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RoboStreet – May 5, 2022
Investors Still Selling Into Strength
The post FOMC meeting rally Wednesday that scored the biggest gains of the year fizzled out Thursday as bond yields traded above 3.05%, the highest level seen since November 2018. It is a real disappointment for the bulls to see such a strong effort to regain investor sentiment only to have cold water poured on their short-term spike.
Grant it much of the rally was likely short-covering and program trading related buying, but clearly, Thursday’s sell-off validated the notion that selling into strength remains the pattern of choice until data on inflation shows a definite flattening out to where the Fed can curtail what looks to be two more half-point rate hikes.
And remember we’re not talking about day-trading here. I’m looking for 50-100% gains inside the next 3 months, so my weekly updates are timely enough for you to act.
As of Wednesday’s close, the $SPY closed higher 3.0%, at $429, approaching 50% low to high retracement. The value/reflationary ($VTV) closed higher 2.7%, at $146, at the 50 DMA. The technology sector ($QQQ) closed higher 3.3%, at $329, below the 50 DMA.
The $DXY closed lower, near the $102.5 level, at the March 2020 high. The $TLT closed higher 0.6%, at $118, and below the July 2019 lows. The ten-year yield closed lower at 2.95%. The $VIX closed lower, near the 25 level, above the historical average.
The $SPY short-term support level is at $420 followed by $404. The SPY overhead resistance is at $435 and then $441.
The market correction started earlier than I anticipated. At this point, it is just a matter of time for the $SPY to break below the February lows.
I would be a seller of any rallies in the market and have BEARISH portfolio at this time.
I do not expect the $SPY to post new all-time highs in the first half of this year. There is a high probability that the $SPY main long-term support at $410 will not hold in the next 1-4 weeks.
If you are trading options consider selling premium with July and August expiration dates.
Based on our models, the market (SPY) will trade in the range between $380 and $450 for the next 2-8 weeks.
This is a kind of market that requires as much cutting-edge data-crunching AI as possible to navigate capital in and out of stocks and ETFs. Our RoboInvestor stock and ETF advisory service is an unrestricted investment service that manages an AI-driven portfolio of blue-chip stocks and ETFs that underly market indices, the 11 S&P sectors, numerous sub-sectors, commodities, precious metals, currencies, interest rates, volatility, and shorting opportunities through inverse ETFs.
RoboInvestor members receive an online newsletter every other week delivered over the weekend so as to be able to take action on Monday morning. Within each issue, I talk about the investing landscape review our current holdings, and provide two new recommendations. We manage a portfolio of between 15-25 positions, depending on market conditions. I will send out emails to close positions at any given time our AI signals determine us to sell.
Taking the market’s current price action into account, the most vulnerable index to further deterioration is the Russell 2000, which is represented by the iShares Russell 2000 ETF (IWM). When interest rates rise, small-cap growth stocks get hit the hardest. Shares of IWM are in a protracted downtrend with each rally being sold into.
A two-year chart of IWM clearly illustrates a big rounding top that has the 20 and 50-day moving averages trending lower with the price of the shares. In an economy where the growth rate is slowing, there is a general contraction of P/E multiples at work where the small-cap arena sees the sharpest contraction since those stocks tend to trade with the highest P/E ratios at the height of a bull market.
When we apply our AI platform to IWM, the Forecast Toolbox confirms our technical work implying a further decline in IWM with a downside Predicted Support price target of $141.75 if the market doesn’t right itself. That’s a sizable move lower considering the pullback already exhibited by IWM.
Volatile markets require extreme measures and knowing when to add or time to market weighting and which sectors and stocks to work with is crucial to total return and overall performance. We’ve been running RoboInvestor for just over four years, going back to April 2018. Our Winning Trades Percentage is 90.07% – a track record to my knowledge stands on its own in our industry.
My level of conviction and confidence in RoboInvestor is two-fold. The first is that I’ve worked at maximizing my algorithms that drive the AI program for several years, and they just keep getting more exacting over time, as our performance indicates. Secondly, I place my personal capital in every trade I recommend. We are on this journey together. I invite all readers of this column to come alongside me and my team at RoboInvestor in our quest to grow our portfolios with much higher alpha and lower beta and create meaningful wealth for the balance of 2022 and for many years to come.
And remember we’re not talking about day-trading here. I’m looking for 50-100% gains inside the next 3 months, so my weekly updates are timely enough for you to act.
*Please note: RoboStreet is part of your free subscription service. It is not included in any paid Tradespoon subscription service. Vlad Karpel only trades his own personal money in paid subscription services. If you are a paid subscriber, please review your Premium Member Picks, ActiveTrader, MonthlyTrader, or RoboInvestor recommendations. If you are interested in receiving Vlad’s personal picks, please click here.
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