MICHAEL KRAMER AND THE CLIENTS OF MOTT CAPITAL OWN GOOGL, NFLX
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So Old, So Tired
This sell-off is getting so, old! Really. I’m tired. I want to talk about something other than stocks going down. Perhaps that can change next week at the G20 summit. Maybe President Trump and his “good friend” President Xi Jinping can come to an agreement on trade policy over dessert as they eat their incredibly “beautiful” chocolate cake, and the trade wars can end. But unfortunately, while I am sure we could see a rally for at least a few days, I am not certain it would the end problems. No. This sell-off is about more than just trade wars. It is about a market that is continuing to protest the Fed’s proposed rate hikes, in the face of a slowing global and US economy. This about the market testing the resolve of Chairman Powell. The market knew that it could push Bernankeand Yellen around. But to this point Powell is steadfast, and the market is screaming, no, it is demanding that the rate hikes end now.
It isn’t just the equity market demanding the rate hikes end. The bond market is screaming too. Look at 10-year yields. Everyone was worried about rates on the 10-year rising to 3.25%. Now rates on the 10-year are barely above 3%, and as I have said over and over, they are heading lower.
Inflation continues to melt away. Oil has now fallen 31% from its highs on October 3. Suddenly, the specter of inflation is no longer scary, because the risk of deflation is once again slowly rising. I hope the Fed wakes up soon and stops raising interest rates. They need to stop before the damage to the economy is so bad, they then have to reverse policy and start cutting rates.
The market is screaming to stop the madness, stop!
The chart below shows just how the market’s views on future rate hikes are gradually changing. The chart shows that the odds of the fed funds rate at 2.75% to 3% in December 2019 has dropped dramatically over the past month from 33.5% to 25%. Meanwhile, the odds of rates at 2.5% to 2.75% have risen from 27.4% to 36%. In English, it means that the market now believes the there may only be two rate hikes in all of 2019, from the current a range of 2 to 2.25%. That is down from expectations for 3 hikes in 2019 just a month ago.
(CME Group)
My guess that those expectations continue to come down.
Let’s move on to some stocks.
Netflix (NFLX)
Netflix managed to move down its long-term uptrend and support around $250, and that is where it found a meaningful bounce. But most noticeable, look at the RSI contracting. I think the stock may be due for a big break higher. Maybe I’m too optimistic, and I’m biased because I own this one.
Amazon (AMZN)
Amazon may be a different story. The stock managed to close above $1450, but it also failed at its downtrend. The RSI is telling me there is still further for the stock to fall.
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Alphabet is similar to Netflix; again maybe it that I am biased because I own this one too. But Alphabet has held tough many times around the $1,000 price. Like Netflix, the RSI is also suggesting a rise may be on the way. I’m thinking maybe to $1140ish.
Microsoft (MSFT)
I think there may be more trouble ahead for Microsoft. It fell below $102. The RSI is going lower, and that means $96isn is coming.
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Charts used with the permission of Bloomberg Finance L.P. 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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