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Too Much To Handle For Stocks As Rates Continue To Rise

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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#Stocks – $TSLA, $NFLX

#Macro – $SPX, #Rates, $XBI

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Stocks finished sharply lower as rates reached new cycle highs on the long end of the curve, and the yield curve steepened. This led to a drop of about 1.3% on the S&P 500, bringing the index down to around 4,315. This retraces about 50% from the rally following the Job report. For now, the index managed to find some support at 4,310, and a gap below that level tomorrow would probably suggest that the double top on the hourly chart has broken, which could lead to a decline back to the lows on October 6 around 4,220, and potentially lower.

The spread between the 30-year Treasury and 3-month Treasury rose by seven bps to around -51 bps and is approaching what appears to be an important resistance region around -40 bps. A break above that -40 bps could result in a much bigger rise in the inversion, and one would think that it potentially heads back to 0%. I would think that most gains could be from the 30-year rate rising. Unless the Fed starts cutting rates, sending the 3-month sharply lower (which I don’t see happening anytime soon), the only way for the curve to steepen further is by the back of the curve rising to the front.

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From a technical standpoint, there are a few ways to measure a move in the 30-year up to 5.4%.

Biotech (XBI)

It is probably worth pointing out that today’s Biotech sector is almost back to October 2022 lows. This ETF rallied by 51% off the low, has fallen 25% since June, and is almost back where it started a year ago.

Netflix (NFLX)

Netflix is trading higher by around 12% following what looked like really good results. Net streaming subscribers easily beat expectations, and what was impressive was that free cash flow rose by $1.9 billion in the quarter, much higher than the estimated $1.27 billion. Cash flow from operation was even stronger at nearly $2 billion, which means it hit a new high of $6.1 billion on a trailing twelve-month basis. If the price follows cash flow, the stock could go higher over the longer term.

However, the stock rose sharply for now, right to a big uptrend line, which is where the stock stopped. It seems pretty clear that the resistance level right now is around $390, which could limit the upside.

Tesla (TSLA)

On the other hand, Tesla did not report a good quarter, missing on revenue and earnings, while automotive gross margins came in at 15.7%, missing estimates of 19.2%, and operating margins came at 17.9%, missing estimates of 18.3%. Free cash flow also missed estimates of $2.7 billion, instead coming in at $848 million. One would think this stock would be down big, but it isn’t. Just really bad numbers all around. The stock is trading down after hours, but it is probably not down enough. The symmetrical triangle is broken, which probably means the stock revisits the $220s again at some point in the near future.


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.


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