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April 13, 2021
STOCKS – AAPL, TSLA
MACRO – SPY, QQQ
Mike’s Reading The Markets (RTM) Premium Content – FREE 2-WEEK TRIAL
- Midday: Stocks Are Caught In A Apple/Tesla Gamma Trap
- Earnings Preview: The Banks
- Midday: Volatility Rises As Biotech Falters
- Morning Note – Options Market Does Not Support Higher Stock Prices
- T.W.A: The Week Of April 12 Is Likely To Be Harder For Stocks
- Midday Note- Setting Up For A Rug Pull
- Live Webcast Tomorrow At NOON
- Morning Note – Here To Pump You Up
MICHAEL KRAMER AND THE CLIENTS OF MOTT CAPITAL OWN AAPL AND TSLA
S&P 500 (SPY)
Stocks moved higher today, mostly thanks to Apple and Tesla, which accounted for a majority of the broader S&P 500 gain of about 30 bps, to finish around 4,140. Again, this region around 4,130 has a lot of technical resistance, coupled with an RSI that is now at 73, and the S&P 500 is screaming overbought.
What makes this setup worse is that the Options expiration is on Friday. Looking back, since October, the S&P 500 has generally run up into options expiration and peaked 2 to 3 days before the expiration date. That would mean that we should expect to see stocks turn lower, starting tomorrow. The only month this did not happen was in December. We also know that the period after options expiration witnesses increasing amounts of volatility, so one should not get lulled to sleep by the S&P 500 recent hot streak.
I still contend that the S&P 500 will fall back to 3,960 and fill the gap going back to March 31. It doesn’t mean it is happening tomorrow or Friday, but over the next one to two weeks is my general feeling.
Looking back, a high percentage of times when the S&P 500 did hit a reading over 73 on the RSI, it did pull back. The depth and length have varied, but in some cases, the declines have been steep.
NASDAQ (QQQ)
Additionally, the Qs are now hitting against the upper end of its March 2020 uptrend. This is an area that should offer plenty of resistance. Sometimes, not all the time, it can be a retest of the breakdown of the previous uptrend. In this case, it could suggest that significantly lower prices will follow. As of right now, it is way too soon to make a call like that, but given the data point shown above, it certainly seems like a reasonable spot in this current rally to end.
Apple (AAPL)
Meanwhile, Apple rose about 2.5% today, and whether the stock is running up ahead of earnings or this event next week, tough to say. But call volume in Apple is picking up, and so is implied volatility. This is what we have seen historically during gamma squeezes, which is likely what is now taking place in Apple.
Most of the options trading today expires this week, so the stock rally could fade very quickly. The $135 calls were the most active, so with the stock trading at $134.40, the calls could start losing value quickly if the stock doesn’t get over $135 early tomorrow. That means market makers will go from being buyers of Apple’s stock to hedge against their short call positions to unwinding by selling Apple’s stock.
Tesla (TSLA)
The same thing has happened in Tesla. Today the most active calls were the April 16 $750 and $800 strike prices. Tesla is at $762ish, so if Tesla doesn’t hold above $750, we could quickly see the same unwind happen in Tesla over the next few days, meaning market makers start selling the stock to unwind hedges.
It is fine to play the game; just make sure what game your playing.
-Mike
Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future results.
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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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