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RoboStreet – April 28, 2022
Market Testing Key Technical Support Level
As much as investors would like to focus solely on how strong a particular company or sector’s fundamentals are, the market is just as dependent on the technical health of the tape and whether key levels are intact or vulnerable to being violated. This week, the Nasdaq traded below its March low after Alphabet Inc. (GOOG) missed estimates, and is now fighting for crucial support.
More importantly is the S&P 500 and the challenge it faces to hold the March low as it represents all 11 sectors of the market, of which only the consumer staples sector is exhibiting premier relative strength. This was fortified by Thursday’s release of Advanced GDP for the first quarter of 2022 coming in at a -1.4%, with the Fed getting ready to raise short-term rates by half a point. No wonder the market is on the defensive.
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.
Taking the other side of the narrative, it was reported this week that investor sentiment hasn’t been this bearish since March 2009, a month that defined the bottom for the market in the Great Recession. According to the American Association of Individual Investors (AAII) bullish sentiment declined to 20.7% in the latest survey, with the historical average being 39%.
The AAII survey has had an accurate history of being a fairly reliable contrary indicator for the market. There is definitely a high level of trepidation The ongoing war in Ukraine and widespread Covid-related lockdowns in China continue to pressure the global supply chain, keeping costs of raw materials and goods elevated. Despite the tight labor market in the U.S., inflation is still getting the better of consumer spending power.
It’s good to see bond yields leveling out as well as energy prices, but again, all these situations are highly fluid, and trying to forecast against this backdrop is very tough for analysts, economists, and the Federal Reserve. More forthcoming data will do much to resolve the breadth of uncertainty that dominates the market landscape, and fortunately, most of this data will cross the tape in the next two weeks.
As of Wednesday’s close, the $SPY closed higher 0.2%, at $416, retesting the February lows. The value/reflationary ($VTV) closed higher 0.2%, at $142, right at the 200 DMA. The technology sector ($QQQ) closed lower 0.1%, at $317, retesting this year’s lows.
The $DXY closed higher, near the $103 level, approaching the March 2020 high. The $TLT closed lower by 1.0%, at $121, and below the July 2019 lows. The ten-year yield closed lower at 2.80%. The $VIX closed higher, near the 30 level, above the historical average.
The $SPY short-term support level is at $410 followed by $400. The SPY overhead resistance is at $435 and then $441.
The market correction has started earlier than I anticipated. At this point, it is just a matter of time for the $SPY to break below the February lows.
I would be a seller of any rallies in the market and have BEARISH portfolio at this time.
The earnings season continued with MSFT reporting strong results that will be followed by APPL and AMZN scheduled to announce their earnings Thursday after the close.
I do not expect the $SPY to post new all-time highs in the first half of this year. There is a high probability that the $SPY main long-term support at $415 will not hold in the next few weeks. Short-term markets are oversold and due for a rebound in the next few sessions.
If you are trading options consider selling premium with July and August expiration dates.
Based on our models, the market (SPY) will trade in the range between $415 and $470 for the next 2-4 weeks.
The technical damage is pretty severe, not just for the major indexes, but also for so many leading stocks that lead the bull market for the past several years. There are material-technical breakdowns in GOOG, PYPL, NFLX, SBUX, DIS, and NVDA. And there are many, many more former Wall Street favorites that have just as bearish charts as these notable stocks.
To this point, the rolling correction looks to keep hitting all the great stocks that are considered the market generals. When stocks like Proctor & Gamble (PG) become the “go-to” names for fund managers, then it sends a red flag up the pole that investors should take seriously. Grant there are stocks that will buck the trend as is always the case in any market correction, but that number is narrowing with each day.
It’s a good time to hedge portfolios in the event key technical support for the S&P at 4,150 is taken out. Investors should consider utilizing ProShares Short S&P 500 ETF (SH), a 1x inverse ETF or SPY puts that expire several months out. As I noted the long-term primary bull uptrend is in place for S&P, but that level is down at 3,500.
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When we apply SH to our AI-driven Forecast Toolbox for the near term, we get a Model Grade “B” rating with a Predicted Resistance price target of $16.68 which is 14% higher than where SH currently trades. A move to $16.86 would be a new 52-week high and imply the market buckling once again. Hence, with each oversold bounce, investors can leg into SH and protect their portfolios from material downside risk.
It’s this kind of number-crunching, always thinking, always learning data that drives the performance of RoboInvestor – and we are very proud of our performance that boasts a Winning Trades Percentage of 90.07%. It’s my view that the hallmark of a successful trading system is one where 9 out of every 10 trades generates a profit, and that’s what we’ve been doing going back to April 2018.
Considering the treacherous market conditions, having the power of AI at work in one’s portfolio is not just a good idea, it’s an essential set of tools to alleviate risk and enhance total return. Put RoboInvestor to work in your portfolio and together let’s grow our net worth steadily and meaningfully for 2022 and beyond!
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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