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RoboStreet – July 28, 2022
Following FOMC and GDP Data, Markets Move Higher to End Week
Last week, we looked ahead at the earnings-busy week which also included the latest Federal Open Market Committee meeting and several key economic reports and wondered whether these conditions indicated a definitive rally or restart of the market. As predicted, the market traded higher off the wave of positive announcements which reiterates the question: are we in a bear market rally or the restart of the bull market? While my opinion has not shifted, it is important to review the latest data and asses our conclusion and prediction.
On Wednesday, markets responded positively to the latest FOMC decision. The Federal Reserve increased borrowing rates by 75 basis points to a range of 2.25 percent to 2.50 percent, and now the question is how fast the Fed will raise them in the future. The Fed also said that it expects “permanent adjustments in the target range” to be appropriate. Then, the release of data on second-quarter GDP, which showed that the United States economy had shrunk by 0.9 percent between the start of April and the end of June, helped drive stocks higher Thursday. The report was the second consecutive quarter of decline, following a -1.6% first-quarter performance in 2022. While the GDP report ignited some recession fears, the market continued to trade higher.
As the market rallies, I am not under the impression we have found the restart of the bull market. Rather, strong earnings and timely Fed action appear to be the driver of the rally and, therefore, I still believe we are in a bear market. Mega-cap tech stocks are currently mid-release with Amazon, Apple, Facebook, and the like releasing data this week as well as the following.
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.
Two examples I’d like to point out are Microsoft and Google. Two mega caps that have already reported this week and can help explain the latest market conditions. Despite missing expectations, Microsoft’s stock rises 5% on promising guidance. Google shares rose impressively, seeing their best day of the year, following their earnings release, up over 7% while still down over 20% for the year. Mostly, the positive boost was attributed to data that was as bad as feared.
Typically, mega caps are leading indicators of what the rest of the market will do. Thus, the latest rally can be attributed to these symbols’ latest reporting; to look ahead, we must examine the current trading condition.
Looking at the current market conditions, The $VIX is trading lower, near the $22 level now, off mid-week highs which neared $24. The volatility index should be monitored as we are heading into uncertain times following the earnings season as the dust settles on the latest reporting.
Looking at the SPY Seasonal Chart below, I expect the market to continue the short-term rally for the next one to four weeks.
Overhead resistance levels in the SPY are presently at $401 and then $409. The $SPY support is at $390 and then $380. I believe this is a short-term rally and the bear market will likely resume. I encourage users not to chase the market and buy on pullbacks.
I’d be a seller into the rally and have a NEUTRAL portfolio right now. The market is currently overbought, and it is on the verge of top building.
This brings me to one specific fund I am going to be keeping my eye on and possibly making a move on. As mega-cap tech stocks continue reporting earnings, I expect markets to continue the short-term rally. If this is so, then this particular ETF is ready to pop.
SPDR Tech Select Sector Fund (XLK) is one of the leading indicators in the tech field. XLK focuses on all the companies in the S&P 500 that relate to technology hardware, storage, software, communications equipment, as well as semiconductors and semiconductor equipment, IT service, and electronic equipment.
Running XLK through Tradespoon’s elite A.I. tools I am seeing several signs I like. In just the past couple of days, the Tradespoon Seasonal Chart is showing four “higher” probability readings for the next 20, 30, 40, and 50-day periods. This clean sweep is something I like to see in a symbol that I think can trend higher.
Looking at the 10-day Stock Forecast Toolbox predicted data, we see a similar reading that shows the potential for this symbol to grow alongside a market or tech-based rally. Current XLK pricing is nearing the top of our resistance prediction, $142, and impressively above support at $135.
Over the last 6 months, XLK is down 12.3% and, as all techs have, traded under severe pressure. With the current market conditions, in my opinion, looking overbought while maintaining some runaway for additional rallies in this bear market, I am betting on tech to catch up and make some waves these next few weeks.
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The market continues to shape up to be as unpredictable as I’ve seen since the pandemic broke out in early 2020 – and we still have more than 5 months to go! Inflation, upcoming Fed decisions, geopolitical tension, and the Ukraine war – all factor into how money is being made and lost. Don’t go at it alone in this investing landscape, but instead, put RoboInvestor to work today and add a big layer of confidence to your portfolio going into tomorrow. We’ll be with you every step of the way!
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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