Debt Ceiling Dilemmas - May 22 to May 26
May 22-May 26, 2023 by Adit Dayal for RIPPYGLOBAL.
Happy Sunday everyone and welcome back to the Rippy Global weekly outlook. We finally got some movement in the market indexes with what seems to be a breakout to the upside!
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The big news on Wall Street this week continues to be the debt ceiling talks down in Washington, with talks looking optimistic at the beginning of the week, but a sell off at the end of the week when Bloomberg reported talks were on pause.
The market isn’t paying too much attention to this as usually this happens and the ceiling gets raised. Reports this weekend say Biden is planning on calling Kevin McCarthy and that he believes an agreement will be reached.
How will this impact stock market valuations? Well an increase in the debt limit also increases something called the Treasury General Account. When the debt ceiling is raised, it means that the government is authorized to borrow more money to fund its operations and meet its financial obligations. This increased borrowing capacity leads to higher levels of public debt. The Treasury may issue additional Treasury securities, aka bonds, to borrow the necessary funds.
The Nasdaq generally trades from 4-5x the size of the reserve balance. It is currently trading at 4.95x and there is usually a pullback in the markets at this level as you can see in the chart from Bloomberg below:
Fed Chairman Powell also spoke dovishly on Friday stating that the stress in the banking sector may let the central bank ease back on interest rate hikes in order to curb inflation.
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#1) Earnings this week has a lot of interesting names, including ZIM (which is a shipping stock that I own with a huge dividend), Zoom (which Michael Burry just bought), Nvidia (huge run recently), and more.
#2) On Monday, Fed member Bullard will be giving a speech on the American economy and monetary policy at 8:30 AM.
#3) On Tuesday, Microsoft’s three day conference will begin where they will go over new products and more.
#4) On Wednesday, at 2:00PM will get the Fed Minutes from the last Fed Meeting.
#5) On Thursday, the annual McDonald’s meeting happens, along with investors days for ZTS and MVST. Virgin Galactic also gets permission for their first spaceflight in two years so this can be an interesting catalyst.
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S&P 500
The S&P 500 ($SPX index) broke out last week and sold off on Friday over fears on the debt ceiling but as long as that issue is resolved we are still on track for a breakout to 4300.
My key breaks are $4227 for bulls and $4157 for bears.
The best ways to play the S&P 500 are via. SPY/SPX options or SPXL (3X Bull S&P 500 ETF.
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INDIVIDUAL STOCKS & LEVELS
Let’s recap some of the levels of some popular names:
TSLA
Tesla reminds me of Nvidia before it’s big run this year (it was the #1 name for short seller losses as shorts just kept piling on and it kept running up) and I think Tesla may experience the same thing. It is in the same spot as last week essentially, a break over 200 again may start the next leg up.
AAPL
Apple is right at this huge weekly supply level which has been rejected heavy and many times since 2021. I do think that if the overall market breaks out then this may go to $210 which is the Goldman Sachs’s price target.
MU
MU had some headline news this weekend about how China is banning some sales, but the chart is extremely nice and I think this may help the stock rest they key breakout level of 65 which can be a nice pullback before the next leg up.
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Insider Activity
In terms of insider trades, I really like MGTX which had the biggest buy at $25M and I also like TOST which has a great chart that’s ready to break out.
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High Short Interest Stocks (Mix of S3 Data and MarketWatch)
#1 - CVNA 58% SI
#2 - ALLO 54% SI
#3 - EH 46% SI
#4- CXAI 41% SI
#5 - BIG 40% SI
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Biotech Stocks Catalyst Watch
- ABBV - PDUFA May 21st
- GMAB -PDUFA May 21st
- BPMC, OPNT - PDUFA priority review May 22nd
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Thanks for reading this weekend’s article, have a great week!
-Adit Dayal (https://twitter.com/tradelikehulk)