Stocks Slump As Risk-Off Sentiment Tightens Its Grip

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7/23/24

#Stocks: $TSLA, $GOOGL

#Macro: $SPX, $USDJPY

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Michael Kramer and the clients of Mott Capital Own GOOGL

Stocks finished the day lower, but the FX market had a lot more action, especially in the Japanese yen, which moved sharply against the Australian dollar, the US dollar, the euro, the Canadian dollar, and even the peso. The move in the yen was broad-based across the market, and it looks like a massive unwind is taking place globally.

Perhaps it is fear of a rate hike next week from the BOJ, fear of more FX intervention, or just the shorts getting squeezed out of positions. Whatever the case, the move is significant. You rarely see 1% and 2% moves in a currency pair, let alone the numbers seen today. More importantly, it places the yen in an essential place as it approaches the lows seen on July 18. A break of that support level could send the USDJPY perhaps back into the low 150s.

The AUDJPY’s positioning is the same: It sits on support 103.00. A break of 103 could open the door to lower levels on the AUDJPY.

The AUDJPY is one of the more critical risk-on/off gauges, and risk assets like the S&P 500 tend not to deviate too far from this FX pair. So, if the AUDJPY does break support, it would be a risk-off signal that suggests treading cautiously in the US equity market.

The Russell 2000 was up again today, but I have my doubts it has much further to go at this point because the Kospi is suggesting a turn lower is due. The Russell and the Kospi in South Korea have always had a strong relationship. The Kospi had moved higher ahead of the Russell, and now the IWM is catching up to the Kospi. However, the Kospi has turned lower more recently.

I noted yesterday that Tesla options appeared to be too bullish, and I reiterated that today in my afternoon write-up (See: RTM: FX Market Scream Of Risk-Off) for members. The stock is trading lower by around 8% after hours. Revenue and overall gross margins were better, but earnings missed, as did cash flow. It wasn’t helped that the Robotaxi announcement was officially pushed back to October.

One could make a case that the inverse head and shoulders pattern is complete, and the stock is now reversing and heading back to lower levels. I wouldn’t be shocked if the stock moved back down to $200, based purely on the technical charts.

Alpahebt’s results were better, with no real surprises, and dull. The stock was mostly higher after hours until we got to that part of the earnings call when analysts asked about monetizing AI. That part really failed to impress; patience is key, which was the main takeaway. If 2Q turns into a show-me quarter, meaning investors want to see the results of all this AI investment, it may be a long earnings season because, based on my trivial use of some of these products, the hype is much larger than the benefit. Yeah, sure, Chatgpt is better than Siri, but it is probably not good enough to justify the valuations that the market has assigned.

-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.