Stocks Tank On May 11 With No Bottom In Sight

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5/11/22

STOCKS – AAPL, SHOP, TSLA, NVDA

MACRO – SPY, QQQ, XBI, HGX, VIX

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Michael Kramer and the clients of Mott Capital own AAPL

It was another bloodbath in the stock market, with the S&P 500 dropping by 1.6% and the Qs down by almost 3%. I almost even forgot there was a CPI print today.

As I said the other day, it is hard for me to say we oversold. However, we are closer, with the S&P 500 RSI now at 31.6 and the index sitting on the lower Bollinger Band. I would like to see the S&P 500 undercut the RSI reading of 24 in February.

Even more interesting is that despite the sharp decline, the VIX finished down on the day at 32.5. It tells me there was “real” selling in the market today, and the drop wasn’t due to investors buying puts and market makers hedging with shorting futures.

If you live long enough, you see these same things play out time after time, and something similar happened in 2018 between the S&P 500 and the VIX. I remember it very well because I remember even writing about it. From October until the middle of December 2018, the VIX was range-bound, moving back and forth between 16 and 25. Finally, in December, the VIX just exploded and ran up to 36.

Since January 2022, the VIX has been trading sideways, in a more significant range of 20 to 36. I think this will resolve with a considerable spike in the VIX, probably something north of 40, maybe even as high as 50, as maximum fear sets in.

Put-to-Call

The put to call ratio confirms that fear is not high enough, settling at 1.16. It needs to close above that 1.35 level to even think about a bottom.

Biotech (XBI)

The XBI ETF fell 7.25% today and is now trading at levels not seen since 2017. It is hard to find a bottom if this is still dropping like a stone.

Housing (HGX)

The Housing Index, HGX, fell nearly 3.4% and is now very close to dropping below its pre-pandemic high.

S&P 500 (SPY)

The other problem is that Apple broke today, dropping below support at $152, and now that this one has gone, it probably signifies the next leg lower in the market is beginning. The S&P 500 consolidated around the 3950 to 4000 level the last two days. That changed today when the index closed at 3935.

There is another layer of support at 3,860, which doesn’t appear to be very strong, which indicates we could fall as far as 3,710ish.

Nasdaq 100 (QQQ)

The Qs might as well fill that gap between $274 and $282.

Apple (AAPL)

Apple has broken support and is probably on its way to $140ish.

Tesla (TSLA)

I have some support for Tesla around $730ish, but there is no reason this can’t go back to the $630s.

Shopify (SHOP)

A day isn’t complete if Shopify doesn’t fall by 5%, and it looks like $285ish is coming.

Nvidia (NVDA)

Nvidia keeps dropping, and it is scary because this traded for $78 before the pandemic. It may not reach $78 soon, but the $115s seems possible.

Ok, well, that’s all I have for today. I know there is a lot of pain out there, I have a long-only portfolio, but I have been preparing and waiting for this to happen for some time, but generally speaking, I’m in the same boat as everyone else.

-Mike

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. 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.