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February 5, 2021
STOCKS – ROKU
MACRO – SPY, VIX, TLT
Mike’s Reading The Markets (RTM) Premium Content – FREE 2-WEEK TRIAL
- Midday- The Circle Of Life
- Morning Note: Where Did Everyone Go?
- Midday – Here We Are Again, The Top And Bottom Of The Range
- MORNING NOTE: RATES AND THE DOLLAR ARE HEADING HIGHER
- Midday Note: This May Be The Top End Of The Range For Stocks
- Morning Note: Back To The Grind
- Earnings Analysis: Amazon’s Stocks May Struggle As AWS Disappoints
- Earnings Preview: PayPal
VIX (VIX)
Stocks rose on February 5, with the S&P 500 gaining 39 bps to close at 3,886, with the VIX dropping to around 20.9. That should be it for the VIX; maybe it drops to around 20, but skew and implied volatility levels are just too high to see it fall any further. It would suggest that the S&P 500 index is now at the top of the range, and perhaps a sideways grind may be due. (Should be free to read – The VIX May Hold The Key To Where The Stock Market Goes Next)
S&P 500 (SPY)
Additionally, the SPX has just about risen back to the trend line it snapped on January 27. Whether that serves as a turning point is hard to say. If the index were to turn lower, it would be a confirmation pattern of the broken rising wedge pattern. It would certainly make sense should it happen, but then again, the SX should have turned lower when it filled the gap at 3,850, but it didn’t
The testing of the trend line with the VIX at 20 certainly makes this an ideal place to see an other 3-5% decline, possibly even a re-test to 3,700. But again, all you can do is be mindful of the technical rules. It doesn’t mean they always work the way they are supposed to or the way we want them.
Ideally, one should want to see a pullback because it would likely increase the VIX enough to give the S&P 500 the juice it needs to rise above 4,000. Without it, it may just be a slow grind.
Is it still possible for the index to burst up without a pullback first? Yes, should the VIX fall through 20, which I think in this environment isn’t likely, it could create a massive move higher in the S&P 500, potentially well beyond 3,950.
Most Shorted
In most shorted names, the party continues with the index up another 1.3% today. Looking at the most shorted index chart from a longer-term viewpoint, what I saw was rather stunning. The parabolic curve looked really familiar; then I realized it looked just like Bitcoin. In fact, throw in a 3-week lag, and they are nearly identical. An interesting look into the future, maybe?!
Yields
The 10-year rose again today, this time to around 1.16%
I know no one cares about rates, but they should. Relative to the 10-year yield, the technology sector is the most expensive it has been in at least 12 years. And as I mentioned in the subscriber section yesterday, the S&P 500 has only been more expensive than the 10-year 2 other times in the past 12 years. The first time January 2018, the second time in October 2018. Do I have to tell you what happened next? Hey, these are the facts; this isn’t about being bullish or bearish. These are the facts. This goes directly to the argument that low rates are driving higher valuations. Even accounting for the low rates, stocks are no longer “cheap.”
The other problem, the higher rates go and the higher stocks, they become more expensive at an increasing rate, like two trains heading towards each other.
Roku (ROKU)
Roku has an interesting little setup; one takes the stock significantly higher towards $550. The other takes it lower back toward $300. At this point the RSI and Volume are both trending lower, which means the path towards $300. But I would think if you can get a move above $450 early next week, it opens the door to $550.
-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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