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RoboStreet – October 14, 2021
Lower Yields Trigger Fresh Buying In Tech Sector
This week’s inflation data was being taken as a tipping point for the market to either contain the correction to 5% or open the way lower. Tuesday’s CPI read for September of 0.4% versus 0.3% forecast and Wednesday’s PPI read of 0.05% versus 0.06% forecast breathed a sigh of relief for investors. Bond yields fell, the 10-yr Treasury pulling back to 1.52% from 1.62% that triggered Thursday’s key upside reversal for stocks in a broad-based rally.
Some headlines are starting to emerge about global port congestion beginning to finally clear out. It is reported that the number of moored vessels in Shanghai has dropped by 50% in the last 18 days, sending freight rates lower. As of last week, there were still roughly 60 ships moored off the shore of Los Angeles, but here too, some logistical relief might show up this week and going forward. If so, shortages of goods and inflated prices will start to ease, just in time for the holiday shopping season.
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.
These developments and some very bullish third-quarter earnings reports from the big banks set in motion a positive change in market sentiment in the nick of time. The major indexes have been under pressure for the past six weeks and needed some good news to spark buying interest and bring cash off the sidelines. Although the Dow, S&P, and Nasdaq are still trading just under their respective 50-day moving averages, some minor follow-through to the upside will restore the primary uptrend.
CURRENT TRADING LANDSCAPE
The $SPY continued to trade in the range and settled right below the 50-day moving average at $435, August’s low. The value/reflationary traded higher, up 0.4%, and settled below the 50-day moving average. The technology stocks traded in the green, up 1.80%, and settled right at August’s lows.
The $DXY is short-term overbought and started its topping process near $94, long-term overhead resistance from the September 2020 high. The $TLT had a sharp rebound and started the bottoming process, crossed above the 200-day moving average.
Volatility settled below the $20 level. The $SPY short-term support level is at $433, followed by $428 (sustained break below $428 is a low probability event at this point). The SPY overhead resistance is at $443 and then $452. I expect the bottoming process to continue this week.
At this point, I believe the recent low at $428 is set. The start of the earnings season might push the market briefly close to the recent lows. Since the $TLT is oversold and started the rebound, I expect the technology and the safety stocks ($VNQ, $XLP, $XLU) to outperform value stocks short term.
I would consider rebalancing my portfolio at this time and have a bullish portfolio. The market bottoming process may continue for the next 1-2 weeks. Market corrections are never a one-way trade. Based on our models, the market (SPY) will trade in the range between $428 and $455 for the next 2-4 weeks.
As rates rose, growth stocks endured heavy outflows of capital whereby most of the biggest tech stocks in FAANG, MSFT, ADBE, NVDA, and other leading stocks all pulled back, some as much as 20%. Higher-flying PE tech stocks gave back as much as 30% in some cases as higher bond yields compressed stock multiples. As of this Wednesday, a real sea change occurred within the tech sector that fueled a strong upside move.
Our RoboInvestor advisory service can do great things to assist in the determination of whether to up portfolio exposure to the tech sector after this two-day move higher. The current 6-month price target on the Invesco QQQ Trust (QQQ) from our AI-driven Forecast Toolbox is $429.10, implying an upside move of 17%. The Model Grade “C” rating will turn to a “B” or “A” once the Q’s clear their 50-day moving average.
We want confirmation from our AI platform so as to avoid both bull and bear traps. And this is what brings real value to our RoboInvestor members, data crunching AI models that identify, clarify and confirm if our investment capital carries a high level of risk/reward management. Providing a high probability of profit potential involves using cutting-edge AI technology – and this is where RoboInvestor really shines!
The other sector that tends to outperform when rates decline is the consumer staples sector where many of these stocks have been sold down due to higher raw materials and commodity costs and transportation costs. Shares of the Consumer Staples Select Sector ETF (XLP) tested and briefly violated their 200-day moving average, but turned higher this week when bond yields topped out. From the YTD chart below, there is renewed interest in XLP.
The top 10 holdings in XLP account for 70% of total assets and are made up of the very best names of which some like Costco, Pepsi, and Estee Lauder are trading at near their all-time highs. This is a great way to cast a net over the best-in-class consumer staples stocks and remove single stock risk.
When it comes to building wealth, one of the, if not the, most important components to succeeding is winning most of the time on your investments. Our track record at RoboInvestor is an enviable one as our Winning Trades Percentage is 91.87%.
Within the RoboInvestor service, I’ll recommend blue-chip stocks and ETFs in market indexes, market sectors, commodities, interest rates, currencies, and volatility. I’ll also use inverse ETFs to short indexes or sectors when our AI tools indicate to do so.
Investors will be hard-pressed to find another advisory service that compares performance and membership price. It’s pretty special to have this kind of proven AI investing model at work to guide investors to real profits in 9 out of every 10 trades, with a three-and-a-half-year track record to show for it.
Take me up on my offer to come alongside as a new member or RoboInvestor and let’s grow our nest eggs on a full-time basis. My capital is invested with yours in every trade I recommend and I hope to be welcoming you aboard going into this weekend when I’ll be bringing two new trades to act on come next Monday morning.
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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