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11.10.20
Stocks – ZM, AMD, CMG, JPM
Macro – SPY, QQQ
Mike’s Reading The Markets (RTM) Premium Content – NOW WITH A 2 WEEK FREE TRIAL
- Techmageddon Upon Us?
- Gold And The Equity Risk Premium
- Critical Support Being Tested As Tech Heads Lower
- A Return To Normal Could Send The S&P 500 To 4,000 Over The Next Year.
- I Still Think We Get A Short-Term Retest
- What Does The Dollar Know?
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Stocks fell today, with the S&P 500 dropping by 14 bps and the Qs falling by around 1.8%. Meanwhile, the IWM rose by roughly 1.9%. The big rotation continues for now, with growth-oriented technology names falling sharply and the cyclical pro-economic growth names rising. Typically, this trade has lasted a few days, and then the dip gets too hard for the buyers not to flip back over. But this time could be different.
Look at the ratio of the QQQ to IWM collapsing.
First the outlook for the virus may have changed for the better, while rates on the 10-year have risen dramatically. The movement of rates may be the most damaging part of the equation, as rising rates pose a threat to some of these growth stocks, supporting their bloated multiples. Remember, the narrative this summer was that the equity risk premium and low rates were making stocks very attractive. Well, now rates are rising, and that can put a big dent in this trade. I’m not saying a 10-year in at 95 bps is high; it is not, but relative to the 50 bps it had been at, it is very high.
The Qs may have further to fall because there is still a gap to fill around $274.
Zoom (ZM)
The rotation trade plus rising rates are killing some of the technology winners, like Zoom, which fell nearly 9% today, and is now down about 40% since the middle of October. To think it still trades at 29.9 times 2023 sales estimates after the drop. You realize that analysts estimate revenue of $3.9 billion in revenue for the company, in the year 2023. For this stock to trade at 10 times 2023 sales, it would need revenue of $11.7 billion or almost 3 times more than what analysts are currently estimates. Either analysts’ are clueless or the market is way off-base.
Don’t be surprised to see $325 soon.
AMD (AMD)
So again, I have no idea why Xilinx agreed to do an all-stock deal with AMD. Maybe for tax purposes, but the stock is now less than the day the deal was announced. Pretty soon, it will probably be worth even less because AMD is like an anchor falling to the bottom of the ocean dragging the boat with it. Again, $75 is the big level of support for AMD and the RSI continues to trend lower, suggesting lower prices lie ahead.
Chipotle (CMG)
It isn’t just the usual cast of characters I like to beat upon either. Chipotle was also hit hard the past few days, and it too has a pretty nasty triple top pattern forming, with a drop below $1170, sealing the deal and sending shares even lower.
JPMorgan (JPM)
But not all stocks will get smashed if rates rise. In fact, the banks should benefit, and the nice thing is that spreads are widening dramatically. In fact, widening spreads on the yield curve is probably the thing we want to see support a positive growth outlook. That will help the banks. JPMorgan is likely a little bit ahead of itself here but could do quite well going forward.
Back tomorrow.
-Mike
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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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