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RoboStreet – June 2, 2022
Short-Term Consolidation Could Go Either Way
Following seven weeks of losses, the major averages turned higher last week to close out the month of May pretty much flat. It was a fierce short-covering rally triggered by a slight decrease in the Fed’s preferred inflation indicator that sparked the buying spree, which spent the front end of this week consolidating followed by a rally Thursday.
Even as Microsoft Corp. (MSFT) announced the strong dollar would squeeze profit margins in the fourth quarter, the market took the headline in stride, shaking off some early morning selling pressure to trade higher on the back of some good earnings from the day before, news of OPEC+ nations looking to raise crude production to compensate for sanctions against Russia, and the fact that Microsoft’s revenue and earnings caution was not operationally related, but rather a forex headwind.
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.
The price action tells of a rebound-minded sentiment by investors buying into the soft-landing narrative for the economy as the Fed is set to tighten rates and shrink its balance sheet starting this week. Technology is leading the way again, as was the case late last week, giving more confidence that mega-tech stocks can help repair much of the technical damage incurred during April and most of May.
Working off of Wednesday’s close, the $SPY closed lower 0.8%, at $409, and closed at the long-term resistance at $408-410. The value/reflationary ($VTV) closed lower 0.8%, at $142, below the 50 DMA. The technology sector ($QQQ) closed lower 0.8%, at $306, approaching the $50 MA.
The $DXY closed higher, near the $102.5 level, trading below the December 2016 high. The $TLT closed lower 0.2%, at $116, and facing the key short-term resistance. The ten-year yield closed higher at 2.92%. The $VIX closed lower, near the 26-level approaching the key support at $25.
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 in the rally and have a 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 $430 for the next 2-8 weeks.
Considering CPI and PPI inflation data is due out next week followed by the FOMC meeting on June 15, it stands to reason $SPY may try to trade up to key resistance at $430, but pause until the data and Fed policy is known with some clarity of trend.
Just because the larger trend is down doesn’t mean investors can’t make money on oversold rallies that can be very rewarding in the short term. And that’s exactly what we are seeing in Thursday’s session where the mega-tech stocks are leading the market higher in what is a 2.2% gain for Nasdaq 100 Trust (QQQ). Both software and semiconductor stocks put together a broad-based move higher.
Our RoboInvestor stock and ETF advisory service are built on a data-driven AI platform that is crucial to navigating volatile markets such as the present. Case in point, the AI-based Forecast Toolbox gives QQQ a Model Grade “C” rating where there is an upside potential of another 5% for QQQ to trade to.
That’s a move we want to participate in, but our indicators also point to storm clouds further out where a material decline is a forecast assuming macro-economic conditions as measured in today’s terms are still persistent. So, while there is money to be made in the near-term and possibly through the July earnings reporting season, our work suggests investors should get very defensive during the third quarter.
In capturing the highest-quality moves the big-tech stocks have to offer, we need not look any further than Alphabet Inc (GOOG), where the stock is enjoying a solid snap-back move higher where there looks to be another 150-200 points of upside potential.
Here too, when we apply the Forecast Toolbox to a shorter timeframe, we see that GOOG also receives a Model Grade “C” rating, but with a Predicted Resistance price target of $2,550 by June 13, right in front of the Fed meeting.
This is where AI comes to be essential for maximizing total return. Under current market conditions, there is time and space to profit from the oversold rally and still have a well-defined exit strategy that investors can deploy with a high level of confidence.
Our current RoboInvestor model portfolio is full of inflation-friendly assets and yet smaller in number than our typical set of 22-25 holdings. The market has been challenging and several unconventional assets are working considerably better than what led the market to record highs in late 2021.
Within RoboInvestor, our AI platform is unrestricted is what it recommends. Assets considered to own include blue-chip stocks and ETFs that represent market indexes, the 11 market sectors, sub-sectors, commodities, precious metals, interest rates, currencies, volatility, and shorting opportunities through the use of inverse ETFs.
Subscribers to RoboInvestor receive an online newsletter delivered over the weekend every other week that includes my fundamental and technical market commentary, an update on current portfolio holdings, and one-to-two new recommendations depending on market conditions. When our AI system signals it is time to exit a position, we send out an alert to close the position, usually with instructions to place a limit order.
By the numbers, our performance for the past four years since launching RoboInvestor speaks for itself. Our Winning Trades Percentage is a stellar 88.85% that we are very proud of and one that to my knowledge stands on its own.
The road ahead for the stock market is not going to get any easier than what is currently underway. Heading into each trading day where huge swings can fray the nerves of even the most seasoned market veteran, it just makes sense to have a set of agnostic AI tools to separate the noise from reality while identifying the trades with solid risk-versus-reward characteristics applied to them.
Take me up on my offer to come alongside your portfolio. I invest my personal capital into every trade I recommend. I’m there with our RoboInvestor community every step of the way, growing our network in a steady, well-thought-out process that has proven to be highly successful in all market environments. Don’t be left guessing what to do next with your portfolio. Put the power of AI to work today and make 2022 a year of real change full of profit-making potential.
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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