Stocks Plunge on June 9 And There May Be More Pain To Come

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6/9/22

STOCKS – MU, DOCU, ARKK,

MACRO – SPY, DXY, VIX

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RTM: CPI Carries Significant Risks

Stocks tanked on June 9, with the S&P 500 dropping 2.4% and closing at 4,017. I have targeted the 3,980 level because that is where there is an open gap, but it’s more complex than that. Because, as you can see today, we fell to a support region on the Fibonacci trend line grid. But where we go tomorrow is likely to depend on the CPI report, and I think the market has much more to lose tomorrow on a hotter than expected reading than gain on a cooler than expected reading.

Yes, the market can pop tomorrow if the reading comes in a cooler because implied volatility may come down some. But that may be about all you get. The CPI reading will do nothing to alter the Fed’s course because they want to see a series of declining metrics that indicate that inflation is heading back to its 2% target rate. But a hotter reading poses a threat, and the Fed may have to do even more to contain and bring down the inflation rate.

The biggest problem is that gasoline and oil price have been up a lot since April, and 1-yr breakeven inflation expectations are rising again. So the market appears to be pricing in more inflation, not less. The effects of oil and gas on the CPI print depend on what part of May the data was captured.

VIX

Ultimately, I think the market will have further to fall even if the reading is cooler than expected. The market seems to be underestimating this Fed meeting and not considering the message of the Fed’s projections that will come with the meeting. The VIX seems too low, even with today’s move higher, considering the amount of risk that comes with the Fed. The VVIX, which measures the volatility of the VIX, is still very low and at levels that in the past have corresponded with a VIX in the low to mid-teens. It tells me that the market is going into the Fed meeting too complacent.

 

Anyway, after today’s sell-off, the odds of the market completing that bear flag I mentioned last week increased dramatically. If this turns out to be that bear flag, then we are heading for new lows.

Dollar

The other problem today was that the dollar ripped higher after the ECB laid out a path for rate hikes but seemed to be taking its time to do it. I don’t think the dollar is finished rising; I see new highs coming for it, based on the BOJ and ECB’s lack of action.

DocuSign (DOCU)

Docusign plunged by 20% tonight after giving weaker-than-expected guidance. Not good for them or other stocks in that space. The stock was making some positive technical improvements, but that wasn’t enough. The big support level is around $63.

ARKK (ARKK)

ARKK fell about 6%, and it also has a bear flag in it, with support around $43ish. After that, it is facing new lows and the lower bound of the trading channel.

Micron (MU)

Micron is now very close to support at $65. This is the fourth visit to this level. It has held to this point, but the question is how much longer. I think it isn’t likely to be for much longer. The technical pattern looks bearish, and I think that means Micron is heading lower with a gap to fill around $58.

Anyway, I have to go practice soccer with my daughter.

-Mike

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. 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.