Stocks Rip Higher On August 3, But Nearing Its Peak

By Michael Kramer of Mott Capital Management

Wednesday, August 3, 2022 6:38 PM EDT

CUMMING, GEORGIA -October 5, 2019: County and local fairs and carnivals are still some of the best values in family entertainment

Stocks continue to rally today, as short-covering continued with the S&P 500 up another 1.7%. The most shorted stocks are outperforming by a wide margin. The GS Most shorted index has been up nearly 31 since the middle of June, while the Nasdaq is up around 19%.

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The velocity of the move and the nature of the outperformance tells us a lot about the nature of the rally, which is due to a broad short-covering rally. As I mentioned yesterday, CTA flows remain favorable to the rally, continuing a bit more. But we are entering a region that is likely approaching the end; we need a few pieces to fall into place, with a decent zone of resistance around the 4175 to 4230 region.

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Rates likely have to move higher, especially following more hawkish commentary and the reshaping of the Fed Fund Futures curve, which shows the first rate cut doesn’t come until May. Further strengthening the case that rates will need to remain higher for longer was the ISM services report that was better than expected and suggested the real GDP is growing at a 2.4% rate, which is not recessionary.

Amazon (AMZN)

Amazon is now really close to filling the gap; it needs to get just a bit higher.

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Shopify (SHOP)

Shopify may have finally broken out, clearing a significant hurdle around $40.60. Now, we just have to see if it has the juice to fill the gap at $48.50.

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