Stocks Drop On October 12 With More Trouble On The Horizon

By Michael Kramer of Mott Capital Management

Tuesday, October 12, 2021 5:59 PM EST

Another weak day for stocks as the S&P 500 finished down 24 bps, while the Nasdaq 100 finished down 35 bps. It was an incredibly dull day, with most of the activity happening in the final 45 minutes of the trading session. It was so boring that the VIX finished the day lower, closing down almost 1% at around 19.90. How many times do you see the VIX and the S&P 500 go down on the same day?

10-Year

The 10-year fell more than five bps today, to 1.58%. The 10-year stalled out at 1.63%, which I had noted was a big resistance level. I know this isn’t a popular view, but I still think rates push lower from here on the long end of the curve. The dollar is strengthening very quickly, and as I have said multiple times, a stronger dollar is a growth killer. So what we might start to see is a curve that flattens as the market picks up on this stronger dollar/weak growth trend, with the front-end rising and back-end falling. If so, then the 10-year heads back to 1.52%, then back to 1.36%. That won’t be good for the banks, and probably why they have been so weak this week.

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S&P 500 (SPX)

The S&P 500 has been hugging on to the 20-day moving average since October 7, unable to get above. Meanwhile, there is plenty of room for the index to take a shot at the lower Bollinger band, around 4,280.

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If the bears want to maintain control of this market, they will need to undercut last week’s decline and drop below 4,280. There is a bear flag on the technical chart, indicating that a potential drop tomorrow. A retest of last week’s lows seems likely.

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Apple (AAPL)

The bears may get an assist tomorrow on reports that Apple will cut the production of nearly 10 million iPhone units due to chip shortage. The report notes that Apple was expected to produce 90 million phones in the year’s final three months. The news will not help things tomorrow, and I would imagine the stock needs to trade lower. The shares are trading around $139.50 in the after-hours, and if that level breaks tomorrow, the next stop is probably the trend line around $133.

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Micron (MU)

Micron FINALLY broke because of reports of memory price weakness; what a surprise. It has only been in the news cycle for two- weeks. I first mentioned this on October 2. Did it take the market nearly one and a half later to figure this out? Unreal.

Now that support at $69 is busted, I think it will continue on its way towards $58. It may take some time, but that is a big gap that needs to be filled.

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