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RoboStreet – May 27, 2021
Dollar Rally In The Cards
Stocks have rallied up to the high end of the current trading range as hopes for an infrastructure package are stoking short-term optimism. Additionally, economic data has proven to be quite robust that is raising questions about how much longer the Fed should continue its quantitative easing policy of purchasing $120 billion worth of Treasuries and mortgages every month.
The debate as to whether the Fed should begin to taper back on its purchases is becoming louder with every upbeat piece of economic data to where several Fed governors are now speaking publicly about the subject and preparing markets for what could be a change in fiscal policy.
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.
To date, the Fed has expressed its intent on maintaining QE well into 2022 but may now have to consider pulling that schedule forward so as to not fall behind the curve of economic growth and overstimulate the economy that would further incite inflationary pressures that are already prevalent in many sectors.
From a purely technical take on the market, the $SPY continues to trades in the range between $410 and $425. The $VIX is below the $20 level. The technology and reflationary stocks are losing momentum. The $DXY is reaching oversold levels and due for a rebound. The $TLT continues to trade higher.
Short term the $SPY key support level is at $403-$410. The SPY overhead resistance is at $423. Even if the $SPY is able to trade above the $423 level, the market can only make incremental highs.
I would consider rebalancing the portfolio at this point to be more market-neutral. I expect the second wave of the sell-off to restart as early as this week or next.
Based on our models, the $SPY can pull back 10-15% from the all-time highs in the next 2-6 weeks. Based on our models, the market (SPY) will trade in the range between $388 and $425 for the next 2-4 weeks.
If and when the Fed makes more noise about tapering, I’m looking for the dollar to rally from its current oversold levels. And this could be sooner than later given the latest strength in the final GDP reading for Q1 and forecast for Q2. The economy is accelerating with bond yields creeping higher – all bullish for the dollar, but also bearish for emerging markets. So, a long dollar, short emerging markets looks like a solid pair trade.
Our RoboInvestor advisory service is built around our proprietary AI-driven trading platform developed over several years. One of the tools, the Seasonal Chart shows the Invesco US Dollar Index Bullish ETF (UUP) with a “Higher” probability reading for the next 20 and 30-day periods. This is the kind of validation RoboInvestor members receive from our AI models when we issue recommended trades.
As I noted, the flip side of a strong dollar is weaker emerging markets. Foreign currencies in developing markets means less buying power against the dollar, which historically translates into declining emerging market stock indexes. Hence, shares of the most widely traded iShare MSCI Emerging Markets ETF (EEM) are subject to fresh selling pressure when the dollar rallies.
The chart of EEM below shows an oversold rally from a broken uptrend, were fading the recent move up is timely. When a stock has a pattern of lower highs and lower lows, such as the case in EEM, the shares are typically setting up for a test of the next major support level. In this case, it would be the 200-day moving average at $50.61.
What makes our RoboInvestor advisory service so unique and special is that it is an unconstrained service, meaning our AI platform will screen for blue-chip stocks and ETFs that involve major indexes, market sectors, bond yields, interest rates, commodities, precious metals, currencies and volatility. RoboInvestor goes where there is opportunity to capitalize on undervalued assets that are on the move.
With over three years of performance to go by, our track record speaks for itself in that the Winning Trades Percentage is 91.19% over this period, where all manner of market disruptions has occurred. Our AI system has provided very steady gains over the years with better than 9 out of every 10 trades producing profits.
Considering the sea change of probable redirection of Fed policy and how the market will receive this new narrative, it would certainly benefit investors to have a highly accurate set of AI tools to screen through the data, tune out the noise, and deliver timely recommendations in a market experiencing higher levels of volatility.
Join me on our journey to grow our wealth and nest eggs in a market where the tailwinds of Fed stimulus are about to become headwinds of tapering. Don’t navigate what I believe will be a more difficult market going forward alone. Make RoboInvestor your active daily service, guiding you every step of the way to steady profits. Having more resources at your fingertips is the smartest trade to close out the month of May, and subscribing to RoboInvestor is just the perfect trade.
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.
*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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