close up shot of a digital stock market tracking graph follwing a recent crash in prices. Bear market 3D illustration

Stocks Are Overbought And Likely To Be Dragged Lower Short-Term

April 7, 2021

STOCKS – TSLA, ZM, NVDA, BA, XBI

MACRO – SPY, IWM

Mike’s Reading The Markets (RTM) Premium Content – FREE 2-WEEK TRIAL

 

MICHAEL KRAMER AND THE CLIENTS OF MOTT CAPITAL OWN TSLA

The Fed minutes revealed very little if anything new today. The Fed remains committed to data-driven monetary policy, which is likely to stay low for a long time. However, I don’t think the yield curve reverting to 2020 levels anytime soon.

We got the big move we talked about late last week. At the time, I thought the move favored a drop, not a rise, but we got the rise. However, we have stalled out around 4,080 on the S&P 500, and based on the largest open interest level in the options, 4,000 is likely where the most gamma is concentrated. That is going to keep the index from moving much higher, especially with options expiration next week. 4,100 has a big level of interest too, but I’m not sure if it is enough.

Additionally, the index is overbought based on the upper Bollinger band and will likely results in a drop to fill some of the opening gaps, with the potential of it falling to 3,960.

 

Meanwhile, total call volume continues to drop across the market, which has really helped sink the VIX index to 17.2.

Biotech (XBI)

The XBI ETF was hit hard today, falling by 2.4%, and it has given back much of last week’s advance. This has occurred across the Russell 2000, which fell by 1.6% and may be a sign of what is to come for the S&P 500 and NASDAQ 100.

Tesla (TSLA)

Tesla has fallen after the big gap higher on Monday. For now, this looks like a typical gap fill, but clearly, a drop below $659 would indicate something worse, with a retest of $600 possible.

Zoom (ZM)

Zoom has not contributed to this recent rally and has been trying to hang on to support at $320. If it can’t get over $325 soon, a drop to $275 may very well become a reality.

Boeing (BA)

Boeing suddenly doesn’t look particularly strong. A drop below $252 sends it back to $239.

Nvidia (NVDA)

It is going to be very interesting to see what happens to Nvidia when it reaches $575. I still don’t think you will see those all-times again anytime soon, and I get the sense that it won’t make it much past $575 either.

Have a good one

Mike

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.