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August 19 – Stock mentions: SPY, VXX, NFLX, AAPL, NVDA, GE, GOOGL
Michael Kramer and the clients of Mott Capital own AAPL, GOOGL, and NFLX
It seems that the market is feeling a little bit better these last few days since, the significant “inversion” last week. Has anything changed since any point last week? Certainly not in a meaningful way. So why are stocks suddenly feeling a little bit less fearful? Well, because the yield curve steepened by ten basis points or so since Wednesday, with the 10-2 year rising to around ten basis points intraday on August 19. Wow.
Again, I have said over and over again; the yield curve inversion is meaningless at this point. Inversion for one second on some random day is not a recession trigger or signal. If the yield curve were inverted by about 25 to 50bps for the next six months, I’d be more concerned. But for 10 seconds? It means nothing. Which is why I put up this video last week on August 12, Don’t Fear The Yield Curve. Look the proof is right in front of you.
S&P 500 (SPY)
Anyway, moving on the S&P 500 rose to around 2,925 and was stuck there. It sets up what may be a massive make or break moment for the equity market tomorrow. The index rose to a high of 2,931 and is closing in a potentially a very break out, which could send it back to its all-time highs.
The S&P 500 appears to have formed a triple bottom, a bullish reversal pattern. That is when a stock or index falls to a level of technical support on three occasions and doesn’t continue to decline, leading to a reversal higher. In this case, that support level was at 2,825.
To add an exciting twist. The index has already formed a triple top, after three successive attempts to rise above 2,935. A triple top is the mirror image of a triple bottom and is a bearish reversal pattern.
I haven’t seen this scenario many times in the past unfold like this. But given that index has already failed at 2,935, and has managed to reverse off of support at 2,825, I believe that the index will rise above resistance this time at the 2,935 level, and move higher back towards its all-time highs of around 3,025.
It is a bold call, I know. So that is why failure at 2,935 would be a terrible sign, and I would be anxious that support at 2,825 on the next move lower would not hold, and result in a retest of the June lows.
That is how important this make or break moment is for stocks.
Another reason I am optimistic is the S&P 500 can head back its highs, is that the relative strength index has been trending higher after hitting oversold levels on August 5, falling below 30.
The VIX also serves as a bullish sign for the equity market. It appears to have formed a bearish reversal double top pattern and has now fallen below support at 17.5. The VIX should continue to drop, and that should push equities higher, as investors once again begin to short-volatility and go long the S&P 500.
Premium content: Is The Risk Aversion Trade Unwinding?
Netflix had a good day, and I noted today in a write-up for subscribers that I saw some bullish betting in the stock. Technically the stock looks strong too, and it could be on a path towards $321. Here Is Why Netflix May See A Rebound
BTW, I saw the news about Apple and its content plans of spending $6 billion. I think it is a non-event for NFLX. I do. There will be plenty of money to go around as people cut out their cable bundles. Which is why I own NFLX, DIS, and AAPL. The losers will the cable providers.
Speaking of AAPL, the stock is breaking out rising above resistance at $209.50 and could be on its way to around $217.
Nvidia also had a good day, rising above resistance $171, I think the stock has a little more to climb from here, maybe to around $175 to $180. Premium Content: Nvidia’s Rally May Only Be Starting
GE is having a tough time at resistance around $8.80, and I saw a bunch of bearish option betting in this one on Friday. GE: More Bearish Bets Piling On
Alphabet is testing resistance at $1205, and I think it breaks out and heads towards $1225 and towards its highs.
Have a great night! Back Tuesday night. No morning commentaries this week. Sorry, but I need some time off. It’s now or never.
Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future results.