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RoboStreet – August 19, 2021
Rally Hits Wall On Peak Growth Concerns
It’s day three of consolidation for stocks in a broad pullback that has a number of negative factors to point the blame to. The Fed’s taper talk, slowing growth data out of China, the delta variant, disappointing retail sales, and a slump in homebuilder sentiment. It’s also August where trading is thin which has a big effect on volatility.
But there are some signs the correction will not upend the primary bull trend, in that the market has been long overdue for some consolidation, but this week’s data showing the lowest level of jobless claims since the pandemic began and a better-than-expected read on Leading Indicators for July (+0.9% versus +0.7% forecast), give investors plenty to think about as the market provides some attractive entry points for great stocks.
The overriding narrative that is being pushed by the financial media is that valuations are as good as they get where growth for S&P 500 earnings will slow going forward. But this is already a given in that the year-over-year comparable quarterly results are glaringly abnormal because of the pandemic. Once the global chip shortage and other supply chain bottlenecks are overcome, a lot of progress can be made in boosting sales for several industries.
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.
Assuming the delta variant runs its course and starts to dissipate in late September, market conditions should be ripe for a resumption of the uptrend given the massive liquidity on the sidelines. In the meantime, the market is in the midst of hot, hazy and humid conditions where sentiment is lethargic and the technical a bit sloppy for now.
From a purely technical perspective, the $SPY sold off mid-week after the FOMC announcement. The value/reflationary stocks sold off in a flight to safety. Technology stocks sold off as well, providing few places for investors to hide.
The $DXY has broken above $90.60 resistance and has confirmed its breakout. The next level of resistance is at $93. The $TLT resumed its upward momentum.
Based on the steep correction in the reflationary stocks, strong dollar and overbought technology stocks, the market will continue the correction in August.
The $SPY short-term support level is at $440, followed by $435. The SPY overhead resistance is at $450. 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 portfolio at this point to be more market neutral. The second wave of the sell 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. If you are trading options consider selling premium with October and November expiration dates.
Based on our models, the market (SPY) will trade in the range between $415 and $445 for the next 2-4 weeks.
Our RoboInvestor stock and ETF advisory service will be positioning our members into value stocks and ETFs when our AI platform signals for us to press our exposure. We have the benefit of intelligent tools that are agnostic and unemotional to guide us through turbulent markets. When investor fear is elevated, our AI models are sifting out the best trades at ideal discounts, providing for optimal entry points.
The same holds true on the sell side, where when greed and complacency are highly evident, our models will indicate where to pare back and harvest profits. It’s a system that has produced a stellar Winning Trades Percentage of 91.74% that goes back to April 2018. I know of no other investor advisory service that can make this claim and is why I put my personal capital into every trade recommendation for RoboInvestor.
As the market works through the balance of August, our research is pointing heavily towards the value stocks as being where the big third quarter returns are going to be produced. This would involve initiating and adding to positions in financials, industrials, materials and transportation issues as the primary focus of our investment capital.
Take for instance the materials sector which stands to benefit greatly from what should be the eventual passage of the $1.2 infrastructure bill. As a sector highly leveraged to economic growth, we see excellent upside potential with the right timing to get long. Our AI-driven Seasonal Chart shows shares of the Materials Select Sector Sector SPDR ETF (XLB) remaining under pressure in the near-term and then registering “Higher” readings for the next 40 and 50-day periods.
We intend to add XLB to the RoboInvestor Portfolio sometime in September when our indicators flash a short-term buy signal. I want to encourage all readers of this blog to use the August correction to sign up to RoboInvestor and be ready to receive our emails with our most timely recommendations.
As a service, we publish RoboInvestor every two weeks. It arrives in your email inbox over the weekend with two recommendations. Being our AI platform is unrestricted from its data gathering, our picks will include blue-chip stocks and ETFs in indexes, market sectors, sub-sectors, commodities, interest rates, currencies and volatility. We will also utilize inverse ETFs for shorting opportunities.
Take your portfolio returns to a higher level and join our Roboinvestor community today and put the power of AI to work for the balance of 2021 and for many years to come. I’ve been committed for over a decade to construct, in my view, the best AI platform available to everyday investors with a mission to enhance wealth and secure retirements for thousands of investors. I’m happy to say…so far, so good.
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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