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The Stock Market Gets Rocked Where Do We Go Next?
MICHAEL KRAMER AND THE CLIENTS OF MOTT CAPITAL OWN SHARES OF NFLX
Well, that was an exciting day for the stock market! It isn’t too often that the NASDAQ falls by 4% and the S&P 500 falls by 3.25%. The beating in most stocks was far worse. For example, Amazon fell by over 6%. That is a massive move for Amazon. The big question is what will happen now? To be honest, it isn’t easy to judge.
Some say its China, but I don’t buy that. Shanghai. as we have noted here is down 20% or so since January. The RMB has been in this same range for some time. Could it get worse for China? Sure. But lets not all pretend that we just realized that China and its economy are struggling.
It feels more like the market is saying to the Fed we are not on board with your plans for future rate hikes.
Reading The Market Premium Subscription: More Pain Ahead For Stocks
From a technical standpoint, the S&P 500 has two major support areas below its current level of 2,785. The first is at 2,770 which is the 200-day moving average. The next level lower down is around 2,700. The biggest problem is that the markets move so fast these and all the Algo’s play a game of catch-up. So it makes the moves lower even steeper. It is most likely a good reason we saw the selling accelerate into the end of the day.
The NASDAQ, however, is very close to its long-term uptrend which has been in place since 2016, which is around 7,400 give or take. We need to hope that trend holds tomorrow. If it doesn’t then the NASDAQ could be looking to fall to a level around 7,000.
While I’m not trying to be a doomsayer here, I think it is important that we start thinking about much further downside their is from current levels.
In my book, the VIX woke up today. I know plenty who will say the VIX was up 41% today and it was the most significant rise since blah blah blah. But let’s face facts the VIX is still well below levels it saw in March and April when it was around 25. Today it rose to about 22.5. I will now start watching the VIX much more closely.
The PPI reading was lower than expected at 2.6% versus expectations of 2.8%. But bonds hardly budge on the lower than expected inflation data, and perhaps that is what spooked equity investors. The fact that rates didn’t fall on the lower inflation reading. (See: Tomorrow May Be The Start Of A Tectonic Shift For The Stock Market.)
But again, yields on the 10-year can’t seem to break through this 3.25% level. Again, the 10-year has now tested that level 4 times and failed. Finally at the end of the day, as equities sold off hard, yields came down to below 3.2%.
Well, unfortunately, Amazon’s stock fell to $1740. I’m happy to be right but sad that it happened. The bad news here is that the next level of support comes around $1620, and that is also where the 200-day moving average rest. (See: Amazon, AMD, Roku, and Facebook Are Facing Steeper Losses.)
Netflix fell to support at $323, and that is also its 200 DMA. The stock tried two times to break above $357 and utterly failed. It tried hard to hold $332 but when that failed it came down hard at the end of the day. The next area to watch for is around $310, the July lows. (See: 7 Must Watch Stocks To Start The Week Of October 8.)
Facebook continues to melt, and $148 is looking more and more likely at this point.
Square fell back into its trading channel today. The stock traded lower after hours to around a price of $70 on the CFO resignation. Square could be in for a big drop should it not hold the bottom of the channel, falling to maybe $60.
People have these dream that Roku is some tremendous future OTT play. They make a box and some software and sell ads. That is it. It is nothing no one else can do. But wait, others although do. This one looks like it may be going back to $52.
AMD is heading to $24.
Alibaba may be on its way to the mid-120’s it fell below support we spoke of yesterday.
Nike could be on its way to $72.
I have to admit I got excited when Micron turned higher mid-day and was up on the day. But it didn’t last. The good news the stock is still its zone of support.
Sorry guys that all for today. There are just too many stocks to check. I think you should stay focus here on a couple of key things.
- confirmation in the dollar
- finding market leadership
- and tomorrow’s CPI report
Good Luck tomorrow
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.
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