Stocks Rise On August 24, As The Rotation Trade Comes Around Again

This column is my opinion and expresses my views. Those views can change at a moments notice when the market changes. I am not right all the time and I do not expect to be. I disclose all my positions clearly listed on the page, and I do not trade my account on the stocks spoken of in this column unless fully disclosed. If that does not work for you stop reading and close the page. Do not bother me or harass me.

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August 24, 2020

STOCKS – JPM, C, BAC,
Macro – SPY, GOLD, QQQ, LUMBER, DOLLAR, TLT

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MICHAEL KRAMER OWNS QQQ PUTS

Stocks rose as the algo’s decided to start the rotation trade again. The mechanical nature of the market continues, as the NASDAQ 100 and the technology ETF approach the upper end of their trading channels, we begin to see the swap. 

The QQQ went above the upper end of the channel and pulled back sharply. It probably means the Qs are heading back to the lower end of the channel to around $272. 

Meanwhile, the XLK hit its upper end of the channel, and that is likely to lead to a pullback to around $116. Since the beginning of April, this has been the back and forth trend. Could this be the time it doesn’t work, sure? At some point, it isn’t going to work anymore.

Of course, that meant that financials went higher, as did materials, and industrials. So we will see if technology sells-off like the times before these sectors should benefit.  The big question comes at the end of the week when Powell will speak virtually at what used to be Jackson Hole. It will be interesting to see what he has to say, or better yet if the market will listen. 

Yields did move up today, and more importantly, it held support at 0.625 bps. Could it be the start of a trend higher, it certainly could be. If you paid attention to the Fed minutes, then yes, rates should be going higher. Certainly not back to where they were, but could we see 90 bps or even 1%.  Yes.

Meanwhile, the dollar also rose today, and again, if you listened to the Fed minutes last week, the dollar should continue to head higher. Sure rates are going to remain lower for a long-time, but it seems like they aren’t likely to head much lower from here at present. 

Even three-month eurodollar rates are starting to rise, in a sign that perhaps demand for dollars outside of the US is beginning to grow. If you want to know which the dollar is going to, you have to watch these rates. 

Gold would likely fall further if the dollar keeps going higher, and a drop below $1925 triggers a drop to $1860. 

You know what I find funny, is how now, the economy and stock market are not connected. But last year, when the market was gyrating by 3% in August regularly, it was because the market was fearful of a recession. So which is it? Is the market rising because the economy has no bearing on the market?  Or is market a discounting mechanism for future growth or earnings, which come from the overall economy. The narrative changes a lot, to fit the times. 

Lumber 

Oh look, Lumber fell. I know its inflation at work, right?! It has nothing to do with a supply shortage or transportation issues. Nah, has to be inflation hard at work.

No wait, better yet, its not inflation, its stagflation. That has much more onerous sound to it. 

JPMorgan (JPM)

Hey, if yields are going higher and we are going to start to rotate, then JPMorgan should be one stock that goes higher. Maybe it even gets back to $105. 

Bank of America (BAC)

Bank of America may go back to $28. 

Citigroup (C)

With Citigroup going back $55. 

-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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