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RoboStreet – June 7, 2018
Summer Setting Up Well for Unseasonal Rally
The S&P 500 made a decisive and broad advance this past week, breaking out of a trading range that only one month ago had the market’s benchmark index breaching its 200-day moving average that threatened the bullish case as the dollar, oil prices, and bond yields were all spiking in tandem. What a difference a month makes. The upside breakout is not consistent with historical patterns as seen in my Tradespoon Seasonal Chart below. June is typically a time when the market as a whole is on the defensive, so the move up this past week could be defined as a welcome surprise!
And while the Seasonal Chart points to a higher market during the next 20 days, it still forecasts a series of bouts of selling pressure over the course of the next few months and thus we must treat the current rally as possibly short term in nature and look to book profits when the market enters overbought territory, such as the present.
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.
Part of the reason for the market’s rally is that some of the recent headwinds have dissipated. The dollar index (DXY) topped at 97.87 and has since pulled back to 93.48, WTI crude topped at $72.83/bbl and has since come way back to currently trade at around $65/bbl. A year ago, almost to the day, WTI crude was a full $20/bbl lower. And the closely watched yield on the 10-yr Treasury touched 3.15% before buyers stepped in, taking the yield back down to its current 2.87% level. I made note in earlier RoboStreet updates of these market speedbumps and fortunately all three components inhaled and not a moment too soon.
The new and fresh rally is broad-based with 10 of 11 S&P 500 sectors advancing. Even the lagging financial sector got a serious bid on Wednesday after Treasury yields rose on strong economic news. What is most significant is how investors have embraced the parade of really good data points that amplifies what JP Morgan CEO Jamie Dimon voiced on June 1 that “the U.S. economic expansion may be only two-thirds of the way through its course.”
Instead of getting caught up with the drama being played out on the global stage of politics and currencies, in addition to the aforementioned trio of a rising dollar, oil, and bond yields, investors have embraced what matters most to the stock market – the economy. Consumer confidence, revised GDP, payrolls report, average hourly wages, the pace of manufacturing, new orders, and domestic oil production were all higher for the month of May with that same momentum in place entering June.
As to navigating this market, our RoboInvestor Portfolio continues to exhibit excellent relative strength this past week. One of our holdings, Electronic Arts (EA), a publisher of video games, broke out to a new all-time high, trading at $138.75. Our cost basis is $128.68 giving us a nice +7.8% profit and still looking like there is room for the stock to run higher. And not just a little bit higher, but a lot higher.
My Tradespoon Stock Forecast Toolbox has a six-month price target for EA of $183 that would represent a gain of an additional 35% heading into the strongest quarter of the year for online video gaming sales. My AI platform is designed to look out six months and thus adjusts its price parameters each and every day. This is the kind of stock selection that RoboInvestors are cashing in on when they subscribe to the service.
It’s my intention to build a rotational portfolio of around 20 stocks that we can invest in when those stocks and sectors are in favor and rotate to other picks as my AI platform uncovers where our investing capital is best served. Lately, it’s been in technology, consumer discretionary, digital payments and software and I have upped our exposure to aerospace/defense, transportation, healthcare, financials to diversify our risk.
Again, it’s not too often investors get to enjoy the spoils of a summer stock market rally, but if 2018 is going to be one of those years, then by all means having my AI platform working overtime on our behalf to produce consistent gains is a system set in motion for financial success. And I emphasize the word “system” as most every major hedge fund I’ve worked with has a certain system that defines their investment model. We do the same here at Tradespoon. The difference is the price of entry isn’t $10 million to get involved and my system picks winners over 80% of the time. That’s quite a difference!
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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