9/29/22

STOCKS – $NKE, $MU

MACRO – $SPY, #Liquidity

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• RTM: Here’s The Next Shoe To Drop For The Market
• RTM: Rally May Not Hold Up
• RTM: THE S&P 500 MAKES A NEW LOW
• RTM: AMD’s Stock May Have Yet To Bottom
• RTM: Searching For New Lows
• RTM: Q&A Session Replay 9.23.22
• RTM: The Fed May Not Be Able To Stop Raising Rates Anytime Soon
• RTM: Fed’s Dot Plot Much More Hawkish Than Expected
• RTM: Pre-FOMC Meeting Briefing
• RTM: VIX Is Still Stuck

The S&P 500 dropped by around 2%, with the index closing at a new 52-week low, 3,640. The index traded to about 3,610 and found some support around a big option gamma level.

It looks to me like the consolidation phase of wave four down is over, and the index has already started or is going to start its next move down. There is a gap up to 3,720 that could get filled, but even if were to be filled, say tomorrow, I don’t think it changes the pattern, and the potential for the next move down to around 3,500.

Liquidity

I think we may be seeing liquidity getting sucked out of this market. Today, reserve balances fell below $3 trillion for the first time since November 2020. We are heading into the quarter end, which is driving a significant amount of the reserve decline, as reverse repurchase agreements hit a record high today at $2.371 trillion. Tomorrow is the last day of the quarter and that number could be higher—the higher reverse repo’s go, the more significant the drain on reserves.

There has been a massive move in overnight funding markets, with the FRA-OIS spread, which measures the difference between Libor and the Fed Funds rate. The higher the value gets, the more funding stress there is on the market. It is not at an alarming level of stress yet but needs to be watched.

Additionally, there appears to be funding stress on the Japanese Yen 3-month currency basis swap, meaning it is getting more expensive to acquire dollars. Again, this may be nothing or the start of something, and given the decline in reserve balances and the issues in the UK Gilt market, everything needs to be watched.

Meanwhile, the China 5-yr CDS is exploding higher and trading up to 112. Again, are all of these things linked, or are they by chance? I do not have all the answers, but if all these things continue to trend similarly, they may be linked.

Nike (NKE)

Nike is getting crushed after reporting results, noting a significant decline in gross margins and rising inventories. The stock is falling after hours by 6%, and there is a gap at $87, which may help to offer some support, if not 73.50 comes after that.

 

Micron (MU)

Micron is falling after it reported the company noted it was cutting the fiscal year 2023 CAPEX. I think that is important because the whole time the stock was rising and things were “good,” the company never really expanded CAPEX. I had speculated that they didn’t raise CAPEX, because they didn’t believe the cycle was long-lasting. Now they cut CAPEX; maybe my view was correct. I don’t know, but the stock is down an awful lot, and filling the gap at $46 doesn’t seem like a stretch to me.

See ya,

Mike