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RoboStreet – January 10, 2019
A Better Market Tone All Around
Since the stock market bottomed out on Christmas Eve, the S&P has rebounded about 10% in an impressive snap back rally. The SPDR S&P 500 ETF (SPY) broke above its first level of technical resistance at $254 and has followed through to the upside to $258 that sets up a test of stiff overhead resistance at $260-$264 where the 50-day moving average comes into play.
With the market having trading up in 8 of the past 10 sessions, some bouts of light profit taking are likely, but as long as the SPY can maintain support at the $253-$254 level, there is a good chance the bullish momentum of late will carry the SPY higher. Much will depend on further headlines from the China/US trade talks, but the latest narrative from the recent meeting between trade officials is one of progress being made.
Four quarter earnings season is another potential catalyst for the bulls as S&P profits are forecast to rise 11.4% according to FactSet and as stock valuations have come down recently, any rate of earnings growth above 10% is bullish for the market. It’s my view that the SPY remains oversold and has the potential to break above $264 resistance and trade back up to $280 near the high end of its range by the end of Q1.
Again, much of the near-term direction of the market is predicated on the news feed, and it is unlikely the SPY will maintain a “V-shaped” recovery without some retest to establishes a more preferred “double-bottom, higher-low” formation. At any time, negative headlines related to the China/US trade talks would imperil the current rally and run the risk of retesting the low of $235 for SPY.
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.
The Fed meets next on January 30 where it is widely expected Fed Chair Jerome Powell to reiterate the Fed’s more flexible and market sensitive position he expressed recently in Atlanta. Other positive developments include the pull back in the dollar versus other major currencies. This is bullish news for S&P companies that do more than 50% of business outside the US.
The chart below of the US Dollar Fund (UUP) shows rising support for the greenback at 25.0. We went long the Euro Trust Currency Share (FXE) as the dollar peaked and so far, that trade is working out quite well for RoboInvestor subscribers. I think there is a bit more to go since the US Treasury yields are back in a downtrend under the assumption the Fed is on hold with any further rate hikes over the near-term.
The current rally has also afforded us to trade out of a couple positions and reduce exposure to stocks where we can either book small gains, break even or take a small loss depending on each situation. Hence, we closed out full positions in Abbott Labs and Chevron and have four open sell orders at work to raise cash on any further upside momentum.
Against an investing landscape where volatility is elevated, investors should maintain at least a 30% cash position. As more of the uncertainties that fueling the nervousness clear up, we should see volatility levels come down around late March -early April. By then the big unknown about trade with China will likely have been resolved and we’ll have considerably more data on global growth prospects for 2019.
We will still trade the volatility when opportunity presents itself. The iPath S&P 500 VIX Short-Term Futures ETN (VXX) has proven to be a very profitable trading tool for RoboIvestors during 2018 and I’m sure it will be just as meaningful to our total returns this year as well. Currently we are out of this position and expect to get long on VXX when my indicators signal to do so.
As it would be, our Tradespoon Seasonal Chart is indicating the SPY to trade higher over the next 20, 30, 40 and 50-day periods. This correlates nicely with how the first quarter of the year is typically strong for stocks. And with prices well depressed from the late September highs, the intermediate-term direction for the market favors the bulls.
So, with the Fed in check and the trade talks moving in the right direction, it’s up to earnings and forward guidance to do the heavy lifting for market bulls going forward as of next Monday when Citigroup officially kicks of the reporting period. Markets have already discounted lower expectations and so any decent level of CEO optimism should be well received by market participants.
As the new year unfolds, the investing landscape is surely going to be trickier and more challenging and definitely more of a stock picker’s market. RoboInvestor provides key technical insight above and beyond conventional technical analysis. While our model portfolio was not immune to the market correction, the resiliency of our recommended holdings is a testament to my AI platform for identifying great stocks and ETFs.
Become a RoboInvestor today and invest with those that have already come alongside me to navigate the market profitably with consistency. I’m confident your small investment in becoming a member of RoboInvestor will pay for itself many times over.
Have a good week investing!
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.
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