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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STOCKS – SHOP, PYPL, FDX
MACRO – SPY, QQQ,
- RTM: Market Liquidity Is Thin
- RTM Exclusive: Apple May Be Heading For A Big Drop
- RTM: The Recession Trade
- RTM: Live Event REPLAY
- RTM: Yield Curve Collapsing With Growth Implication
- RTM Exclusive: Volatility May Be Heading Much Higher
- RTM: Rates Explode Higher, But So Do Stocks
- RTM Yields Surge
I have been telling everyone there is thin liquidity in this market, with wide spreads. Now you know why you should be aware of this. The S&P 500 rallied by 2.8% from 11:30 until 1:30 PM and then fell by 2.5%, to close down 72 bps on the day.
S&P 500 (SPY)
The significant gains came at 11:30 ET when the S&P 500 futures increased by 1.4% on just 180,000 contracts traded in 30 minutes. To give you a sense of how little volume that was for that big of a move, there were nearly 2.3 million contracts of the S&P 500 futures traded on the day. There is nothing to understand or figure out; liquidity in the market is very thin, so you are getting these big moves and wild volatility. I went over this in greater detail in today’s RTM video. (Get the first two weeks free to try – RTM: Market Liquidity Is Thin)
The relative strength index and Advance-Decline line for the S&P 500 are trending lower, indicating that lower prices are likely ahead. At this point, I still see 4,055 coming.
Fed Rate Hikes
Meanwhile, the Fed Funds futures continued to recover from the drop in rates seen last week. The contracts for December 2022 are once again trading at 1.57%. So if there is a sense by the market that the Fed will back off rate hikes this year, it is not showing in the futures market.
The current environment is dangerous between the Fed, liquidity, tightening financial conditions, and headline risk.
While valuations have certainly come down, the markets are still not cheap, and this is where valuations matter. Because in a reasonable valuation market, there is a point where buyers can say things are getting cheap. So while things may look cheap relative to their highs, they are still nowhere near cheap when it comes to fundamentals. Not with an S&P 500 trading at 18.5 times its NTM earnings estimates, which is above the historical average since 2014 of 18. A cheap market trades with a PE sub 16, which happens to be when 2016,’18, and ’20 lows were all established, in fact, it was below 15.6
Shopify has now fallen to roughly $515 and is getting pretty close to the bottom, I think. You can see that classical lower lows on the prices and higher lows on the RSI. These are the early signs of a reversal signal. The question is if it stops at the first gap fill at $445 or the second gap fill at $360.
PayPal may have a similar sort of bottoming process forming, but it is doesn’t appear to be yet. So long as PayPal can hold support at $92.60, the stronger the case for a bottom grows. But if that level breaks after that, the pandemic lows come next, around $83.
FedEx has been hit very hard in recent days and seems to be on its way back to $183.
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