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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August 20, 2020
STOCKS – MU, NVDA, GLD
MACRO – SPY, EWY
Mike’s Reading The Markets (RTM) Premium Content – NOW WITH A 2 WEEK FREE TRIAL
- No Yield Curve Control – Not Good For Equities
- It Approaches – Midday
- Memory Chips Sending A Warning Message?
- A Breaking Point Nears, One Way Or Another
- Stocks Drifting – Morning
- A Sudden And Swift Drawdown?
- Options Still Indicate Top Is In – Morning
- Inflation Does Not Appear To Pose A Threat Anytime Soon
- Risk-On Trade Remains In Focus The Week Of August 17
Anyway, we’re back, and I know the immediate reaction as you look at the markets today is that the dip will just be bought, and this is the same thing we have seen over the past few months. Well, consider for a moment that something here is very different. If you look at the bloodbath that took place in Asia overnight, you might want to think again. There is something notably different this time, and that is what happened in South Korea, with the KOSPI falling by 3.6%, and down 7.6% over the past week. But more important is that for the time since early April, the index broke its massive uptrend.
Meanwhile, the most significant stock in South Korea, Samsung, fell too and managed to at least hold its uptrend, despite falling 4.1%.
Plus, SK Hynix looks beyond horrible, and could be heading back to its March lows! That can’t be good for Micron or Western Digital.
Now it is possible the KOSPI got out ahead of itself, but the correlation between that market and the S&P 500 futures is undeniable. No, the red line in the chart below is not a moving average; that is the Kospi index on top of the S&P 500 futures.
S&P 500 (SPY)
S&P 500 futures fell to and tested the uptrend overnight, but managed to bounce so far. That uptrend is crucial and must hold; it can not go the way of the KOSPI. If it does, it will be a terrible signal for the market. A break of 3,340 is awful news for the futures and the index.
Nvidia shares are trading just slightly lower, but when thinking about those results, it becomes a little bit more clear that most of the significant gains were due to Mellanox. If you back out at the 14% of revenue Mellanox contributed, revenue would have been $2.58 billion, or about 29% growth y/y, which don’t get me wrong, is still incredible. But importantly, Mellanox attributed more than 30% of the revenue growth to the data center, which means it would have only been $1.226 billion, which would have been growth of 7.5% versus the previous quarter. I guess the question is if you want to pay almost 50 times earnings for growth through acquisition. I’m not saying Nvidia is not a great company; it is. I’m just saying the valuation may have gotten a little bit ahead of itself here. (Forbes story- Nvidia’s Massive Stock Gains May Be Over Following Quarterly Results)
Micron keeps dropping and is likely heading back to $42—a pretty good example of what happens when an uptrend is broken.
Anyway, golds not looking so hot, with a break of $1925, send it lower to $1864, and then $1790. How can you have inflation when there is no output growth? How can you have inflation when GDP is will be down dramatically year over year, for many years to come?
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