Inflation Trade Alert: Black Gold!
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As the year started with so much promise in what was textbook Santa Claus Rally, the rally was cut short by the release of the Fed’s December policy statement revealing a more hawkish action plan than had been communicated by Fed Chairman Jerome Powell following the FOMC meeting. It caught Wall Street off guard as bond yields rose across the yield curve – the 10-year trading above 1.77% - its highest level since April.
Wednesday’s session ended with the Nasdaq dropping 522 points, led lower by mega-cap tech that had held up fairly well in the face of rising interest rates. But the FAANG dam plus the mighty Mr. Softie couldn’t hold and everything tech got slammed in a wave of unbridled selling that saw some downside follow-through Thursday morning before some leading tech stocks saw some buyers step in.
The worst of the selling pressure is taking place in the high price-to-sales stocks and ETFs like the ARK Innovation ETF (ARKK) where there is more downside being felt in yesterday’s session. There is a clear desire by investors to want out of these growth stocks, of which most have no price-to-earnings ratios. It’s like someone yelling “fire” in a theatre and it’s hard to determine when the selling will subside.
Depending on the employment data due out this morning, it will be interesting to see how the bond market reacts and thus stocks as well. Since the ADP and hourly wage and unemployment rate data was strong, it stands to reason the bond yields popped higher Friday. But the market suspected this was going into the number and thus is probably reflected in much of the recent move up in rates.
TRADING LANDSCAPE
The $SPY sold on the hawkish statement from the Fed, and closed down 2.0% below key short-term support at $468, right above the 50-day moving average. The value/reflationary outperformed the $SPY and closed in the red, down 0.5% and near the all-time high. The technology sold off sharply on the steepening of the yield curve, down 3.0%, right above the key long-term support level at $380.
The $DXY was range bound and closed above $96 above the key breakout level of $94.5. The $TLT continued the sell-off and closed right below the 200-day moving average. The $VIX traded higher, at 20-level.
The $SPY short-term support level is at $462 (key short-term support), followed by $450. The SPY overhead resistance is at $480.
After the Fed's hawkish statement, it is important to see if the $IWM and the $QQQ will maintain the key mid-term support levels, the December low for the $IWM at $210 and the $QQQ at $380. If these levels are breached there is a high probability that the $SPY has set the high at $480 for the rest of the year.
I would consider rebalancing the portfolio at this time and have an overall market NEUTRAL portfolio. I do expect potential sharp pullbacks (5-15%) followed by a rebound in the next 2 months.
If you are trading options, consider selling premium with March and April expiration dates. Based on our models, the market (SPY) will trade in the range between $450 and $490 for the next 2-4 weeks.
NEW EARNINGS POWER TRADER SERVICE
We recently launched our new Earnings Power Trader service that we at Yellow Tunnel are very excited about. Each week, our expert traders use our AI Tools to provide the Top Bullish and Bearish Stocks, each with an Entry Price, Target Profit, and Stop Loss.
This new service is special because it offers real-time alerts via SMS and access to Vlad's live positions and orders. When I put together this system, I wanted to be in the fight with other investors. That’s why I don’t play on your emotions to sell newsletters - I put my money where my mouth is.
Every trade recommendation that I make using this system – comes straight from the list of trade recommendations I use myself.
Not only that but every trade I make is logged in detail for you to review at any time. You can see my entire trading history, updated LIVE so that you can see, learn from, and even copy my trading strategy.
Signals have historically averaged over 86% accuracy in my live trading since inception. Sometimes we hold positions for 2-5 days by using options (selling OTM Calls and Puts spread) and targeting 1% target gain and 1% stop loss using stock price. The green color should be interpreted as a bullish signal and the red as a bearish signal.
How To Use Our Signals
Once you become a member, I encourage you to review our Live Trading Room recordings to see how I trade Aggressive Power Trader signals in my account. A snapshot of how we produce our Live Trading Room Sessions shows how we pack in a lot of information that can be accessed from whatever device you’re driving.
As a reminder, consider buying near the "BUY" level with a "10 days prediction" higher than the close price. In our live trading room, I usually hold a position for 1-2 days.
I allocate less than 5% of my portfolio if the position is being held overnight. On average, less than 1% of the portfolio should be at risk if you own a position for less than one day.
I enter a position at the predicted LOW (BUY) price or yesterday's close price. My stop loss is 1% and my target gain is 1% of stock price. I target 75% accuracy using these signals.
Few subscribers asked about Options trading using the signals provided. Please review live trading room recordings. I often sell OTM credit put spread using weekly options and collect 0.5% using stock price. For example, if the stock is trading at $100, I would sell OTM put (strike less than 100) with option BID price close to $0.5.
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Earnings Season starts Thursday, January 13th and the first to announce its earnings is JP Morgan.
The last time we traded JPM on November 29th we had a 199% return on risk.
AND, the last time we traded STLD on October 25th, we had a 100% return on risk.
Let me repeat that, we had a 199% and a 100% return!
That's a pretty good return after holding the position for only 6 and 7 days!
Be prepared: JP Morgan (JPM) is scheduled to announce its earnings on January 13th, and Steel Dynamics (STLD) earnings are scheduled for January 23rd.
This is my favorite time of year!
You’re Invited: Click Here
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SECTOR SPOTLIGHT
Within the market, there is great emphasis on inflation and which sectors stand to not only provide protection but also deliver profits. Of the choices traders have to work with, energy is at the top of the list of where the opportunity lies. With crude prices rallying back up to $80/bbl, the energy sector is seeing strong fund flows into ETFs and stocks.
To the point, the Select Sector SPDR ETF (XLF) shares are the go-to sector trading vehicle for professional money that doesn’t want a single stock risk. XLE represents a basket of the best-of-breed financial companies from fundamental and technical aspects.
The top components of XLE are truly in a very attractive zone of upside breakout potential. Most of these stocks have been consolidating for several months and are poised to emerge from classic consolidation patterns. Shares of XLE have spiked and broke out of a multi-month base that goes back to March following a big first half of the year rally. At this point, the 20, 50, and 200-day moving averages are all compressed at current levels that bode well for an extended run higher.
TRADE OF THE WEEK
Of all the top ten holdings within XLE that make the grade, the most compelling stock I find to be the most opportunistic for upside profits is Chevron Corp. (CVX). As the most prolific energy company in the world, Chevron is best positioned to capture and profit from the hugely opportunistic business conditions that lay forward for 2022.
Similar to the XLE chart, shares of Goldman have been consolidating since March, having tried to push higher before Omicron set in and crushed the early fall attempt to break out. Now, the situation looks much more compelling. Suppose Omicron is the final phase of the chokehold on rising economic activity and higher demand for oil is required to compensate for that prosperity. In that case, shares of CVX are set to trade higher.
Applying the Forecast Toolbox, we get a solid Model Grade “B” rating and a substantial upside Predicted Resistance price target of $134.98 for the next two weeks. From a short-term trading standpoint, that is a reliable and compelling setup trade for stock and options traders.
This is what our precision AI platform does for our members. It identifies, clarifies, and verifies high-quality trades like a clear and powerful uptrend in stocks like CVX. By being a member of any one of our services, it’s these kinds of opportunities that our proprietary algorithms provide our members to look forward to every day, where they can put their risk capital to work on both long and short positions.
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Considering the choppy landscape of late, we’re taking advantage of market dislocation and valuation distortion. We’re striving to help our members ring the register all the time and this is why serious traders don’t trade without checking in with market-proven AI tools. Here are some examples of recently closed trades using our services.
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Have a wonderful week and let’s create some meaningful wealth together in 2022!