Stocks Face Multiple Challenges The Week Of June 15

I’m back today, with some thoughts on Friday. It certainly wasn’t the most impressive rally, given Thursday’s steep decline. 

S&P 500

The index (SPY) in typical fashion gapped higher by about 2.5% to start the day, only to give it back by mid-morning. The goods news is that the index did test that critical 3,000 level a couple of times throughout the day and held that level for now. A buy imbalance of about $2 billion for the closing cross helped to boost the index into the close and saved the day. 

What I do find kind of interesting is how the S&P 500 managed to retest the uptrend it broke on Thursday and then failed. That could be a sign a further move lower lies ahead. Additionally, the RSI uptrend broke as well, and that is never a good sign. 

S&P 500, spy

Fundamentally, there is nothing to support this market from a valuation perspective. From a liquidity perspective, it seems that QE will continue at a much slower pace then policy outlined in March. That really can spell trouble for an index trading at very high valuation levels.From a pure PE perspective, assuming a 17 multiple on my 2021 earnings estimates of $157.63, the index may only be worth 2,680. 

Remember, this is not 2019, where we entered the year with a below-average market multiple, and an economy that was growing nicely. This is a market that is trading with a very high earnings multiple, in a very uncertain economy. Even worse, is that there is a tremendous amount of uncertainty around those earnings estimates. 

The S&P 500 enters what could be a wild week, with quadruple witching and the S&P 500 rebalancing. There is a giant gap to fill at 2,860.

S&P 500, spx

Netflix 

Netflix (NFLX) does appear to be forming that head and shoulders pattern, which I noted at the end of the week. The stock still needs to fall below $400 to confirm the pattern, but it could open up a more significant move lower towards $360. 

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Disclosure: Mott Capital Management, LLC is a registered investment adviser. Information ...

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