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RoboStreet– September 13, 2018
The Underlying Perma-Bid for U.S. Stocks Finds New Catalyst
Time and time again, the financial media and market historians conclude that the longest rally on record is about to end abruptly when in fact the best upside move for the market is taking place. Money never sleeps and this is why it continues to pour into U.S. equity markets and defy all skeptics. Though the rally is narrowing, the biggest and best names continue to trade well, which keeps investor sentiment from getting too ebullient.
The bullish camp is mounting a serious campaign for staging a pre-midterm election rally that could really sizzle. Second quarter real GDP growth was 4.2% on an annualized basis and the Atlanta Fed’s GDPNow Model is estimating 4.1% real GDP growth for the third quarter. But even a stellar set of economic figures can’t prevent a sharp pull-back for what was simply an overbought market, marking an amazing month of stock appreciation for August.
There is no denying that the economy is on a roll. Undergirding the robust factory production, employment, and services data this past week, business investment continues to trend well, which is more of a long-term indicator than most other data points.
Guiding the collective thought process of those on recession watch is the spread between the 10-year Treasury note and the 2-year Treasury note, which currently stands at 22 basis points and just off the recent low. There is credible reason for investors to be watchful of the 10-year and 2-year spread as a recession has occurred every time since 1980 when the spread has inverted meaning the rate the on the 2-year rate is higher than the 10-year rate.
Inversion of the 10-year and 2-year spread doesn’t mean a recession is just around the corner though. There have been five recessions since 1980 and the average time between the first inversion and those recessions has been just over 18 months, with a range that has spanned ten months to two years. As most investors are keenly aware, the stock market will begin to adjust well before the contraction occurs.
And remember we’re not talking about day-trading here. I’m looking for 50-100% gains inside of the next 3 months, so my weekly updates are timely enough for you to act.
While the research acknowledges the validity of the yield curve as a reliable predictor of recessions, a white paper published on August 15 from the San Francisco Federal Reserve emphasizes that the spread between the 10-year note yield and the 3-month T-bill yield is the most reliable predictor of recession among the different term spreads. Because the spread between the 10-year yield and the 3-month yield is 72 basis points, whereas, the spread between the 10-year yield and the 2-year yield is just 22 basis points, institutional fund managers took this highlighted finding to heart and is what I believe contributed to the stock market.
Within this bullish framework, certain blue-chip stocks are tuning out the negative noise and trading strongly higher, one being Salesforce.com (CRM), a core RoboInvestor Portfolio holding. While the Nasdaq took a short-term hit a week ago, the strong stocks only got stronger after the market righted itself. Shares of Salesforce.com hardly flinched. Every time the stock tests its 50-day moving average (orange line) it presents an excellent buying opportunity. This week the stock traded to another all-time high of $158.
Source: Barchart.com
What I do for my own account and recommend for RoboInvestor subscribers is take a full position and then sell half of it when the stock appreciates to a technical level where I see technical resistance or where the stock is simply overextended on a short-term basis. I will maintain the second half of the position with a longer-term time horizon and reallocate the proceeds of the sale of the first half into a new trade.
In this manner, I am able to craft a portfolio of 20+ stocks over time where I’m harvesting profits on a frequent basis. This method affords me the luxury of staying long on those stocks that are leading their respective sectors while maintaining a widely diversified set of stock and ETF holdings. We started with just two stocks back in April and today we hold 16 positions and, knock on wood, have never booked a loss to date.
Back to Salesforce.com, the chart above is pristine, but it does not predict the future direction. My AI platform performs that work for me. Within the system is my Stock Forecast Toolbox that provides a measure of probability as to the strength of the direction as well as a probable price target for as long as six months out. Shares of Salesforce are trading at $158 which might look pricey over the near-term, but my AI data is forecasting a move toward $185 by early 2019, assuming the market stays healthy.
That price target carries an 88% probability reading the stock will indeed reach that level. And my AI system recalibrates the data on Salesforce.com every day, so if there is any erosion in the bullish forecast, we’ll be the first to know.
I want to encourage all readers of this column to sign up for RoboInvestor today and get in on my next two stock picks, due out this weekend, that are flashing strong buy signals from my AI system. We’re on pace to for a banner year of performance and with the power of AI at work 24/7 it’s like a stiff tailwind behind our invested capital. Join our RoboInvestor community and make the very most of all the stock market has to offer. It’s a small price to pay for big profits!
And remember we’re not talking about day-trading here. I’m looking for 50-100% gains inside of the next 3 months, so my weekly updates are timely enough for you to act.
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