Stocks Falling Slightly On February 20, But What’s With The Fear Trade?

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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FEBRUARY 20, 2020

STOCKS: AAPL, AMD, SPCE, SHOP

MACRO: SPY, OIL, DOLLAR, YIELDS

MICHAEL KRAMER AND THE CLIENTS OWN AAPL

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Stocks are off to a pretty dull start with S&P 500 futures down slightly, and most major markets around the world pretty around the flatline. China was the one market up sharply rising by around 1.84%, as the country continues to stimulate.

Dollar

The dollar is soaring and continues to push higher; the move in the dollar index is pretty amazing. Breaking above resistance around 100, and probably on its way $101.50. My earlier prediction to start 2020, for a weaker dollar is not playing out. 

dollar, dxy

Gold (GLD)

Surprisingly Gold prices continue to rise as well and appear to be on their way to $1,699. Something you don’t usually see is the dollar and gold both rising at the same time, which would suggest that it is perhaps something else at play. It will require me to do something more thinking. But my natural reaction is there still a fear trade taking place, which is ultimately the opposite of what the equity market is suggesting.

gold

10-Year

With yields sitting at 1.54%, and on critical support, this does confirm the fear trade narrative.

yields

VIX

Also interestingly, the VIX is still hovering around 14.5, which seems “high” despite the S&P 500 trading at an all-time high. Typically we have seen the Vix fall to around 12, with markets at highs, again suggesting some fear in the market persists.

vix

So let’s continue to stay on top of this, and it could nearly be because of the coronavirus, or something more profound. I don’t know yet.

S&P 500 (SPY)

Futures on the S&P 500 are falling today, but holding support at 3,379. Remember, trends in the market are higher and remains unchanged. Futures are only falling 20 basis points. Nothing has changed at this point. A drop below 3,379 means the next support level comes at 3,357

S&P 500 spx

AMD (AMD)

Wells Fargo downgraded AMD to Equal Weight from Overweight but increased its price target to $64 from $55. Again, no change here from me, with the potential for shares to drop to around $52.90.

AMD

Apple (AAPL)

Apple filled the gap yesterday, now what? Does that we go back to $311? It is possible. Be prepared.

apple, aapl

Shopify (SHOP)

Shopify has been a fantastic stock, and I got to do some more work on it. The business is unique, but the valuation seems, well, insane. The stock trades for 21 times one-year forward SALES and has a $63 billion valuation. I don’t know that revenue growth is going to have to ramp up in a big way to justify that valuation. Be careful of the gap fill at $500. I get it is a bet on the future, and the business is cool, but what doesn’t stop Amazon from just moving into the same arena?

shopify, shop

Virgin Galactic (SPCE)

Virgin Galactic has already traded over 1 million shares today and has been as high as $41 and as low as $35.75. Yeah, try not to get your head handed to you with this one. I’ll pass.

spce, virgin

-Mike

Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future results.     

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