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October 11, 2021
Stocks – DIS, JPM, MU
Macro – SPY, VIX, Oil
Mike’s Reading The Markets (RTM) Premium Content – $45/MONTH OR $400/YEAR
- RTM – The Soaring Dollar Is A Stock Market Killer
- Tactical Update: The Market And The Fed May Be Heading For An Epic Showdown
- RTM Exclusive: Lemonade’s Stock Is Still Crazy Expensive And Likely To Fall Further
- RTM: Watching The Dollar Into The Job Report
- RTM: Consolidation Ahead Of Next Leg Lower
- RTM- Watching Your Tail
- RTM Exclusive: Intel’s Stock Is Far From Cheap And May Head Lower
- RTM – The Selling May Continue For Some Time Longer
Stocks started the day higher, but that didn’t last for very long, with the S&P 500 finishing the day lower by almost 70 bps closing at 4,360, erasing that big rally we had last Thursday while filling the gap. The S&P 500 is in a clear downtrend at this point, and there is no denying that with each high lower than the previous. The only thing left to be seen is if the next low is lower than the last. For that, we will need to break 4280; I don’t think that will happen tomorrow, but I think it will happen over the next few trading sessions.
The market mentality has changed; it is just that simple. It is not the same market it was before September; the tone has changed.
One such thing that has changed is the VIX. It moved up today back to around 20, after testing the lower end of its range around 18.5. Those waiting for the volatility sellers to come back may have a problem because it doesn’t look like they are coming back anytime soon. You can really see this on the SKEW chart, and perhaps I pointed it out here or not; I can’t remember. Anyway, on October 5, I noted in an RTM member article that I thought this time was different, noting all that tail-hedging that the SKEW index represents had topped out at the same time the VIX bottomed. It seems highly likely that the short-dated at-the-money volatility sellers were using out-of-the-money options to hedge against their short volatility positions. But if they are not shoring volatility anymore, then there is nothing to hedge, and why the SKEW index has remained lower during this period of time. (Get the first two weeks free to try Reading The Markets – RTM- Watching Your Tail)
So if the Vol sellers aren’t coming back, then the real risk here is volatility to break out to the upside. There are plenty of reasons for that to happen. The first being increasing uncertainty around earnings, which I review in this story I wrote for SpotGamma late last week. I noted that 25 is the break-out point on the VIX. I think that is still the level to watch on the VIX.
Oil
Meanwhile, oil is at a significant inflection point here at $82. This is the trend line that goes back to 2013 highs. If oil breaks out it could go substantially higher, perhaps to around $91. The weekly chart shows that oil is overbought here, and if the dollar keeps rising at some point, it will put the breaks on oil’s rise. This will need to be watched closely. So have my doubts it can keep pushing higher, but I also said that at $76.
JPMorgan (JPM)
Meanwhile, the banks were the worst-performing group today, dropping by 1%. Now JPMorgan reports Wednesday morning, and the price action today was curious, with the shares falling 2.1%. Now the stock is up a lot going into results, and as I noted yesterday expectations are very high for these banks. The market seems to be saying expectations are too high now. I could easily see this stock falling back to $153.
Micron (MU)
I’m so tired of Micron already. Why can’t it just break support and start heading lower already?
Disney (DIS)
Disney is kind of in the same boat as Micron. Just hugging support now for months, with all of these open gaps at much lower levels that need to be filled.
That’s all for today.
-Mike
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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.
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