MAY 14, 2020

STOCKS – FB, AMZN, AAPL, MSFT, GOOGL

MACRO – SPY

Short-Terms – Bearish

Long-Term Trends – Bearish

MICHAEL KRAMER AND THE CLIENTS OF MOTT CAPITAL OWN GOOGL, AAPL, MSFT

MIKE’S READING THE MARKET PREMIUM CONTENT

• TONIGHT’S LIVE WEBCAST STARTS AT 9 PM ET
• ALGOS FILLIN’ GAPS?
• Bad News Is Bad News Again – The Morning

Stocks managed to bounce back after a sharp move lower to start the day. The rally seemed to start taking shape in the morning around the time of some talk regarding more stimulus. The S&P 500 fell to around 2,766 before turning around. It seemed like an odd place for the rebound since it was right in the middle of a gap, not something we would typically see. 

Anyway, to be clear, I do not write this column wishing for the market to fall, no. As I have said many times, I am 70% long and 30% cash. That is less than what I would be in a real bull market, which is 95% long and 5% cash. I do not short, and the only time I use puts is for my tiny trading account for the fun of it. You can even track my portfolio by Googling Mott Capital Thematic Growth. But I disclose everything that I do, even the tiny options because it is the right thing to do and you are supposed to.

Trust me, I benefit much more from the market rising than from it falling. But the facts are the fact; I can’t skirt around stocks trading at very high earnings multiples or trading with overbought technicals. Factor in a disastrous economic scenario, and as I have said, this is an environment one needs to be cautious in and not do stupid things. I can’t appease my readers or merely go with the flow of the market, because it is easier. It is just not how I work. 

S&P 500 (SPY)

Moving on then, the index got an extra boost in the finally 10-minutes today, with about $2.5 billion to buy into the closing cross. However, that quickly paired off by days end. It does suggest there are ample sellers left in the market place. 

Tomorrow is options expiration, and where we finish will mostly be dependent on where the options traders want to push the index. 2875 seems like a reasonable place for the index to face some fierce resistance, with substantial support around 2,800. It could create a rather challenging and volatile day. 

The trends, as I have said for the S&P 500, have shifted to down, based on the direction of the RSI and the advance-decline line for now. 

As I noted today in my midday update, many of these massive mega-cap stocks are sitting on what I consider very important uptrends. 

Microsoft (MSFT)

Microsoft, a stock that I own, is riding that uptrend, a break of it is likely to send the shares lower towards $161. Again, I am not saying I want the stock to fall to $161; it is merely the risk that the stock presents. 

Apple (AAPL)

Apple, another stock I own, is also trading on that same uptrend. A break could easily send the shares lower to $265.  Again, I do not wish for the stock to fall, but this where the risk lie. 

Alphabet (GOOGL)

Alphabet, another stock I own, is facing the same risks, with a potential for shares to fall $1,230. 

Amazon (AMZN)

Amazon is already starting to show a bad sign, with the stock already moving to the other side of the uptrend and the risk of falling to $2,285, although I happen to think a drop to $2190 is more likely. You can see the RSI is also trending lower.  I don’t care what happens either way, as I have no position.

Facebook (FB)

Facebook has the same challenges regarding the uptrend and the falling RSI off of overbought levels. With the potential to fall to $191. I don’t care what happens either way, as I have no position.

So again, these are the five largest stocks in the index; if they go, the whole market will go with it. I’d prefer for that not to happen, but it is what it is. So why not sell? Because I buy and hold intending to hold my stocks for years. Ultimately, the stocks I own in this case should come out just fine when the virus passes. 

So again, these the risks in the market and just a few more of my concerns I have. Proceed, however, you’d like, but I will continue to be cautious.

-Mike

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