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October 19, 2021
Stocks – NFLX
Macro – SPY, VIX, DXY
- RTM: The Dollar Rebound
- RTM: Stocks Stall On VIX And Dollar
- Pairing Down Tesla, Buying Allscripts
- RTM Exclusive: Tesla May Plunge Following Results Amid Massive Expectations
- RTM Tactical Update: The Dollar Will Determine The Equity Markets Next Move
- RTM – Volatility Should Return Next Week
- Short-Covering Really Ahead Of OPEX
- RTM – The Market May Be Worried About Growth
Turnaround Tuesday turned out to be anything but just a big bust for me, with stocks rising once again. The VIX index also continued to fall, closing at 15.7. It takes the VIX to the lowest level since the mid-summer months. As long as volatility sellers remain in place and seem to be returning, the equity market can plow higher. I had mentioned this last week.
These sellers have returned because risk-on has returned to the market with the dollar struggling to regain its footing from last’s week’s turnaround. The dollar was hit relatively hard again overnight, falling back to support at 93.50. It managed to hold that support and rebounded throughout the day, finishing lower by roughly 20 bps after being down around 50 bps.
S&P 500 (SPY)
The S&P 500 has rallied about 3.5% over four trading sessions, with what started as a short-covering rally on Thursday and Friday, and has somehow continued to start this week. The RSI is now back to the downtrend, and the index is now above the upper Bollinger band. These indicators would suggest the index is overbought and turns lower, but you could have said the same thing yesterday based on the technical patterns.
It becomes this simple, if the dollar starts to rally from here, the volatility sellers will vanish, and the bid in the S&P 500 will be gone. If the dollar continues lower, the VIX will likely head lower, and the S&P 500 will go up. There is nothing more to this than that at this moment.
Meanwhile, the Atlanta Fed GDPNow model is now forecasting growth of 0.5% in the third quarter. Yes, 0.5%. The polls that at one point were projecting 7% third-quarter growth are now projecting growth of 3.8%. Now in my experience, the Atlanta Fed Model has been really good, I have followed it for years, and I tend to lean on that model a lot. If that model is correct and GDP prints sub 1%, then I think that would come as a surprise to many. Still, expectations are for a rebound in the fourth quarter to 5% according to Reuters. Now I have never seen an economy go from growing at 0.5% to 5% in one quarter, but I guess anything is possible. It would seem that somewhere, someone is wrong. I would put my bet on those poll numbers being off.
Netflix reported better than expected earnings and subscriber growth, with inline revenue. The report was ok. I don’t think it lived up to all the hype. There was almost no subscriber growth in the UCAN markets, with most of the growth coming from Asia. The problem is that the US has the highest ARPU. So at this point, Netflix is just pulling in the lower-paying subscribers. UCAN has an ARPU of $14.68, and APAC is $9.60. So really, you need 1.52 APAC subscribers for every one subscriber in UCAN. It means that each new subscriber Netflix adds from outside UCAN is drag on ARPU. It is probably why the stock is doing nothing after hours. It should probably trade lower, as the results do not match the heightened expectations. Look for support at around $600.
That’s all for today.
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