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The Bear’s May Be Making Their Last Stand At Breaking The Stock Market
MICHAEL KRAMER AND THE CLIENTS OF MOTT CAPITAL OWN AAPL, NFLX,MO
Stocks Get Walloped
What a brutal day Wednesday was for the stock market, but the S&P 500 did manage to close well off its lows. The good news again, 2,794 continues to be an area of straight for the index, and that may be key. Wednesday marked the sixth time sellers have tested 2,794 July 16, the longer it holds, the more likely the bears give up trying to break it. In some regard’s this may be the bears’ last attempt to crack the equity market. If they are unsuccessful, then one has to wonder what keep’s equity prices from not rising going into the final few months of 2018.
The dollar moved higher once again, with the dollar the index touching 97 today, putting further pressure on commodities like oil, copper, and gold. The inflation narrative is looking weaker by the day. Oil prices are now nearly 14 percent off their highs from early July, and look like they will plunge even lower, to perhaps $61. The answer to the oil mystery lies in the chart below and maybe this simple. Since 1986, the trade weight U.S. Dollar index has a strong inverse relationship to oil prices, with a correlation of -0.76 and an R^2 of 0.58. So, for oil, it may be as simple as the dollar rises, oil falls, period. There may be influences outside of that for a short period of time, but over the longer-term, the dollar oil relationship seems obvious.
I talk more about this relationship in the member video: The Dollar May Soon Wreak Havoc On Oil And Gold
With the prices of commodities continuing fall, 10-year yields also continue to retreat, flight to safety or not. The US 10-year now stands at 2.85%, and the treasury spread for the 10-year minus the 2-year is now 0.25 testing the lows we saw in mid-July. Suddenly, the bank stocks are starting to look weak.
The financial ETF (XLF) appears to be trending lower, again. That means it may once again be heading back to $26.90.
For now, Morgan Stanley looks to be the weakest of the bunch, facing a drop to $44.
Consumer stocks are still within the rising wedge, pointed out yesterday. The best case scenario a big bounce tomorrow followed by a rise above $114.
Amazon is now in search of support around $1841, and should that not hold $1740 is on the way. I talked more about the chart for Amazon in the member video today, and the lot of other stocks, such as Netflix, Tesla, Alibaba. Amazon May Plunge 10%
Netflix managed to fall to the technical downtrend, and for the moment stopped. I’m hoping this is merely a retest of the break out I noted last week and not a sign of more declines. The next area of support is somewhere around $306.
The hopes of a Micron break out seem to be over, and it appears I got this one pretty badly wrong at this point. The areas to watch now to the downside is around $45.24. UGH! I hate when this happens, but it happens.
One stock that performed very well on Wed. Apple, and it is working very hard to break out, and succeeding.
Risk-on – Risk-off
Biotechs are looking weak these days and so are the semis, and that would suggest to me that the market has turned back to a risk-off state. When looking at the chart’s side by side, they do not seem all that dissimilar. We need this mentality to change.
The money appears to be flowing back into the staples, like P&G and Altria. It may be the markets way of saying it too is expecting rates on the long-end of the curve to continue to fall. Falling interest rates mean stocks with high dividends need to adjust lower, and that sends stocks prices higher.
That is all for today. Back tomorrow.
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Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future.
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