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RoboStreet – June 9, 2022
Fed On Deck To Address Inflation
Friday’s inflation data in the form of the Consumer Price Index (CPI) is a pivotal report for the bulls to seize on what they hope to be another sign of inflation peaking in April or May. While one or two months don’t make for a trend, the market will likely put together a relief rally that could build on itself into the second-quarter earnings season.
Conversely, if the CPI and next Tuesday’s release of the Producer Price Index (PPI) disappoint and signal sustained upward price pressures, then the previous low end of the current trading range could well be tested again. A lot is riding on this data and considering gasoline and food prices have only increased during May it will take some other inflation components to bring down the 8.3% annual pace of inflation.
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.
To the market’s credit, the price action of the past two weeks has been relatively stable, which explains the slide in the CBOE Volatility Index (VIX) from 35 to 24, implying less fear. The relaxing of Covid restrictions and some central bank stimulus in China has the market trading sharply higher and reports of increased insider purchases are also raising hopes that a bottom is in the marking.
As of Wednesday, the $SPY closed lower 1.0%, at $411, right above the short-term support resistance – $408. The value/reflationary ($VTV) closed down 1.3%, at $143, at the 50 DMA. The technology sector ($QQQ) closed lower 0.7%, at $307, approaching the $50 MA.
The $DXY closed lower, near the $102.5 level, trading below the December 2016 high. The $TLT closed lower 0.9%, at $114, and facing the key long-term support. The ten-year yield closed higher at 3.05%. The $VIX closed higher, near the 24 level.
The $SPY short-term support level is at $406 followed by $396. The SPY overhead resistance is at $420 and then $430.
I would be a seller into the rally and have NEUTRAL portfolio at this time. Short-term the market is overbought, undergoing the bottoming process, and can continue the 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 $440 for the next 2-8 weeks.
In another key development, the European Central Bank announced they will raise interest rates for the first time in a decade, with the intent of hiking three separate lending rates by a quarter-point in July. With inflation running at roughly 8.2% in Europe, the ECB added they will be looking to raise rates again in September.
Like the Fed, the ECB will look to bring down inflation without sending their economy into a recession, and doing so will be a tall order since the European economy has already been slowly heading into this new phase of monetary policy. A big overhang for Europe has been sky-high natural gas prices as a result of sanctions on Russian imports where they are scrambling aggressively to replace those shortfalls from the global markets.
As the Fed is in the process of reducing its balance, currently at a rate of $45 billion per month, the dollar has been trending higher, recently testing its 50 DMA where it held and reversed higher Thursday. The strong dollar creates a forex headwind for those multinational companies deriving a large percentage of revenues outside the U.S. Case in point, Microsoft Corp. (MSFT) issued a profit warning due to this very factor.
What is working best in this difficult investing landscape is energy, metals, and Chinese large-caps. Our AI-based platform that powers our RoboInvestor stock and ETF advisory service is putting out strong buy signals for select picks that are producing some big winners for our subscribers. For instance, when we apply the iShares China Large-Cap ETF (FXI) to our system, the AI-driven Seasonal Chart is flashing a series of “Higher” probability readings for the next several weeks.
This is the kind of data that confirms and greatly assists in our work to recommend the highest quality trades to our members. RoboInvestor will invest in blue-chip stocks and ETFs that represent indexes, the major market sectors, sub-sectors, commodities, currencies, interest rates, volatility, and shorting opportunities through the use of inverse ETFs. We maintain a portfolio of anywhere between 15-25 holdings depending on market conditions. Lately, our blend of stocks and ETFs is smaller in number.
RoboInvestor subscribers receive an online newsletter delivered over the weekend every other week. In it, I detail the market landscape, both fundamentally and technically, review our current portfolio holdings and offer one-to-two new recommendations that can be traded on Monday morning. When our algorithms flash a sell signal on a specific position, we send out an email alert with full instructions.
Our performance over the past four years speaks for itself. During all the ups and downs the market has brought to investors, the Winning Trades Percentage is a highly impressive 88.85%.
Against what is clearly one of the more challenging markets investors have faced in over a decade marked by quantitative easing. I want to encourage every reader of this column to put RoboInvestor to work and put the power of AI in your portfolio. No system is perfect, but we are winning on our trade recommendations nearly 9 out of 10 times we put risk capital to work in the market.
I say “we” because it is my practice to participate in every trade I recommend to the RoboInvestor community. The journey to wealth creation at RoboInvestor is a mutual one and I look to welcoming you as a sojourner for the balance of 2022 and for many years to come.
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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