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RoboStreet – July 22, 2021
Radical Sector Rotation At Work
When the stock market can’t make up its mind as to what is a tailwind or a headwind, then volatility spikes. That’s exactly the case for the current investing landscape. The plunge in bond yields, which seems correlated to the spread and fear of the Delta variant of the COVID-19 virus, spooked investors out of the reflation sectors that have performed so well leading up to early July.
Capital flows have rushed back into mega-tech and big-cap consumer discretion for growth and utilities, consumer staples, and REITs for safety and income. Additionally, most of those companies reporting second-quarter earnings to date are seeing their stocks trade lower upon releasing numbers. The selling on the news is typical of a market that is heading into August where history is not on the side of the bulls.
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.
Looking at the market technical, the $SPY continued to rebound, on its way to test most recent highs. The bank stocks and the rest of the reflationary stocks rebounded from major support levels and led the market to the upside the past couple of sessions.
The $DXY has broken above $90.60 resistance and has confirmed its breakout. The next level of resistance is at $93. The $TLT continued to trade higher and reaching overbought levels, January of this year and started its pullback.
The question is “Is this the beginning of the next leg up in the market?” or “Is this just a short-term rebound from record oversold levels in the reflationary stocks?”
Based on the steep correction in the reflationary stocks, strong dollar, and overbought technology stocks, the market will continue the correction in July/August. The $SPY short-term support level is at $425, followed by $416. The SPY overhead resistance is at $438. I expect the next stage of correction to resume this week or next.
I would consider rebalancing the portfolio at this point to be more market-neutral. The second wave of the sell-off will continue for the next 2-4 weeks. Market corrections are never a one-way trade.
Based on our models, the $SPY can pull back 5-10% from the all-time highs in the next 2-4 weeks. If you are trading options consider selling premium with October and November expiration dates. Based on our models, the market (SPY) will trade in the range between $400 and $440 for the next 2-4 weeks.
This past Tuesday, there was a strong reversal in the bond market where sellers pushed yields higher, putting a big bid under the industrials (XLI), financials (XLF), and energy (XLE). These three sectors make up the classic reflation trade for those that are of the view that the growth scare is just that, a short-term scare that provides an attractive entry point to initiate and add to positions in leading stocks and ETFs.
Assuming Treasury yields push higher from their overbought reading, the most bullishly reactive sector would be the financials. When rates move higher, bank stocks do as well. The S&P 500 Financials Sector SPDR (XLF) is a fantastic way to take full advantage of this correlation without taking on a single stock risk.
Our RoboInvestor advisory service employs the use of our artificial intelligence algorithm models to guide our stock and ETF recommendations to our members. We gain a serious edge when we put the power of AI to work for every trade we get involved with – from both when to buy and when to sell. Take for instance trading the financial sector XLF and how that measures up with our AI platform. The Forecast Toolbox gives XLF Model Grade “B” rating with a six-month price target of $51.48 as a key resistance level. Considering shares of XLF are trading at $36, that’s a highly attractive investment proposition of a potential 43% upside move by year-end. This kind of data makes for a high-quality trade for RoboInvestor members and one we are looking to add over the near term to our model portfolio.
What differentiates RoboInvestor from most other advisory services is that our AI platform is unrestrained from working with just about every specific asset class where money-making opportunities exist. Our models will identify trades in blue-chip stocks and ETFs that include indexes, all the sub-sectors in the S&P, commodities, precious metals, interest rates, currencies, foreign markets, and volatility. We will also incorporate shorting opportunities with inverse ETF.
Our RoboInvestor track record speaks volumes as to how our AI models are working on behalf of member portfolios. Going back over three years, our Winning Trades Percentage stands at 91.63%. We’re very proud of our consistent performance where making money on a steady basis provides a high level of confidence and stability of wealth creation.
Most recently, we booked profits in Microsoft Corp. (MSFT), United Parcel Service Inc. (UPS), and UnitedHealth Group Inc. (UNH) – just an example of the best-of-breed stocks we work with. We recently added ExxonMobil Corp. (XOM) and Morgan Stanley (MS) when those stocks corrected in keeping with our theme of rotation back into some of the reflation sectors.
With the market taking on a more nervous tone heading into what can be a difficult market landscape during August, September, and October, why not put the proven attributes of AI to work and become a member of RoboInvestor today. In doing so, it’s our sincere belief investors gain a solid edge of growing their nest eggs on a perpetual basis that raises the entire investing experience to a level that truly satisfies.
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.
*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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