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#Stocks – $TSLA
#Macro – $SPX, $VIX
- RTM: Rates May Be Ready To Take The Next Leap Higher
- RTM: Live FOMC Zoom Session 11.1.23 @ 1:45 PM ET
- Live Zoom Session Replay
- RTM: Live Zoom Session 10.27.23 At Noon ET
- RTM: Entering A Congestion Zone
- Stocks Are On The Cusp Of A Significant Breakdown
Stocks finished the day higher, as rates rose modestly, and the dollar and the VIX fell. Overnight will be when the excitement starts, with the Bank of Japan policy decision, followed by a slew of economic data for the rest of the week and a Fed meeting and press conference on Wednesday.
It is tough to say what happens next for the broader stock indexes, but we will start to get clues tonight with the BOJ policy decision. The Nikkei leaked that the 10-year JGB would be allowed to float above 1%. How much it will be allowed to float and how much flexibility there will be is the big question, and that will be based on what they hope to accomplish. If it is just normalization of the yield curve, then allowing it to float to, say, 1.5% seems to stick with what happened in July. If they want the Yen to strengthen, they must remove yield curve control altogether or increase the range to 2%. We will find out more later.
In the meantime, stocks didn’t care today, with the index rallying as implied volatility fell. This seems to be a recurring theme, with Treasury rates moving lower and the VIX moving higher on Friday into the weekend, and that unwinding some on Monday. Given everything happening in the world, it certainly makes sense to see this, making it hard to assess what is happening in the market today.
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The VIX dropped from 21.3 to 19.7 today. It seems hard to imagine that, given everything going on this week in terms of news flow, implied volatility is going to stay down. The term structure of the S&P 500 shows implied volatility is elevated for the rest of this week, and I would say it probably goes higher as we move into Wednesday and then again on Friday.
S&P 500 (SPX)
Today’s rally in stocks did help to move the S&P 500 out of an oversold condition from the standpoint of the Bollinger band and the RSI. Meanwhile, 4,200 is now resistance, which may become challenging for the index to advance beyond. But that will largely be dictated by the data to come this week.
It is possible to count today’s rally as a retracement and a completed retracement, as it would mark a 50% retracement of the decline from October 24 through October 27; wave C equals 78.6% of wave A. If this is right, then tomorrow, the index should drop right from the opening and undercut Friday’s low at some point during the next few days.
If that is the wrong count, the next spot to look for would be 4,200, the 61.8% retracement of the 5-wave impulse down.
Tesla fell almost 5% today and moved below $200. If the topping pattern was a diamond, then we should return to the pattern’s origin, which is at $165. So, the pain may not be over just yet. The move from the October 2022 lows appears to be a 3-wave retracement pattern—the move down since the July peak appears to be a 5-wave impulse. So, a drop to $165 seems possible in my view.
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.