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RoboStreet – May 26, 2022
Stocks Rise Amid Better Outlook For Consumer Spending
The major indexes have enjoyed a week of rebounding stock prices following a parade of better-than-expected and less-than-feared earnings reports that crossed the tape in the past two sessions. Upbeat quarterly reports from Macy’s Inc. (M), Nordstrom Inc. (JWN), and William-Sonoma Inc. (WSM) posted results that topped Wall Street estimates, helping to affirm the high-end consumer is still spending while both Dollar Tree Inc. (DLTR) and Dollar General Corp. (DLR) surprised with good numbers that run counter to the disappointing Q1 results from Walmart Inc. (WMT) and Target Corp. (TGT).
The rally broadened out to include the beaten-down technology sector even as chip sector leader Nvidia Inc. (NVDA) gave a more cautious outlook while other semiconductor companies cited improving supply chain conditions. On the flip side, Broadcom Inc. (AVGO) posted better-than-forecast quarterly results and launched a $61 billion bid for VMWare Inc. (VMW), adding some M&A sizzle the to mix. Software stocks also reversed higher following strong results out of Intuit Inc. (INTU) and Splunk Inc. (SPLK). It’s a nice change of sentiment for the tech sector.
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.
The current rebound for stocks will meet a real test Friday when the Fed’s favorite inflation data point, the Personal Consumption Expenditure (PCE) Index is released before the market opens. Hopes are high that the lower month-over-month rise in the data will be the beginning of peak inflation conditions that the market can embrace. It will need to be a bullish number as WTI crude prices are back up above $114/bbl and natural gas prices in the U.S. are now trading north of $9.00/MMBtu.
Commodity grain prices remain elevated as well, implying most measures of inflation are still near their highs. With all this being said, the market is taking it in under the notion that the economy will avert a recession and inflation will ebb in the second half of 2022. It’s a nice change in sentiment, and time will tell if it is warranted.
The $SPY closed higher 0.8%, at $397, facing the short-term resistance at $396. The value/reflationary ($VTV) closed higher 0.7%, at $141, below the 200 DMA. The technology sector ($QQQ) closed higher 1.4%, at $91, trading above the 50 percent retracement from the pandemic 2020 low to 2022 high.
The $DXY closed lower, near the $102 level, trading below the December 2016 high. The $TLT closed higher 0.4%, at $119, and facing the key short-term resistance. The ten-year yield closed higher at 2.76%. The $VIX closed higher, near the 30 level.
The $SPY short-term support level is at $380 followed by $365. The SPY overhead resistance is at $396 and then $412.
I would be a seller into the rally and have a NEUTRAL portfolio at this time. Short-term the market is oversold, undergoing the bottoming process, and due for a potential rebound lasting multiple weeks.
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.
Even as the market is putting together an oversold rally, my indicators are signaling that volatility will remain high for several weeks and well into summer. Until some of the ongoing issues pressuring the macro-economic environment find some relief, the market stands to be vulnerable to further headline risk. Hence, maintaining more concentrated portfolios and the use of effective hedging instruments is preferred until there is some clarity on the outlook for inflation and the economy.
It’s my view and that of my proprietary tools that point to interest rates coming back down over the longer term. The initial spike that has capped the rally in equities has priced in three half-point rate hikes by the Fed, going out to July. Bond yields on the longer end of the yield curve topped out two weeks ago and are now moving incrementally lower – telegraphing slower growth and tamer inflation ahead.
Shares of iShares 20+Year Treasury Bond ETF (TLT) hit a 52-week low of $112.62 earlier this month and are starting to move up, currently trading at $118.60 as of this Thursday. From the one-month chart below, TLT is seeing a short-term “golden cross” pattern shaping up where investors should consider allocating capital on any dips.
Our RoboInvestor stock and ETF advisory service employs hedging assets like TLT in our model portfolio – one that I personally participate in with each and every trade. The approach to investing in RoboInvestor is having an unrestricted methodology where we can buy blue-chip stocks and ETFs that cover the primary indexes, the major 11 market sectors, and sub-sectors that include commodities, currencies, interest rates volatility, and shorting opportunities through the use of inverse ETFs.
Our RoboInvestor service is built on a platform operated by artificial intelligence algorithms that ferret out the highest-quality trades with the best probability data for measuring and determining if we should enter or exit a trade. Our Forecast Toolbox is an excellent way to put AI to work for portfolio construction. When we apply TLT to the Forecast Toolbox, we get a Model Grade “C” rating with a near-term price target of $123.90 which implies a nice move higher over the next two weeks.
Protecting hard-fought gains in market downturns is just as much a priority as generating capital gains when the trend is higher. It’s how we’ve been able to produce a four-year track record where our Winning Trades Percentage is 88.85%.
Members of RoboInvestor receive an online newsletter every other week, delivered to inboxes over the weekend. Each issue includes my take on the market landscape, commentary on our current holdings that range from 15-25 positions, and one-to-two new recommendations to act on when the market opens on Monday. At any time I will email out alerts to exit positions when our AI signals indicate to do so.
Considering the investing environment is fraught with uncertainty, it just makes sense to have an unemotional, agnostic AI system that is always thinking, always crunching data, and working hard 24/7 to provide timely asset selection in which to maximize total return. I hope everyone reading this column will invite me and my team to come alongside, join the RoboInvestor community, and let’s grow our nest eggs in a long-term consistent manner together.
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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