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Mott Capital Management
Michael Kramer is the founder of Mott Capital Management. His unique investment philosophy centers on seeking investment opportunities that are influenced by everyday life activities, and by observing new trends and products that are popular or are trending towards popularity. Additionally, he devotes a significant part of his research to global macroeconomics and central bank policies impacting financial markets. Michael has over 20 years of industry experience began his career in high-risk trading environments, trading both US and international equities. His trading skills coupled with his comprehensive, financial analysis of public companies, have given him a unique perspective on investing, which stands out from analysts who simply look at top-line numbers. In addition to fundamental analysis, Michael also incorporates technical and options market analysis into his research.
Massive Rate Shock Sucks Stocks Sharply Lower
Stocks fell sharply again on Monday as the bond market re-prices interest rates for the Fed. The market is not happy with the Fed’s current pace of hiking rates and is taking matters into its own hands. The 2-year yield rose by 27 bps yesterday, climbing to 3.34%. It reached as high as 3.41% at one point. Since Thursday, the 2-year rate has been up more than 50 bps or two rate hikes in Fed terms.
The 2-year rate went through resistance at 3.25% in a blink. With the Fed funds futures pricing in overnight rates rising to 4% by the middle of next year, a 2-year climbing to 4.25% doesn’t seem all that impossible. I don’t remember if I mentioned that idea yesterday or not?!
Anyway, the last time the 2-year rate was this high was back in 2007, and there isn’t much in the way of technical resistance between the 2-year's current rate and the 4.25% region.
S&P 500 (SPY)
At this point, I think there is a good chance that we will see 3,650 on the S&P 500 before not too long, maybe even later today. There is only some small support, around 3,725, and after that, 3,650. Even if yields settle down today, I think with the big move in rates, the PE multiple of the index needs to compress more, putting further downward pressure on stocks. Additionally, 3,650 takes us back to the downtrend that started back in January.
NVIDIA Corporation (NASDAQ:NVDA) closed right on support at $156; with all those gaps to fill, it seems like it will not take much in a technical sense to get the stock moving lower towards $136. Who knows, it could drop to around $117 over the next few weeks.
Advanced Micro Devices
Advanced Micro Devices (NASDAQ:AMD) looks bad; the stock has failed multiple times at its long-term downtrend. Additionally, the little uptrend it had formed was shattered yesterday. The only thing holding this up right now is support at $85.50, which has been tested two times already. I doubt it will hold again with $73.50 acting as the next spot for a potential support region.
Anyway, there are a lot of stocks like these two just sitting and testing support levels. My gut says that if these two break support, all the others will too, which means we will see another wave of selling.