The Massive Plunge In Yields May Be Nearing An Explosive End

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August 14 – stock mentions: SPY, TLT, AAPL, AMZN, AMD, CSCO, BA

Michael Kramer and the clients of Mott Capital own Cisco, Apple

Stocks had another lousy day with the S&P 500, falling by almost 3%. If it makes you feel any better, the index is still higher than where it was on August 7. I can’t say all that much has changed since then.

While everyone focuses on the 10-2 year spread minor inversion, the one spread that has not to invert yet is 30 years minus the three-month spread. While some will say that the 10-Year minus 2 Year is an indicator of recession, it is not perfect. The one that is 2 for the last 2 is the 30-Year minus the 3 Month. That has not inverted yet. So perhaps our attention should turn to something more reliable.

Also, the move lower in yields seems like a stock when everyone is crowding in. The move lower in yields appears a bit overdone. You can see the sharp move lower in yields starting in August following the Fed meeting.

But another interesting thing is that the move lower in yields may have nothing to do with the US, look at the spread between the US 10-Year and German 10-year. It is nearly unchanged since the drop immediately following the Fed meeting.

The same is the case against France.

Even the troubled UK and the issues around Brexit have been seeing yields stay in lockstep with the US.

It shows that the move lower has more to do with a global flight into bonds than a US recession warning.

And based on the current setup in the German 10-Year bund, the global move lower in yields may be about to reverse higher. The chart shows a large falling wedge pattern, that would suggest that yields on the German 10-Year rise to around -0.4 basis points. (See: Technical Analysis 103: Reversal Patterns)

I spoke more about this and why the end of the Fed’s QT program are pushing rates lower in a premium video today. I don’t think I heard one person talk about the Fed soon being a buyer of bonds again. Why Yield May Reverse Higher

By the way, the RSI on the TLT ETF is at highest point since 2009, at 85!. Overbought? Just a little bit.

S&P 500 (SPY)

Anyway, the S&P 500 managed to finish at a higher level than last week. However, it seems that we may see a retest of the August lows around 2825. I’m not sure there is more to say at this point.

Between the equities and yield plunging it would seem the algo’s are the only thing driving this market. It really is sad that the market has become so mechanical. These 3% days are now the equivalent of a 2% day a few ago. Unfortunately, we have to get used to.

Cisco (CSCO )

Cisco is dropping after hours. Results topped estimates on both revenue and earnings, but fiscal first quarter guidance fell slightly short of expectations. The market is no mood for anything, but better, so the stock is selling off some after hours. I’m in the process of listening to the conference call. At the moment the drop seems like an overreaction to me. That may change after the conference call.

The tone feels a little bit cautious to me and along with some weakness in their service provider business.

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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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Boeing (BA)

Boeing also had a big move lower and is now the cusp of a decline to $297. The last level of support comes around $317.

Citigroup (C)

Citigroup fell to support at $61.1, and it could be on its way to $54.75 if that level doesn’t hold.

AMD (AMD)

AMD filled the gap at $29.40, and now, $31.40 becomes the new resistance region.

Amazon (AMZN)

Amazon better hold on to support around $1770; otherwise, $1700 is coming.

Apple (AAPL)

Apple may still have some further to fall, maybe to around $198.

That’s it for today.

_mike

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 results.

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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.