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January 27, 2021
STOCKS – AAPL, AMD
MACRO – SPY, VXX
Mike’s Reading The Markets (RTM) Premium Content – FREE 2-WEEK TRIAL
- Earnings Analysis: AMD’s Results Are Not Nearly As Strong As They Appear
- Earnings Analysis: Microsoft May Become A Victim Of Its Own Success
- Update Board 1.27.21 – Shortmagedon
- Morning Note – Squeeze Grows More Intense
- Midday – Redlining?
- Earnings Preview: Microsoft May Jump Follow Quarterly Results
MICHAEL KRAMER AND THE CLIENTS OF MOTT CAPITAL OWN AAPL
It was a great day for heavily shorted stocks, with the most shorted index soaring by over 6.6%. The index is now up 88% over the past year.
What is happening in this group of stocks is, well, something I have never seen before in such an expansive way. Sure we all remember what happened to Volkswagen back in the 2000s. But I have never seen it across this many stocks by this type of extreme. Just look at the table below. Essentially, these are among the most shorted names in the market. These were the gains for today only!
Mechanically, it is apparent why this is happening; it is a complex situation of deep out of the money call buyers, forcing the short-sellers’ hands, who then have to cover their stocks.
But what seems really strange is the borrow-rate for some of these stocks is still rising. When borrowers return their shares, and the stock becomes more readily borrowable, the borrowing rate should fall. But a stock like Game Stop has seen its borrow rate continue to rise. Today was the first time the borrowing rate has fallen.
It suggests that demand to short the stock is still incredibly high and that perhaps people have are still shorting it.
(Trade Alert)
Can this continue, I guess. But we need to think that if it continues, it really could hurt the market because all the funds and investors short these stocks are getting crushed, and it likely means they need to raise cash to pay for the losses sustained, and that means selling pressure.
I don’t know this will be the craziness that puts the market over the edge, but it has done plenty of technical damage. I don’t remember if I shared this chart with the free readers, but the trend was clearly broken today.
Then there is this short-term chart also showing a gap-open below an uptrend, never a good indicator.
Today, there is a little bit of nervousness, with the VIX surging 61% to 37.1!. Just systematic vol buying, nothing to see here.
I guess the point I made a couple of weeks ago is that VIX was in a permanently elevated state and that 20 to 21 was the bottom has proven to be right? I’d say Yes!
Apple (AAPL)
Apple reported results, and they were solid, much better than expected. But the company refuses to give guidance and minimal commentary. The market doesn’t like this, so the stock is falling. Maybe Apple never goes back to giving guidance; why should they?
There was massive options bet ahead of results, which made me think the stock would jump following results. If it can hold this $136-$138 region, I think it can push higher. But if it fails, then a drop to $124 would be the next region. (should be free to read – Apple’s Stock May Soar In The Weeks Following Quarterly Results)
AMD (AMD)
AMD was down 6% after it posted unimpressive margins. I don’t understand why they couldn’t get margin expansion, not a great sign for pricing power with all this growth. Maybe the stock finally breaks $87 and goes to $75. (Subscriber content on SA Marketplace – Earnings Analysis: AMD’s Results Are Not Nearly As Strong As They Appear)
That’s it, getting late, still more to do.
-Mike
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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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