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RoboStreet – November 18, 2021
A Good Time To Digest Market Gains
It’s hard not to give this market the title of “Teflon” when it comes to repelling any and all bad news headlines. Despite spiking numbers in delta variant Covid cases in Europe, missed bond payments by China’s biggest real estate developer Evergrande, continued supply chain bottlenecks, soaring inflation figures, and poor consumer confidence, investors continue to see equities as the elixir for what ails their worries.
The major indexes traded to new all-time highs a week ago dipped and tried to take out those highs again coming up a bit short as profit-taking started to set in on some of the leadership stocks. The market is climbing the proverbial wall of worry that at present defies logic, but in the rear-view mirror is usually well explained.
Sector rotation has been fierce. First, Fed tapering boosted the financial sector. Then news of the new Pfizer pill that fights off Covid symptoms put a huge big under the re-opening stocks in airlines, hotels, cruise lines, casinos, live entertainment, and leisure companies. And the passage of the infrastructure bill provided the same enthusiasm for industrial, materials, transportation, engineering, renewable energy, and energy stocks.
Now, just one week later, all of these sectors are pulling back, reflecting a market that wants to take a deep breath before looking to resume its primary uptrend. The next two weeks tend to be a good time for some digestion of gains in that earnings season is all but done and Thanksgiving pulls attention away from current events. However, there will be a slew of economic data points over the next ten days that will certainly influence market sentiment.
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 traded lower today and settled below the all-time high, $468. The value/reflationary stocks traded lower and closed lower 0.5%. The technology stocks closed flat.
The $DXY had a small pullback, broke through the $96 level, and closed right at the key overhead resistance level. The $TLT traded higher and settled below the 50-day moving average.
The $SPY short-term support level is at $463 followed by $452. The SPY overhead resistance is at $470. Short-term, the market is overbought and volatility can persist for the next couple of weeks.
I expect the market to pull back further in the next couple of weeks. I would consider rebalancing the 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.
Investors seeking unbiased stock and sector selection are finding it within our RoboInvestor advisory service. It’s exactly times like this, when rapid rotation, false breakouts, sudden sell-offs, and extended moves are best measured by a cutting edge of tools build around artificial intelligence. That’s RoboInvestor – an AI-based platform modeled on a set of proprietary algorithms that are always crunching data 24/7 to select the most-timely trades available within all the markets sectors.
Take for instance the current dishwasher-like trading activity. Aside from a very few big cap tech and blue-chip retail stocks that have held up indexes, there is a lot of poor price action underneath the argues well for a shallow market pullback. When overbought stocks like Microsoft Corp. (MSFT) Amazon.com Inc. (AMZN), Alphabet Inc. (GOOGL), Nvidia Inc. (NVDA), Advanced Micro Devices Inc. (AMD) and Adobe Inc. (ADBE), Home Depot Inc. (HD), and Costco Wholesale Corp. (COST) endure a collective round of profit-taking, SPY will give back 3%-5%.
The most likely set of catalysts to trigger this healthy and constructive pullback will be higher-than-forecast inflation data, a recognition of the big rally in the dollar that will negatively impact earnings of multi-national companies, and a fresh move higher in Treasury yields where the 10-year T-Note breaches 1.7% to the upside. If, and most likely when, this occurs over the next couple of weeks, it would provide investors sitting on too much cash an opportunity to buy the stocks noted and many other AI-vetted RoboInvestor top picks at nice discounts to where they currently trade.
In the interim, those looking to take advantage of the expected shallow correction being signaled by my AI models should consider buying put options on the SPY. A 3%-5% drawdown in the SPY could result in a 20%-30% or higher return for being long put options. This is a short-term trade where technical discipline needs to be adhered to given that the primary bull trend is still in place.
Our AI-based Seasonal Chart is flashing a clear short-term sell signal for SPY, with lower forecast readings across the board and a high 85% correlation going back to 1998. Hence, this is a high conviction prediction about near-term market direction.
Therefore, working with at-the-money or in-the-money puts provides the highest correlation of any near-term move and makes for the best trading instrument when putting a two-week strategy to work. Bear in mind that all the corrections of the past year have been short and shallow, and I expect this one to be no different, not with the amount of liquidity that can be put to work at a moment’s notice.
Again, this is where our AI system that drives RoboIvestor thrives. It filters and selects trades in market indexes (bullish or bearish), market sectors, sub-sectors, blue-chip stocks, and ETFs in energy, precious metals, commodities, interest rates, currencies, and volatility. Its unbridled approach opens the door to multiple trades of various categories that carry very high reward versus risk properties.
Our approach to creating wealth through the application of AI has served RoboInvestor members extremely well, posting a Winning Trades Percentage of 92.19% going back to early 2018 when I launched the service.
RoboInvestor has booked 35 straight profits without a loss, the last loss of only -4.73% being on April 21, 2021. Just an FYI – I participate in every trade I recommend, so I’m with you every step of the way.
If generating capital gains in the highest quality stocks and ETFs in over 9 out of every 10 times you put your hard-earned investment capital to work is a high priority, then RoboInvestor is definitely for you – and I personally look forward to welcoming you into our AI investing community as we head into the holiday season!
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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