Stocks Drop On August 6, As Financial Conditions Tightening More

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9/6/22

STOCKS – NVDA, XBI

MACRO – SPY, IEF, LQD

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Stocks were up sharply at the open, but that faded quickly, with the S&P 500 finishing the day down by roughly 40 bps to close at 3,908. The declines followed a better-than-expected August ISM services reading that showed GDP is growing at an annualized pace of 2.5%. The news sent yields and the dollar soaring, allowing financial conditions to tighten further.

Today’s battle for the S&P 500 was between 3,900 and 3,920. Right now, the index is just consolidating and is likely to drop to around 3,820 over the near term to fill the gap at that level. You can see the symmetrical triangle, a consolidation pattern that typically resolves in the direction of the prior trend or down.

Meanwhile, the IEF/LQD ratio rose today and is nearing its July 5 highs. As I have said for months, tighter financial conditions are bad for stocks, and the IEF/LQD ratio is an easy way to keep an eye on spreads between Treasury and Corporate rates. Those spreads are widening.

Biotech (XBI)

We may find out tomorrow just how serious the bears are about this decline. The biotech ETF today filled the gap around $81. If we start seeing the XBI rally in the next few days, it could be a terrible sign for the bears. But if the XBI breaks support around $79, we would also know that this sell-off will get much more severe.

Nvidia (NVDA)

Nvidia is again testing support at $134, and there is nothing to say about this anymore. Once support breaks, I think it falls to $117.

I am starting to feel better and hope that I will be back to a full work schedule by tomorrow. But for now, that will be all for today.

-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.