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The Mechanical Bull Rally Lives

This column is my opinion and expresses my views. Those views can change at a moments notice when the market changes. I am not right all the time and I do not expect to be. I disclose all my positions clearly listed on the page, and I do not trade my account on the stocks spoken of in this column unless fully disclosed. If that does not work for you stop reading and close the page. Do not bother me or harass me.

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7/27/22

STOCKS – SHOP, TDOC

MACRO – SPY, DXY

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MICHAEL KRAMER AND THE CLIENTS OF MOTT CAPITAL OWN SHOP

Stocks lifted today due to the better-than-expected results out of Microsoft and Alphabet and gained further steam, following the typically implied volatility melt we see post-FOMC. That helped the S&P 500 rally by around 2.6%.

But one shouldn’t confuse the strong equity performance with the actual Fed decision. The Fed removed forward guidance which means that volatility could pick up as investors try to piece through every economic data point. Additionally, tomorrow we will get the highly anticipated GDP report. Powell dismissed it to some degree, noting that he felt the economy was not in a recession; he also reiterated that the Fed’s terminal rate may still be around 3.8%.

It is a lot to take in, but it was clear that very short-dated implied volatility was crushed, which led to the rally we saw from 2:30 onward. That structure gets flat quickly. So upside from a volatility standpoint is almost burned off.

Dollar

Also, the dollar index dropped some today, which also aided the rally. The dollar will ultimately be one of the determining factors in whether the market can continue to rally or not. If the dollar continues to strengthen, it will push the S&P 500 down and vice versa.

It is too early for me to determine what happens with the dollar at this point because there is positioning that happens and is being unwound. But if I take the press conference at face value, the dollar should continue strengthening.

From a relative strength index standpoint, the dollar’s momentum is still bullish.

S&P 500 (SPY)

The S&P 500 rally killed the Head And Shoulders pattern, and when H&S patterns get killed, they become continuation patterns, which is what happened today. So could the rally continue on a bit higher, I guess, perhaps to 4,075.

From a basic Fib and Elliot wave standpoint, this could be the end of a wave C higher.

Breakevens

Breakeven inflation expectations rose sharply today, by 11 bps, to 2.47%. So this move could be the market repricing unevenly between the TIPS and the Treasury rates. We have to wait and see.

Copper

It could also be that if we get a risk-on rally in markets, inflation gauges like copper will start rising again. Which sort of goes against the Fed’s intentions.

Shopify (SHOP)

Shopify was up a lot today, despite bad results. I believe the stock is in a bottoming process, you can see the stock has firmly held that $30ish level for some time now, and that is all that matters to me at this point.

Teladoc (TDOC)

Finally, Teladoc is getting destroyed after giving what appears to be horrible guidance. No surprise, the options guys were all over this one. (RTM Exclusive: Teladoc’s Stock May Fall Sharply Following Results)

-Mike

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.