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Stocks Drop On August 31, As Real Yields Explode Higher

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8/31/22

STOCKS – TER, SMH, NVDA

MACRO – SPY, IEF, LQD, TIP

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Stocks finished the day lower again, with the S&P 500 dropping 78 bps to 3,954. But the big moves that drove that end-of-day sell-off appears to have come from a more than $4 billion sell imbalance from yields and real yields jumping. Not sure the move in yields was due to month-end rebalancing, but the 5-Yr TIP rate rose to around 75 bps, a new cycle high.

TIP (TIP)

This sent the TIP ETF sharply lower on the day, dropping by a massive 90 bps and closing right on support at $113.90. If that level of support breaks, then I think the TIP ETF will be heading to new lows, and if the TIP ETF starts making new lows, I think the odds of the QQQ making new lows increases dramatically.

NASDAQ (QQQ)

As I have explained for months, where the TIP ETF goes, the QQQ will follow. The TIP ETF represents real yields, and if falling real yields helped to give the QQQ that inflated and overvalued price, then rising real yields will take it all away, and when the TIP ETF drops, it is an indication that real yields are rising, which is terrible for the QQQ and stocks in general.

S&P 500 (SPX)

The S&P 500 closed right on support today, around 3,954, and is very close to entering the zone that is so critical. It is starting to look like the index wants to at least fill that gap to 3,920.

Financial Conditions (IEF/LQD)

The reason I say that is because real yields are rising, and financial conditions are tightening. The IEF/LQD ratio was higher today. If that continues to increase, it is likely to be another sign that stocks have further to fall.

Semis (SMH)

You can also see that the Semi ETF (SMH) finished just below support at $214.50 and, perhaps more importantly, has failed to sustain the breakout from the declining channel. It is possible, that the ETF will fall below $200.

Teradyne (TER)

Teradyne currently looks very weak and close to breaking support around $83. Once that level breaks, there is very little support to keep the stock from falling to around $74 and its pre-covid highs.

Nvidia (NVDA)

Well, Nvidia is trading around $150 and just one bad day away from making a new low, and given those horrible results, it probably should be making a new low.

Have a good one.

-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.