6/9/22

STOCKS – MU, DOCU, ARKK,

MACRO – SPY, DXY, VIX

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RTM: CPI Carries Significant Risks

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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

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