Michael Kramer and the clients of Mott Capital own shares of AAPL, SWKS

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We had previously noted the week of October 29 could be a turning point for stocks. So far, that call has been right with the S&P 500 rising by 2.4% and the NASDAQ increasing by 2.7%.  The week of November 5, will be huge with the mid-term elections and FOMC meeting. It could tilt make this coming week the most important of 2018.

SOXX data by YCharts

Semis

The one group to watch the most closely are the semiconductor stocks.  The sector was among the strongest, with the SOXX ETF  rising by 7.6%.   The semis are the key to this market in a lot of ways, and if they can continue to increase then I think is an overall positive.

Believe it or not, the SOXX ETF has fallen 3% over the past 52-weeks versus an S&P 500’s increase of 6%. It is even worse when you consider that NASDAQ has increased 9.5%.  In some ways, this group has very much been an indicator for the broader market for some time. We need to continue to see money flow into this group.

Support on the SOXX is now around $165 to $166, and resistance doesn’t come until $175. Additionally, the RSI has turned the corner and beginning to rise. If it can rise above 60, the trend will only grow stronger.

Skyworks (SWKS)

Skyworks is one semi company that is due to report this week; the stock was dragged down by the Apple news. Let’s focus on Apple for one minute. Apple guided the street to revenue of $91 billion for the first quarter at the mid-point. Analysts estimates were at $92.9 billion.  Ok 2% light, but they took the stock nearly 7%? Makes sense? Sure.

Back to Skyworks, it was down 5% on Friday. I have no great insight into the quarter. But  I have owned the stock since August 2015, and management there is pretty consistent coming within its guidance, and they also tend to be a tad conservative.  The chart shows that the stock has finally filed the gap after nearly two years. The RSI is also starting to trend higher, and so I think this one is starts rising again too.

We will do more stock specific stocks tomorrow, but there are signs of improvement in the overall market. Just remember to watch the SMH and SOXX.

Mid-Term Election Predictions

I have been tracking Real Clear Politics (RCP) website a lot lately, and it would seem that the Republicans are losing a lot of momentum throughout the last few days.  Right now, RCP has the Democrats leading the Republican in the house 203 to 196, with 36 seats in a toss-up.  It seems to be a very close race this year and very hard to call. But the few polls that I have dug into to review the sample size and demographics seem to favor the democratic by a wide margin, and that was a significant error that occurred in 2016. Of the 36 seats in the toss-up, only 5 are currently Democrats. It means the Democrats need to hold all five seats and take ten more seats to get to 218. That is 15 of 36 or almost 40% of the seats in the toss-up.  My gut says that won’t happen. I think when people are uncertain they tend to stick with what they know, and that means the Republican keep the House and the Senate. The market will applaud that because it likely means another round of stimulus will come.

Fed

The Fed has its hands full because all the backward-looking indicators suggest the economy is strong. But looking forward, as Apple noted, there are signs of slowing in the global economy. Commodities price pretty much confirm that,  look no further than the price of copper, platinum,  or even oil. So if I were Jay Powell, I’d play it like this. Signal to the market that a rate hike in December is less certain due to trade wars being waged by the US which is slowing the economy. It squarely blames Trump for the slowing economy, plus with the election over it has no political impact on the election.   It may allow Powell to get away with not hiking in December, if need, without losing credibility.

Good luck, you’re going to need it.

-Mike

Photo credit via Flickr

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