock dropping to around $170. However, if the $310 level remains unbroken, there is room for the stock to rise toward the upper trend line and possibly surpass $400.

Good luck this week.

-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.