Stocks Drop On August 2 As Fed Ramps Up Hawkish Rhetoric

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Stocks had another volatile session, with the S&P 500 trading around the flat line most of the day but turning lower by 70 bps at the close. At this point, the index seems to be consolidating sideways, despite some solid sell attempts. CTA and Vol Control funds appear to be overwhelming the market and helping “hold things up.” Once these guys disappear, the rally will fizzle; at this point, more sellers will need to emerge to change this trend. When the seller’s return will largely depend on how much rates can rise, how strong the dollar can get, and ultimately how tight financial conditions become.

It still looks like the index can get up to around 4,175 to 4,200 before ultimately stalling out. Especially now that we are starting to see, rates move back up after some hawkish commentary from Fed governors Daly, Evans, Mester, and Bullard. The general tone was that rates need to go higher and will probably need to stay there for some time until they see a clear move lower in inflation.

We may be in a throw-over of a rising wedge, but to confirm that, we wold need to fall below the lower trend line of the pattern, or the second black line.

The hawkish comments helped to push Fed Fund futures rates higher. The December 2023 contracts rose by around 20 bps today to almost 3%. This helped push the 2-Yr yield higher by around 20 bps, up 3.08%, while the 10-yr rate rose by 17 bps to 2.75%.

The big thing to watch with the 10-yr rate is whether or not this move higher in rates has followed through. If it does follow through, the recent move down in the 10-Yr was a false breakdown within a Head-And-Shoulders pattern. When these Head-And-Shoulder patterns fail to break lower, they tend to continue the previous trend, which would mean the 10-Year has much further to climb back to 3% and potentially higher.

The big move in rates is also pushing real yields higher, sending the TIP ETF lower. At least for today, the move down in the TIP ETF didn’t have a big impact on the QQQ, but if the trend continues, I suspect that the QQQ will be forced lower.

AMD is trading sharply lower after hours following guidance that failed to meet estimates. AMD is a stock that has a massive move higher in recent days, and the RSI is very overbought, so a pullback should not come as a surprise with the potential for the shares to revert to $85.

That’s going to be all for today.


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.