August 11, 2020

STOCKS – NFLX, AMD, TSLA

MACRO – SPY, QQQ, GOLD

Mike’s Reading The Markets (RTM) Premium Content – NOW WITH A 2 WEEK FREE TRIAL

• Rotation Still In Force, Watch Tech Carefully
• AMD’s Overextended Stock Could Drop 7.5%
• For Now, Rotation Trade Is Keeping S&P 500 Afloat
• Waiting – Morning
• Key Guages To Watch For The Week Of August 10
• Earnings Trends Continue To Improve – Positive For Stocks
• Big Levels To Watch – Midday
• The Unwind Of Risk-On Has Started
• Don’t Blink – Morning Commentary Transcript

Michael Kramer and the clients of mott capital own TSLA

Stocks were higher most of the day but reversed and sold off sharply by days end. The move higher seemed suspect from the start, as I have noted the past two days it seems impossible for the industrials and financials to rise by 2% every day, and sure enough, stocks gave way by days end, and everything started to collapse. 

It certainly didn’t help when the market found out that that has been little to no discussion around another coronavirus bill and news that the big ten conference canceled its season. It seems like a matter of time before other college football leagues will cancel the season. The story of this seems to send a message, that the reopening trade and rotation may be too soon, and is on shaky ground at best. Wait till I tell you guys at the end of the week what I have been doing in preparation for the new school year.

S&P 500 (SPY)

Once the uptrend in the secondary rising wedge pattern broke, the S&P 500 fell sharply. It did manage to find some support around the 3,325 level.  I do not think the selling is over by any means. 

The gamma in the QQQ is now negative, and that means the more the Q’s fall, the more selling dealers will have to do remained adequately hedged. It is a significant trade to understand as it can get momentum moving fast. The zero gamma level was at $268 on the Qs, and that means selling begets more selling below that level. The next significant support level on the QQQ based on Gamma positioning would come at $260. 

Have you seen the T-shirt I made on this topic? 

(Spot Gamma/The Market Ear)

If the Qs should get to $260, it could be a bigger problem, because that means that the uptrend in the Qs would have been broken, and this is the uptrend that has been in place since early April. A drop below $262, likely triggers a decline to $251. 

Netflix (NFLX)

Well, I pointed this out last night, now Netflix broke support at $475 and is likely heading to $450. It could be even worse because the uptrend in the RSI broke today too. 

Tesla (TSLA)

Tesla is splitting its stock 5-for-1, and the stock soared after hours.  This is likely a sign that the stock is going to be included in the S&P 500 soon. The biggest problem Tesla has always had is a small share count, with Musk, Baillie Gifford, Capital World, and Vanguard owning about 40% of the shares. This will likely help to free up some shares, or least potentially helps to make more shares available to trade. In the olden days, when I was an 18-year-old, a stock split was considered to be a sign a companies belief the shares could continue to rise. So the stock is jumping after hours to around $1470. I’m sure not it will change much, from the prospect that the stock has been trending lower. I think it continues to trend lower for the time being. 

AMD (AMD)

AMD fell hard today, kind of in line with what I noted yesterday in the story for members. The stock has decent support in this $75ish range but has an enormous gap to fill around $70. If the market goes, AMD will get sucked lower too. 

Gold (GLD)

Please repeat after me; there is no inflation, and there will be no inflation for a very very long time. Gold took notice today; it should have taken note the multiples it had been mentioned at the FOMC meeting that there is a more significant risk for deflation than inflation. But regardless, it took notice today, when the Y/Y PPI was negative. Tomorrow we get the CPI; I wouldn’t be surprised to see it very close to zero, because oil is around $42, down from $60 in July last year.  Oil is your real-time inflation gauge; that is all you need to know. Oil goes up inflation; oil goes down, disinflation.

Money printing does not create inflation; you need money printing and output growth. We have no output growth; the money being printed is mostly idle sitting as excess reserves on the balance sheet of banks. You can’t get inflation if nobody is spending it, or better yet if GDP is contracting at a massive rate.

Hence gold fell almost 6% today. I would not be surprised to see it at $1790 very soon. 

Night, Night

-Mike