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RoboStreet – December 16, 2021
Fed Doubles Down On Turbo Taper
The Fed laid out their plan to catch up with rampant inflation, stating they will double the size of the monthly taper to $30 billion from $15 billion with the intention of raising the Fed Funds Rate two or three times by the end of 2022, which would put the rate at around 0.80%. Fed Chair Jerome Powell also admitted they were wrong about inflation being only transitory, at which the market saw as a very positive gesture.
The reaction by the market was one of jubilation on the notion that the Fed would be taking action to diminish further inflationary pressures while maintaining a focus on full employment. Interestingly, the yield on the benchmark 10-year Treasury Note initially rose and then declined Thursday to 1.44% as demand from institutions and international buyers are buying what is the highest yield for AAA sovereign government bonds. It also implies that pulling QE will lead to slower growth in the second half of 2022.
On the topic of inflation, the Fed will be somewhat limited in its actions. Wage and salaries are often indexed to inflation and 2022 is forecast to show widespread pay increases. Commodity inflation ebbs and flows, but inflation tied to labor is more permanent. The other issue is the ongoing global supply chain chaos that hasn’t really shown material signs of progress due to the rigid Covid protocols at most ports. Until that process is more freed up, the flow of goods off ships and onto trucks and trains will struggle to normalize, which in turn keeps prices elevated and hard to source.
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.
This is why I’m of the view that inflation at the consumer and wholesale level will be more stubborn and longer lasting than many of the optimists that believe inflation is peaking or plateauing. Another factor that is getting less media coverage is the Delta Covid variant that is still ravaging many parts of the industrial world. The Omicron variant is dominating the headlines and how it is less lethal, but Delta has not been eradicated by any means and remains an inflationary tailwind.
CURRENT TRADING LANDSCAPE
The $SPY rallied after the FOMC meeting and closed right at the record high, up 1.5% at $471. The value/reflationary stocks traded higher, and closed up 1% right below the all-time high. The technology led the rally, up 2.2%, and retested all-time high.
The $DXY traded flat, and closed at $96 above the key breakout level $94.5. The $TLT closed lower, at $149 and below the key overhead resistance at $152. The $VIX traded lower, closed right at the historical average,19.
The $SPY short-term support level is at $461 followed by $457. The SPY overhead resistance is at $472. Short-term market is overbought and due for a pullback in the next few sessions.
I would consider starting to accumulate reflationary/values stocks ($XME, $XLI, $XLF, $XLB and $XLE). I expect the market to pull back again but most likely the $SPY will not revisit $450 level and then rebound will continue toward the end of December.
The earnings season continues with (FDX, LEN and ADBE) scheduled to announce their earnings this week.
I would consider rebalancing my portfolio at this time, and have an overall bullish portfolio.
If you are trading options consider selling premium with February and March expiration dates.
Based on our models, the market (SPY) will trade in the range between $450 and $490 for the next 2-4 weeks.
In terms of finding effective inflation-sensitive assets that provide for hedges, capital appreciation and income, it is becoming more apparent that Bitcoin and crypto currencies are more correlated to the high-beta P/E stocks that have come under heavy selling pressure. It seems the same pools of higher risk-oriented capital are investing and trading in both asset classes. Hence, the idea of cryptos being an inflation hedge is losing some of its luster, especially with the dollar also trading so bullishly.
What makes for a stronger case to play the inflation trend is gold and silver that are historically highly correlated to real and lasting inflation. The admission by the Fed that they are concerned about inflation pressures being persistent put a fresh bid under gold and silver Thursday, up 2% and 4% respectively. To be clear, both have had several false starts throughout the year, but now with latest hot reads on inflation and the Fed all but promising that higher interest rates lie ahead, the case for gold and silver just got more promising.
It’s helpful to look at gold from a longer-term perspective. Gold prices made a huge move up from May 2019 to August 2020 as per the chart below. The consolidation of the past 16 months has actually been very constructive with a series of higher lows being put in place along the way from the initial low set earlier this year.
Our RoboInvestor advisory service is built upon our proprietary AI platform and the algorithms that discern the selection and timing of our trades. From one of our AI-driven tools, the Seasonal Chart, we are getting our first bullish read for the SPDR Gold Shares (GLD) in quite some time. Our model is bullish on GLD for the next 20-day period that could extend out further if the 30, 40 and 50-day periods signals turn bullish.
Looking at the iShares Silver Trust ETF (SLV), the 5-year chart shows an entirely different pattern where silver prices peaked back in 2011 following a long period of selling before making a sharp move higher around March 2020 on heavy volume.
Applying the same Seasonal Chart tool to SLV, we see that our AI model is still cautious on the next 20 days, but then gets bullish for the following 30 and 40-day periods. Here too, we depend on the power of AI to guide us into trades at the right time as well as when to exit the position.
Adding gold and silver to one’s portfolio argues well in the current inflationary environment and this newfound market optimism should build on itself. Readers of this column should also consider joining RoboInvestor as a year-end gift for personal use and/or as a gift to those that take investing as seriously as we do.
I’ve spent many years honing the AI models that drives RoboInvestor and for the past three and a half years since launching the service, we generated a Winning Trades Percentage of 91.89% – a feat, that to my knowledge, stands on its own in the investment advisory universe.
RoboInvestor invests in blue-chip stocks and ETFs in indexes, sectors, sub-sectors, commodities, currencies, interest rates, volatility and shorting opportunities via inverse ETFs. Most asset classes are considered eligible for the RoboInvestor model portfolio. We send out an online newsletter every other weekend with two new recommendations that investors can act on Monday morning. We lay out each trade and send out alerts as to when to sell positions with limit orders. It’s that simple.
With the market getting more volatile and more challenging, there is no time better than the present to add a proven set of AI tools to a portfolio that has an all-weather record of performance going back to April 2018. Make joining RoboInvestor an intelligent year-end decision and start 2022 on a strong and smart note.
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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