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RoboStreet – August 12, 2021
The Sudden Rotation Out Of Growth Stocks
If there were ever a time when the term “change on a dime” could be applied, it would be right now following a decisive pivot in the bond market that has triggered fierce sector rotation out of growth and into cyclical stocks. The bond market put in a textbook double-bottom where the 10-year Treasury yield traded at 1.12% twice during the past two weeks and pushed immediately higher following the stellar jobs report last Friday.
It was as if the market had an epiphany of sentiment change where all the delta variant news just didn’t matter anymore and the prospect of a dynamo second half of economic growth in the U.S. took hold. Grant it, everyone is following the U.K. Covid-19 model, seeking a pattern of the delta variant peaking by the end of August where after caseloads plummet and the recovery picks up speed.
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.
Coming off a very bullish second-quarter earnings season that was accompanied by broadly positive forward guidance by companies that are most leveraged to economic growth and the assumption of the passage of the infrastructure bill, transportation, materials, financials, and industrial stocks took wing in a matter of less than a week. I find this so striking against the narrative of a stalled recovery coming into August, but the market votes every day, and this move into value look legit.
Technically speaking, the $SPY continued to trade in the well-defined range. The value/reflationary stocks staged a strong rally led by banks and materials. Technology stocks closed lower on the week. The $DXY has broken above $90.60 resistance and has confirmed its breakout. The next level of resistance is at $93.
Based on the steep correction in the reflationary stocks, strong dollar, and overbought technology stocks, the market will continue the corrective rotation in August. The $SPY short-term support level is at $435, followed by $430. The SPY overhead resistance is at $445. I expect the next stage of correction to resume this week or next. I would be a buyer of value stocks on corrections and sell technology stocks on any rallies.
I would consider rebalancing the portfolio at this point to be more market-neutral. The second wave of selling will continue for the next 2-4 weeks. Market corrections are never a one-way trade.
Based on our models, the $SPY can pull back 5-7% from the all-time highs in the next 2-4 weeks. Based on our models, the market (SPY) will trade in the range between $415 and $445 for the next 2-4 weeks.
The next week is crucial for the technical landscape in both bonds and stocks. This is where our AI tools have served our RoboInvestor advisory service so well for over three and a half years – they remove much of the guesswork about picking a direction. It was thought at the end of July that the 10-yr Treasury yield would break 1.0% to the downside, chasing European bond yields to zero.
That has materially changed and the army of those hedge funds leveraged to upside bond prices are enduring a massive inversion trade that looks to morph into a structural uptrend in bond yields with more upbeat economic data. As such, shares of iShares 20+ Year Treasury Bond ETF (TLT) have more room to trade lower based on our AI models.
This simply means investors that are long $TLT should consider selling their position and for those long the mighty Nasdaq 100 (QQQ), they too should take heed of this out-of-growth-into-value trade as the ground shifts under the market. What used to take a month to develop in terms of market rotation, today takes a matter of a few days, and investors need to respect the seismic shift in capital flows when they occur.
Our AI-driven Forecast Toolbox gives investors a peek around the corner, we’re looking at the next two weeks, or 10 trading days, the QQQ looks to stall out as indicated by the red bars. For RoboInvestor members, I’ll be alerting as to where to position money against this fresh and compelling backdrop.
This is no time to be complacent with growth stocks. Believe me when I say, if rates go higher from here, the biggest institutional funds in the world will be saying to their trading desks “get me out of growth”. And when the tide goes out of growth, where there is serious overcrowding of ownership, it will be meaningful for FAANG and the mega tech stocks but will be more damaging to the high-P/E growth stocks for sure.
This is where our proprietary AI platform can help secure and serve as not only an early signal-caller for investors but a service dedicated to capital preservation and growth where money is best served. RoboInvestor has an enviable track record, having put together a Winning Trades Percentage of 91.63%.
Every other weekend we email out a newsletter with two new picks that could be in blue-chip stocks or ETFs representing indexes, stock sectors, commodities, bond yields, currencies, volatility, or inverse ETFs to take advantage of shorting opportunities. I find having an unrestricted approach to the market is what makes RoboInvestor such a special advisory service and the numbers speak for themselves. Put our AI tools to work in your portfolio and come alongside me and our RoboInvestor community of members in the pursuit of steady and lucrative wealth-building. I’m invested in every trade I recommend, so I am fully there with you and for you.
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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