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Stocks May Be Ready To Take Their Next Leg Lower Amid Higher Rates And A Stronger Dollar

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#Stocks – $AMD

#Macro – $SPX, $DXY, #RATES #BOJ

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Stocks traded higher for the second day, with the S&P 500 climbing by 65 bps. The index was oversold last week, and this week, that is no longer the case. The index trades well above the lower Bollinger band, with an RSI of around 40.

We have now retraced about 61.8% of wave five down, and today’s rally looks like a pretty stand diagonal triangle, with the rally taking it around 4,200.  Additionally, we filled a gap of around 4,190. So, from a technical standpoint, if we stopped rallying at these levels, it would make a lot of sense.

The flip side is that there is also a gap at 4,250 that needs to be filled, and the 200-day moving average is up in that region. The 4,250 area would also be a 50% retracement of the impulse move lower. At this point, I have no conviction on this market because there is just too much important data left to come this week, and most of it doesn’t start until tomorrow; the tails are that wide.


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The BOJ was important, but I don’t think much changed from my perspective as the 10-year reference rate was raised to 1%, and it appears the cap has been removed as long as the market stays orderly. The BOJ is in the process of normalization, which means that rates will need to go higher in Japan. It seems the BOJ will only determine the pace at which it allows those rates to rise.

All of the data up until today suggests that the Fed will maintain a hawkish tilt at tomorrow’s meeting but will probably skip the rate hike, leaving the door open for December. The ECI data supports Powell’s hawkish language heard just two weeks ago. So, as long as the data stay strong in the US and the data in Europe continues to weaken, and the BOJ does what it does, the dollar is likely to strengthen further, as interest rates in the US continue to rise faster than the rest of the world. (See: RTM: Live FOMC Zoom Session 11.1.23 @ 1:45 PM ET)

The 30-year has been consolidating again, which has been the mode of the 30-year, and the 10-year, for that matter, since mid-July. Rates surge higher and then consolidate, and then surge and consolidate. I think that given the bull pennant that is forming, the 30-year is gearing up for its next leg higher and possibly heading above 5.3%

The dollar also has a bullish formation present, and that is also suggestive of a dollar index moving higher. If the dollar can push above 106.85, it will probably be enough to be considered a breakout and could lead to the DXY moving up to around 107.80 to 108.

If we are to think that rates and the dollar will be going higher from here, then it would be suggestive of the S&P 500 moving lower. This would mean we don’t see the index rally to 4,250 but under 4,100. But again, given where we are, it just seems best to wait and see the data results. Becuase if we undercut 4,100 on the S&P 500, then the next stop could very well be 3,800. So, there’s no point in jumping in front of a freight train. At this point, it is best to wait and see what happens. (See: RTM: Trends For Higher Rates And Strong Dollar Continue)


AMD reported results after the close, and it seems the only part that matters is a very large miss on its 4Q revenue guidance, which came in a range of $5.8 billion to $6.4 billion, or $6.1 billion at the mid-point versus estimates of $6.4 billion, and sees 4Q adjusted gross margins of 51.5% versus estimates for 52.1%. Not good. This has the stock trading lower in the after-hours by roughly 4%, down to $94ish, which is an important level. If $94 breaks, there is a lot lower it could go.


Charts used with the permission of Bloomberg Finance L.P. 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. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. 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.

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