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10/4/23
#Stocks – $XBI, $XLY,
#Macro – $SPX, #OIL, #Rates
- RTM: Earnings Season Is Likely To Be Very Important As 2024 Comes Into View
- RTM: Stocks Drop On Hot JOLTS Data
- RTM Rates Push Higher On Strong Economic Data
- RTM: LIVE Q&A Session At 1:15 PM ET -Replay
- RTM Options Update: The SPY Nears Critical Support As A Trader Bets On A Further Decline
- RTM: And The Market Paused, For Now.
- RTM: Stocks Getting Closer
- RTM- At A Breaking Point
Stocks increased on Wednesday, rising by around 80 bps, as the dollar and rates fell. There is still a lot of data to come this week, with the Job report on Friday now front and center. However, despite rates falling, the yield curve continued to steepen, as the 2-year fell by ten bps, and the 10-year fell by five bps, which pushed the 10/2 spread to -0.32% and its highest close since October 2022.
At least for today, stocks didn’t seem to care that the yield curve was steepening because the index moved higher today by around 85 bps, finally bouncing after its RSI fell below 30 yesterday, and so today’s rally, at least took the index out of an oversold position. Could the index rally back to 4,300 in a couple of days? That is possible, but I do not think it changes much of anything for the index overall because there seems to be a trend reversal, with lower highs and lower lows now being formed. Today’s move was merely a 38.2% retracement of the drop that started on Friday, and a rally to 4,290 would be only 61.8%.
As for now, all we have done is retest a support/resistance zone. A gap above 4,270 tomorrow sets up a rally and test of 4,290.
The 10-year did fall but not by much, and the big level to watch in the 10 is the 4.68% level because that was resistance on the way up, which is likely to be support here. If the 10-year did put in a high, it seems like a strange spot, and I would think that after coming so close, it would test 5%, which would be a very big psychological level.
Additionally, it seems too early in the cycle to see the 2-year breakdown and start falling. Until the economic data starts to show trouble, I think the 2-year will stay around this 5% level, and if the yield curve continues to steepen, it means the 10-year still has to rise further.
Biotech did not participate at all, falling on the day. This would indicate that the market still fears higher rates. The one positive is that today’s RSI made a higher low despite the price making a lower low, a bullish divergence.
Meanwhile, the Consumer discretionaries rose by almost 2% today but couldn’t surpass the $160.60 level. This is the neckline of the double top, which has been a region of strong resistance since September 26. It got up to resistance but couldn’t get through it, and this will be something worth watching to see if it can get through tomorrow or not.
Finally, oil was hit very hard today, dropping by 5.6%, and closed on its uptrend off the June low. Oil has been a big reason why rates have been climbing, and this decline likely played a role in the move lower in rates today. If oil holds $84, it could bounce and start trending higher again; if it breaks $84, $77.50 becomes likely and could take rates down too.
-Mike
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.