RoboStreet – November 4, 2021
Tech Sector Melt Up Under Way
The key takeaway from the FOMC meeting this week was that of a more dovish fiscal policy pathway being embraced by the Fed. They will begin tapering the pace of its asset purchases later in November. On a monthly basis, the reduction will see $10 billion less in Treasuries and $5 billion less in mortgage-backed securities.
Bond yields initially pushed higher on the announcement and then retreated back down to the low end of the weekly range, the 10-yr T-Note trading at 1.52% as of yesterday. It was a very welcome development for growth stocks as fund flows moved aggressively into software and semiconductor stocks, buying into the Fed’s continued “transitory inflation” narrative.
Apparently, a lot of cash was ready to buy if the bond market didn’t implode with several big-cap tech stocks gapping to new all-time highs. There is a bit of a fever pitch in the Nasdaq, or FOMO, however, one wants to define it, but much of the leadership in the tech sector is overbought and due for some consolidation in the next couple of weeks.
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.
CURRENT TRADING LANDSCAPE
The $SPY continued to trade higher and settled at the new all-time high, $464. The value/reflationary stocks traded higher, up 0.5% and closed at the all-time high ($VTV at $145). The technology stocks closed in the green, up 1.0%, and at the all-time high.
The $DXY is short-term overbought and settled above the key support level at $93.5. The $TLT traded lower (higher yield), and settled above the 50 -day moving average after the FOMC decision.
The $SPY short-term support level is at $455, followed by $450. The SPY overhead resistance is at $465. Short-term, the market is overbought and due for a shallow pullback in the next few sessions. All eyes are on the unemployment numbers this week.
I would consider rebalancing portfolio at this time, raising cash, and having an overall bullish portfolio.
If you are trading options consider selling premium with December and January expiration dates. Based on our models, the market (SPY) will trade in the range between $445 and $480 for the next 2-4 weeks.
Being that I’m of the conviction that the market is overbought as confirmed by my proprietary models, it should behoove investors seeking to hold positions to hedge against a market pullback in the neighborhood of 2%-4%. Nothing major, but it could always turn into something more material if the wrong set of headlines crosses the tape.
To this point, I like using the ProShares Short S&P 500 ETF (SH) – a 1X inverse ETF to the SPY. If SPY tests its 50-day moving average, that takes it to $446, or 4.3% below where it closed yesterday. Such a move lower would take shares of SH the equivalent higher to around $14.70 and make for a nice way to box one’s portfolio against a bout of market consolidation.
Our AI-driven Seasonal Chart is flashing sell signals as of late this week and we want to respect the power of AI signals when they are so prevalent.
We’ve been harvesting a lot of profits for our RoboInvestor advisory service of late, right into the teeth of this torrid rally. But the rally has gotten too euphoric short-term and is in need of some back and filling. This is where prudent management of raising cash and using hedging techniques comes into play, so as to emphasize capital preservation.
Within RoboInvestor, we buy blue-chip stocks and ETFs that represent the major indexes, market sectors, sub-sectors, commodities, currencies, interest rates, and volatility. Members receive an online newsletter every two weeks, delivered over the weekend with two new picks to act on come Monday morning.
Having powerful AI tools to guide our thinking and investing strategies is paramount to generating consistently strong total returns. Since launching RoboInvestor in April 2018, our Winning Trades Percentage is an incredible 92.19%!
When fully invested, the RoboInvestor model portfolio will own roughly 25 positions, and when we get into overbought market conditions, we’ll reduce that number to about 15 or so, depending on what we own and at what price. The main point is that it’s a dynamic portfolio and not static. We don’t fight the tape and we flex our buying power when our algorithms indicate there are market tailwinds.
My personal investment capital participates in every trade I recommend within RoboInvestor, and thus, your journey to growing wealth is also mine, trade for trade. I take great pride in the years spent creating and fine-tuning my AI platform so that we can all book profits better than 92% of the time we put money to work. Make RoboInvestor work for you and let’s finish 2021 on a high note together!
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