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RoboStreet – May 19, 2022
Full Retest For The Market Under Way
This week revealed some risks that held some suspicion but became reality when a couple of big retailers reported their quarterly results. Shares of Walmart Inc. (WMT) and Target Corp. (TGT) tanked after both companies cited excessive shipping costs and higher wholesale prices for goods that squeezed profit margins. This is what the market feared would be an eventuality if inflation persisted, and unfortunately, it has.
In another sign that bearish sentiment is taking hold, the transportation index broke to a new 52-week low Thursday that opens the way for some follow-on downside, but how much probably is a function of oil prices. Transportation stocks tend to be leading indicators of future GDP growth prospects as the flow of goods is easily measured along with freight rates. The break of the recent lows is a negative development.
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.
Thirdly, there are fresh signs of lower business investment in IT products and services, a key driver of the U.S. economy and to market sentiment. Some recent surveys of IT spending are showing a more cautious approach to upgrades. This concern was evidenced by the slowdown in orders reported by Cisco Systems Inc. (CSCO), where the stock shed nearly 20% following the release of its quarterly results.
Commodity prices remain elevated and will likely remain so until there is some positive data regarding oil inventories and crop forecasts that satisfy the market’s fear of ongoing shortages brought on by the war in Ukraine that is entering its third month. As these concerns and the slow growth prospects in China overwhelm buyers, bond yields are retreating in the process, a positive development. To sum up, a lot of bad news has been priced into stocks where the market is due for a short-term oversold rally.
At Thursday’s close, the $SPY closed down by 5%, well below the February low. The value/reflationary ($VTV) closed lower by 4.7%, at $141, below the 200 DMA. The technology sector ($QQQ) closed lower by 4.9%, at $290, testing a full retracement from the pandemic low to high.
The $DXY closed lower, near the $103.7 level, breaking the December 2016 high. The $TLT closed higher by 1.2%, at $117, and below the July 2019 lows. The ten-year yield closed lower at 2.89%. The $VIX closed higher, near the 31 level.
The $SPY short-term support level is at $393 followed by $385. The SPY overhead resistance is at $412 and then $430.
I would be a seller into the rally and have NEUTRAL 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 $350 and $430 for the next 2-8 weeks.
Going forward, I recommend a two-pronged strategy for navigating the investing landscape. First, because the market is so oversold and due for a big bounce, there is a prime opportunity to trade the semiconductor sector from the long side in the next week ahead. We’re already seeing strong price action in Advanced Micro Devices Inc. (AMD), KLA Corp. (KLAC), Analog Devices Inc. (ADI), and ON Semiconductor Corp. (ON). Applied Materials Inc. (AMAT) reports quarterly results after the close of Thursday that will provide some crucial insight to the health of the chip equipment sector.
For our RoboInvestor advisory service, we employ proprietary AI modeling to determine the timing and forecasted length of directional trades that our platform identifies. In the case of the VanEck Semiconductor ETF (SMH), our AI-driven Seasonal Chart shows SMH still putting in a bottom over the next 20 days and then emerging into a new uptrend with “Higher” readings for the next 30, 40, and 50-day periods.
The second component to our investment strategy is to look at the market from a longer-term perspective. When we apply our AI-driven Forecast Toolbox to the SPDR S&P 500 with a 6-month time horizon, we get a Predicted Resistance price target of around $456, or roughly 20% higher than where SPY currently trades.
From our experience and viewpoint, it is essential to have the power of AI working for both trading and investment purposes. Emotions are running high, analysts are trying to defend their positions that are under immense pressure, and fund flows are moving fiercely between sectors. Smart investors use smart tools to manage and lower risk, which is what RoboInvestor is 100% all about. For the past four years, we have put together an enviable track record where our Winning Trades Percentage is 88.85!
RoboInvestor is an unrestricted advisory service that invests in blue-chip stocks and ETFs that represent market indices, major sectors, sub-sectors, commodities, currencies, interest rates, volatility, and shorting opportunities via inverse ETFs. We email our members an online newsletter every two weeks over the weekend that includes my take on the markets, technical outlook, and updates on our current portfolio holdings with two new trades to take action on when the market opens on Monday morning. We maintain a portfolio of between 15-25 positions.
Take a great deal of guesswork out of the business of investing and put RoboInvestor to work in your portfolio. My personal capital is invested in every trade recommended, putting me on the same path to creating wealth as all those in our RoboInvestor community. Take me up on my offer and let’s make 2022 a winning year for all of us!
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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