The 10 Trends to Watch In The Stock Market For The Week of October 15

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The 10 Trends to Watch In The Stock Market For The Week of October 15

MICHAEL KRAMER AND CLIENTS OF MOTT CAPITAL OWN SHARES OF NFLX, AAPL, GOOGL, ACAD

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It is a big week for earnings, but given all the recent stock market volatility I think instead of focusing on the companies reporting results we will concentrate on what to watch for a continued stock market recovery.

Rates

As I have noted for the past few days, interest rates will continue to be the focus for investors this week; the 10-year bond is the proxy. The critical level to watch in the 10-year note will be 3.12%. As I have said before if yields can drop below level it would suggest that rates are heading even lower, perhaps as low as 2.90%.

Here’s why:

The 3.12% level on the chart below shows that yields are currently sitting at a critical level of support that started in May.

Additionally, there is a uptrend that is also acting as support. Should yields fall below both support levels, it may result in a steeper decline, perhaps to 2.9%

The relative strength index (RSI) is another sign that rates are heading lower, not higher. The RSI’s has made lower highs despite yields continuing to rise which is a bearish divergence. It would suggest that the momentum which was pushing yields higher is beginning to fade.

Should the yields on the 10yr fall below 2.90% then rates may fall even further to around 2.6%. (Read More Here: Bank Stocks May See More Trouble As Inflation and Yields Fall)

S&P 500 (SPX, SP500)

If we move into the equity market, we can see that the S&P 500 RSI fell to its lowest level in many years. It would suggest that the index is extremely oversold and is due for a sharp bounce higher over the short-term. Friday may have been the start.

The S&P 500 also stopped falling at a critical level of technical support in the 2670 to 2720 zone, another positive sign. (Read More Here: And There Was Light And The Stock Market Rose)

We can see also that volatility levels for the S&P 500 fell dramatically on Friday, and are expected to fall into the future based on the term structure.

When we look closer at the VIX, and the CBOE put to call ratio, we see that fear levels, despite the big plunge in equity prices, never increased to the levels of January and February.

CBOE Total Put/Call Ratio data by YCharts

Netflix (NFLX)

When turning to specific stocks the key to the market will continue to center around the big companies. But Netflix will take center stage with earnings on Tuesday after the close.

The options expiring on October 19 are implying that shares of Netflix will rise or fall by about 9% from the $340 strike price. It places the stock in a trading range between $307 and $374. The put to call ratio at the strike is even at 16,000 open calls and puts a piece. But the $350 calls have an open interest of 7,000 contracts which is nearly double the number of open puts contracts at the $330 strike price. It would suggest to me that there is a bias for shares to rise.

Technical charts are hard to predict heading into earnings, but the good news here is that stock has completed a technical pattern called a rising wedge. Additionally, the stock has remained above its 200-day moving average. It should allow for the stock to beginning working higher again.

Amazon (AMZN)

Amazon is at a critical level as well, and should the stock rise above technical resistance at $1840 the stock could rise above its downtrend pushing shares higher to around $1,900.

Apple (AAPL)

Apple is nearing a break out as well, and if the stock rises above $225 share could recapture their earlier highs around $235.

Microsoft (MSFT)

Microsoft is also moving back into its trading channel, and it may result in the shares moving back to their earlier highs around $115

Visa (V)

Visa fell hard and then rebounded sharply off support at $132. The stock would need to climb to $148 to regain the lower range of its earlier trading channel.

AMD (AMD)

AMD fell to roughly $24.50, and the stock probably has room to climb back to around $28.50 over the next few days.

Alphabet (GOOGL)

Alphabet could see its share rise back to around $1,170

Biotech (XBI)

The XBI biotech ETF found a big bounce at support around a price of $85.25, and that could lead to the ETF rising back to $91.50.

Acadia (ACAD)

Maybe it is a sign from above for Acadia shareholders, but the stock is now the largest holding within the XBI ETF. Yeah, my jaw dropped, the weighting is at 2.2%. When did that happen? Like I said Friday, I think this one is heading back to $24. It also looks the company updated the Clarity study for depression on October 5 on clinicaltrials.org. The study completion date for September changed from estimated to actual. Data from the trial could be a matter of days or weeks.

The stock has acted very well in a terrible market, a positive for sure.

Anyway, good luck this week!

-Mike

Michael Kramer publishes independent macro and options research read across 10+ platforms and by institutional desks. For research syndication, licensing, or consulting inquiries, visit michaeljkramer.com.

READ LAST WEEKS LOOK AHEAD: https://mottcapitalmanagement.com/7-stocks-must-watch-stocks-to-start-the-week-of-october-8/

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