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Stocks Drop On August 17, 2022, As Canaries Take Flight

This column is my opinion and expresses my views. Those views can change at a moments notice when the market changes. I am not right all the time and I do not expect to be. I disclose all my positions clearly listed on the page, and I do not trade my account on the stocks spoken of in this column unless fully disclosed. If that does not work for you stop reading and close the page. Do not bother me or harass me.

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8/17/22

STOCKS – ARKK, NFLX, ZM,

\MACRO – SPY, XBI, IEF, LQD

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The market fell right out of the gate today as rates surged around the globe, following hotter-than-expected CPI data in the UK. The US retail sales number added to the already surging rates because the report seemed pretty strong on the surface. As for the Fed minutes, I think the jury is still out. The headlines which immediately crossed appeared dovish and echoed what Powell said at the FOMC press conference. But reading the minutes suggests rates will get to a certain level and stay there.

Spreads shows that the June Fed Futures rate is trading higher than the February Fed Fund futures rate. Previously the market had seen the Fed starting to cut rates in February, and clearly that is no longer the case.

Corp Bonds (LQD)

The LQD also fell today, and it is right on the border as to whether or not it has broken the neckline of a double-top pattern. If it is a double top pattern, which I think it is, it probably has more to drop, potentially to around $111.

Financial Conditions (IEF/LQD)

The LQD dropping is essential because it will likely be a powerful sign that financial conditions are starting to tighten again. The IEF/LQD ratio is also trying to break free of that significant downtrend.

This is important because if financial conditions start to tighten, it will indicate that the rally in stocks is not only over, but depending on how much they tighten, the entire rally we have just witnessed could vanish rather quickly. The biotechs are another key sector to watch because they need access to capital to fund the cost of the development of drugs. The XBI dropped today below the trend line and never recovered it. The RSI is on the cusp of breaking its uptrend too.

S&P 500 (SPY)

The S&P 500 futures broke several uptrends today, and they never recovered. But more telling is that the market tried to take out 4,300 yesterday, failed, tried again briefly this afternoon, and was rejected, which is very bearish.

4,300 is going to be a challenging level to close above this week, especially with options expiration on Friday morning for the index options. Additionally, that served as significant resistance going back to the end of April. Yes, I still see 3,950 coming.

Arkk (ARKK)

The ARKK ETF was slammed today and is on the cusp of breaking a significant uptrend. The RSI has already broken its uptrend. Very bearish, in my opinion, once broken.

Zoom (ZM)

Zoom hasn’t reported yet, but it is also breaking down and falling below its longer-term uptrend. $95 seems like a reasonable level to find support, but given the size of the uptrend, a steeper drop to $88 seems more probable.

Netflix (NFLX)

Netflix has taken longer than expected to turn down than I thought, but the RSI is now rolling over, and the stock seems to be going with it. A drop back to $190 seems like a nice place for this one to settle, in my opinion.

Take care

Mike

Charts used with the permission of Bloomberg Finance LP. 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.