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RoboStreet – May 12, 2022
Persistent Inflation Pressuring Stocks Lower
As much as investors would like to read that inflation has peaked, they may have to wait a couple more months to get that confirmation. The latest CPI and PPI reports came in as forecast, with only incremental progress in a couple of key components.
The CPI showed the largest increases in the cost of housing, food, travel, and auto purchases while out-of-pocket expenses for medical care, home furnishings, repair services, and going out to dine and recreate all rose as well.
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.
The Bureau of Labor Statistics reported some of the stunning, record price increases on a Y/Y basis that triggered further selling in stocks:
Source: www.bls.gov
The data almost guarantees another half-point rate hike by the Fed at the June FOMC meeting and again at the July meeting that will only flatten the yield curve back to a level that signals a potential recession, or at least a hard landing for GDP late this year, assuming there is no progress in Ukraine, supply chain clutter and high energy prices.
The tide continues to go out with each rally attempt, every wave of buying is met with evermore selling as investors look to reduce equity exposure at every chance the market provides. This pattern is well in place even with the major indices very oversold on a technical basis.
Looking at the current market conditions as of Wednesday’s close, the $SPY closed lower 1.6%, at $392, below the 52-week low. The value/reflationary ($VTV) closed lower 0.5%, at $138, below the 200-DMA. The technology sector ($QQQ) closed lower 3.0%, at $291, approaching the 50 percent retracement from the pandemic low to high.
The $DXY closed higher, near the $104 level, at the March 2020 high. The $TLT closed higher 1.9%, at $118, and below the July 2019 lows. The ten-year yield closed lower at 2.90%. The $VIX closed higher, near the 33 levels, approaching the 2022 high.
The $SPY short-term support level is at $390 followed by $380. The SPY overhead resistance is at $404 and then $410.
I would be a seller of any rallies in the market and have BEARISH portfolio at this time.
If you are trading options consider selling premium with September and October expiration dates.
Based on our models, the market (SPY) will trade in the range between $380 and $450 for the next 2-8 weeks.
From the one-year chart above of SPY, it is pretty clear the benchmark equity index is in open water, where support is lower. How much lower is hard to say, but until the VIX spikes to 40.0 or higher, I don’t think a selling climax will have been obtained. And that could mean $360-$380 for SPY and the next leg down.
Against this bearish backdrop, professionals are shorting every rally, and ETFs are being liquidated, which brings on forced liquidations. There is also deleveraging of leverage either voluntarily or instigated by margin calls that feed the downside momentum. And with key stocks like Apple Inc. (AAPL) breaking down, the trend lower looks in place save for some intraday rally attempts.
Within our RoboInvestor advisory service, we employ our proprietary AI platform to navigate our bullish/bearish sentiment, portfolio structure, and asset selection. In this treacherous market landscape, our posture is to use Treasuries as a smart hedge until the signals to buy show up.
Our AI-driven Forecast Toolbox is neutral on the bond market with a slight upward bias for being long Treasuries at the longer end of the curve. Shares of iShares 20+ Year Treasury Bond ETF (TLT) are our asset of choice to ride out the correction. The near-term Predicted Resistance price target of $121.64 is just above where TLT currently trades. It’s not meant to generate a huge profit, but rather perform as a tool of capital preservation in a strong dollar environment.
The chart for TLT is very attractive, in that the 200-DMA sits right where TLT shares are trading where previous support lies. When we get an opportunity to buy a high-quality asset on a technical basis that is confirmed by our AI system. It gives us a high degree of confidence that we can put this asset to work in our RoboInvestor Portfolio.
RoboInvestor is unrestricted in its asset selection of blue-chip stocks and ETFs that represent major market indices, market sectors, sub-sectors, commodities, precious metals, currencies, interest rates, volatility, and shorting opportunities through the use of inverse ETFs.
Within each issue, I paint the investing landscape for the next two weeks ahead, provide commentary on our current positions, and recommend two new trades to put to work. At any time that our AI triggers a signal to exit a position, we will send out an email alert. Subscribers to RoboInvestor receive an online newsletter every other week, delivered over the weekend.
Our current portfolio is positioned in highly defensive stocks, commodity ETFs and market hedges to mitigate downside risk while taking advantage of inflationary tailwinds where possible. The performance of RoboInvestor going back to April 2018 speaks for itself. The Winning Trades Percentage is 89.47% – a track record that we work very hard to maintain in what is a very challenging market.
We live in interesting times where the Fed has changed monetary policy 180 degrees, a prolonged war between two countries that are hugely important to the world of commodities and the second-largest economy in the world, being China, that is mired in Covid-related lockdowns, clogged supply chain capacity and a shadow banking industry in deep trouble.
I can’t think of a better time for investors to come aboard as a subscriber to RoboInvestor and put the power of AI to work in a volatile market where fear and emotions are running high. I personally place my own capital in every trade I recommend, so I’m right there with every member of the RoboInvestor community.
Take me up on my latest offer and let’s grow our portfolios consistently for the balance of 2022 and well beyond. Have a good week investing and I look forward to welcoming all readers of this column aboard!
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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