Alert! Vlad’s Best Rising Rate Trade

by Vlad Karpel

RoboStreet – September 16, 2021

Rolling Correction In Motion 

The month of September has lived up to its reputation of being a difficult time for bullish momentum in stocks. In fact, quite the opposite has occurred as a slow deterioration of the advance/decline line has characterized a market struggling to maintain its upward bias. Talk of Fed tapering, higher taxes, more booster shots, and widespread crackdowns in China are rattling investor sentiment.

And then there is the nagging issue of inflation which is very elevated at the wholesale level and persistently up on the consumer level. Crude prices topped $72/bbl this week, implying higher gasoline prices and natural gas prices rose above $5/mcf for the first time in seven years that makes for an expensive winter heating season. Wage inflation is also a sticking point where 11 million unfilled jobs are forcing hiring incentives and pay increases to attract talented workers at all levels of the workforce.

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All 11 market sectors are undergoing some form of correction where no sector has remained unscathed. With the exception of FAANG and a few other big-cap names, even the mighty technology sector is seeing healthy distribution. The biggest laggards of the week are the casino names doing business in Macau where another outbreak of COVID-19 and new regulatory oversight is hammering those stocks.

Collectively, a 5%-10% correction is quite possible, depending on how the Fed couches its Fed policy statement next week. To this end, a cautionary tone will likely rule the investing landscape until some of these pressures are lifted.

From a purely technical standpoint, the $SPY bounced off the 50-day moving average, $442, and settled below the prior breakout of $449. The value/reflationary stocks traded higher as did technology stocks following a six-day wave of selling.

$DXY next level of resistance is at $93

The $DXY started to break down its multi-month bullish momentum, but the short-term is oversold. The next level of resistance is at $93. The $TLT bounced back above the 50-day moving average (the bullish medium-term for the market).

Based on the steep correction in the reflationary stocks, strong dollar, and overbought technology stocks, the market will continue the pullback in September. The $SPY short-term support level is at $442, followed by $438. The SPY overhead resistance is at $455. I expect the next stage of the pullback to continue in the next two weeks.

I would be a buyer of value stocks on pullbacks and sell technology stocks on rallies. Would consider rebalancing the portfolio at this point to be bullish. The second wave of selling will continue for the next 1-3 weeks. Market corrections are never a one-way trade.

Based on our models, the $SPY can pull back 3-5% from the all-time highs in the next 1-3 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 $435 and $455 for the next 2-4 weeks.

Break above the 1.38%-1.40% level would invite further selling of Treasuries

Stronger industrial production and retail sales data out this week as bond yields on the rise with the 10-yr T-note yield up to 1.33% and back up to the high end of the recent range. A break above the 1.38%-1.40% level would invite further selling of Treasuries. 1.50% would be the next area of overhead resistance.

Against this likely scenario, the money center and regional banks should outperform as their ability to generate Net Interest Income improves. The spread from the money they borrow from the Treasury and then loan to businesses and consumers at higher rates. It is the bread and butter of the banking business and widening spreads means profits.

Shares of the Financial Select Sector SPDR ETF (XLF) are an excellent way to cast a net over the sector with the top 10 holdings accounting for about 55% of total assets.

Our RoboInvestor advisory service is where we look to seize on market developments like rising bond yields. When we apply our artificial intelligence platform to ETFs and stocks, the data received provides confirmation of our conviction and ferrets out which are the best ETFs and stocks to buy.

XLF uptrend over the next 30, 40, and 50-day periods

From the AI-driven Seasonal Chart below we can see that for the balance of the next three weeks, shares of XLF will consolidate. And then embark on an uptrend over the next 30, 40, and 50-day periods. Hence, XLF is a perfect setup for being added to our RoboInvestor Portfolio and a trade reader of this blog should want to get in on when our indicators flash a short-term buy signal.

Our AI-powered Forecast Toolbox is also bullish on XLF, with a “B” Model Grade rating and a Predicated Resistance price of $44.32 over the intermediate-term. With the stock currently trading at $37.75 and sitting right on its 50-day moving average, finding a conservative ETF such as XLF with 18% by year-end is a high-quality trade.

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 “I’m investing my own money in each and every stock as my AI platform identifies.”

And remember we’re not talking about day-trading here.

Click Here – To See Where I Put My RoboInvestor Money

*Please note: RoboStreet is part of your free subscription service. 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.