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August 1 – Stock mentions: SPY, SQ, ACAD, BABA, JD, MU
Michael Kramer and the clients of Mott Capital own ACAD
Here We Go Again
It appeared that the drama from the Fed had passed and cooler heads were prevailing. Then just like that, another round of tariffs on China comes out. Notice a pattern here? Market near an all-time high, Fed meeting concluded, tariff hike. Isn’t that what happened in May, oh yeah it was. Does it mean we are likely to see a repeat of May? Hard to say, probably not.
I’m sure everyone is going to start freaking about the trade war, blah, blah, blah. I’m sorry investors have had a year to figure this stuff out. If it hasn’t been priced into the market at this point, I don’t know what to say. I’m not focusing on this every day anymore.
Moving on then…An exciting thing happened today. The 10-year treasury yield and The S&P 500 yield are nearly the same. Yes, it’s true — the S&P yield, using the SPY as a proxy, is at 1.84%, versus the 10-year yield at 1.88%.
The scenario doesn’t happen very often, and you can see by the chart above; it has happened just three times since 1994. Each time this event occurred, it proved over the long-term to be a pretty good time to be in stocks. You can see in the chart below.
Rates fell dramatically today, even before the trade headlines. The 10 Year had dropped below 2% this morning and was near 1.95% by around lunchtime. The tariff headlines pushed rates even lower.
The move lower in rates this morning was a reflection of the Fed actions yesterday. After a period of digestion, the market caught on.
S&P 500 (SPY)
The S&P 500 had a great day, until the tweet. The S&P was testing resistance at 3014. But then the tweet and stocks fell sharply lower. Support continues to be around 2940.
At this point, it seems reasonable to think that 2940 will be tested, and perhaps a very good chance there is a push down to 2890. I know it can feel uncomfortable because we have gotten used to the market rising every day. But remember the S&P 500 was up nearly 10% from June 3 through July 30. A 3-5% decline seems reasonable. We are already 2.5% off the July highs, so it likely to be more like a 5% decline.
Can Square be any more predictable? SQ does the same thing every quarter, beat, and then guide lower. I wrote an article yesterday about some bearish option bets and the companies history of beat and guiding lower. It looks like the options guys did pretty well for themselves. Hey, I got it right too, at least for now. It’s free to read, enjoy.
BTW, if $75 doesn’t hold then $69.
Acadia, can you believe this stock went up? ACAD did happen to report the best quarter I have seen from this company ever; they even raised guidance. I want to say ACAD has broken out, but every time I do, I get proven wrong. Let’s go for it, yes, $31 seems possible.
Well, with the trade war tension back, BABA isn’t a stock that is likely to go higher anytime soon. It is more likely to go down to around $151
Jd.com isn’t likely to do well either, and $26 seems possible.
Not sure MU will do well here either, at least that is what history tells us. Support is $42.
Ok, more tomorrow. Hopefully, I don’t oversleep this time. If you liked the audio file, let me know.
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