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Stocks Drop on May 16 With Powell On Deck For Tomorrow Afternoon

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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5/16/22

STOCKS – SHOP, BAC, ROKU

MACRO – SPY, VIX, IEF, LQD

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Stocks were all over the place, down sharply to open, up sharply mid-day, and down by day’s end. The S&P 500 index finished lower by 40 bps, but fell by nearly 1.1% from its afternoon highs to afternoon lows.

S&P 500 (SPY)

Whatever you want to call this period of consolidation, the pattern is growing more and more negative. Once the trend line at 4,000 breaks decisively, it should result in that gap-filling at 3,930, with the potential to go to 3,860’s.

The S&P 500 futures have formed a potential double top pattern and will need to break below the 3,980s for that pattern to start playing out, which also suggests a decline to the 3,860s.

VIX

The only reason the S&P 500 managed to hold up as well as it did was that there was a mild VIX melt all day long, which was surprising since Powell will be speaking tomorrow at 2 PM. One would think that hedging would have been focused on today, but maybe the plan is to place those hedges tomorrow morning, or perhaps everyone feels they are already perfectly hedged.

Financial Conditions (IEF/LQD)

It is clear that despite all the games being played in the equity market, financial conditions are still getting tighter, and based on the IEF/LQD ratio, conditions are now their tightest since early March. This measure works well enough to tell us that it is not good for stock prices over the long run as the ratio rises further.

Shopify (SHOP)

Shopify fell 10.5% today after a big up week last week. The rally last week looks like a retracement to the other side of the trading channel and nothing more. If so, the mid-280s should be in the stock’s not-too-distance future.

Bank of America (BAC)

The gap for Bank of America at $33.30 stands a chance of being filled. That would take the stock back to prices last seen in February 2021.

Roku (ROKU)

That may be a falling wedge in Roku and a bullish divergence formed on the RSI. It may even mean the stock can go up should it rise above the down trend line and head towards the $110s. Of course, failure could mean the mid-$70s.

That’s going to be all for today.

Mike

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. 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.