Market Overview

9 Advantages Of Target Investing

Can you make sense of this?

Two weeks ago, the markets experienced a brutal sell-off (S&P 500 down -6.1%) due to inflation rhetoric, rising gas prices, 75 bp Fed Funds rise, and the fastest acceleration of the 10-year US Treasury in history.

Last week the S&P 500 jumped 6.7% and recovered all of the prior week’s losses.

It appears as if all the bear market narratives have all but disappeared. The 10-year interest rates dropped back down to close to 3.0% (from 3.25% the week before), oil fell over 5% (from $120 to $113), and the major banks (JPM) insinuated that we may dodge a recession. The stock market liked this commentary.

Did things change that fast? Did all the world’s problems go away?

We don’t think so.

While the inflation story may have temporarily peaked, it is far from over.

If you look back to the 70’s when we last experienced this type of out-of-control inflation, it took several years and significant interest rate hikes to get it under control.

Inflation peaked at 12%, gasoline was in short supply, interest rates peaked at 16%, and stagflation plagued the economy for almost 10 years (1973 to 1982).

It is nearly impossible to believe that inflation has subsided in any meaningful way.

As we have written before, inflation is punishing and insidious. It lasts far longer than anyone expects. In fact, as Mish has pointed out on numerous shows this week, inflation, and especially stagflation, will be around for many months, if not years.

See her explain the severity of the situation in a few of her national media appearances from Friday below.

Cheddar News: Market Wrap Up for a Wild Week

Fox News with Neil Cavuto: With So Many Current Events- What Will the Market Do?

UBS Wealth Management: Volatility and Uncertainty Continue

Friday’s fierce rally was nothing more than a short-term reprieve.

Coincidentally, rallies like Friday’s are even more likely at the end of a quarter because this is when Wall Street and the investment community are rebalancing and repositioning their portfolios.

It’s in Wall Street’s best interest to drive prices up near the end of the quarter to take advantage of fee billing which is based on balances on June 30.

The Inflation Problems Persist

Friday, oil prices (and oil-related stocks) were back up a few dollars and the world began talking, yet again, about the energy supply constraints in Europe that would likely spill over to the US.

In the past month, we’ve seen oil spike to a high of $124 a barrel, come down to $107 and end the week at $113. Gasoline still hovers around $5.00 a gallon nationally. The precious commodity remains volatile and has a short-term impact on interest rates and the broad stock market. (See oil chart from this week below).

Brent Crude Oil Daily Chart

The Problem Is Bigger Than Oil

We are starting to hear from a few manufacturers, [it was Tesla (NASDAQ:TSLA) this past week], who began whispering about laying off highly compensated employees due to the scarcity of products and the ongoing debacle of the global supply chain.

Even worse, some foods are increasing in scarcity, and we are approaching an important holiday where people will be tested as they’ll have to choose between buying food for the family or gas to get to work or visit family.

We remain in the early innings of a difficult and challenging market. There are just too many factors, including potentially disappointing earnings, that are upon us in the near future to expect anything more than a bear market bounce.

Why Target Investing Is So Important (And Leads To Good Risk Management)

If you watched any of the Mish replays from above, you inevitably heard Mish talk about the current economic environment as a “Trader’s Market.”

Mish’s Premium strategy, and our Algo-based mechanical investment solutions, employ methodical RISK MANAGEMENT. As a result, several of them are positive on the year.

RISK MANAGEMENT means that no initial trading/investment position is entered without knowing two things: THE STOP and THE TARGETS. Over the years, we continue to demonstrate that this methodology produces better results.

STOPS: they are put in place in case something goes wrong with the purchase thesis. If this is the case, we want to cut our losses and either sit in cash or deploy the capital in a better idea.

TARGETS: these are put in place the very minute we initiate a position. Why? Because we understand (and you should too) how fast profits can disappear. Taking profits in stages at targets helps to ensure a profitable experience even if the stock goes down quickly thereafter. If a MarketGauge target is hit, stops are ALWAYS moved up to capture the position at break-even to avoid letting the profitable trade turn into a loser. This is portfolio management at its best.

Tony Robbins

“Nobody ever lost money taking a profit”
Bernard Baruch

Another aspect of Target Investing is our ongoing rotation in many of our models. Utilizing MarketGauge’s proprietary indicators, we determine the best stock or ETF to be invested in at that time.

This is another form of TARGETED investing. This allows us to catch the upward momentum of sectors and industries that are experiencing upward price appreciation.

When you combine both aspects of this Risk Management together, you get better results. This can be seen in the long-term track records of all of our investment strategies.

For example, over the last two years our ETF Sector Moderate model has enabled subscribers to take 20%-100% gains using targets in ETFs like Direxion Daily Energy Bull 2X Shares (NYSE:ERX) (Energy), Direxion Daily Retail Bull 3X Shares (NYSE:RETL) (Retail), VanEck Gold Miners ETF (NYSE:GDX), and Invesco Solar ETF (NYSE:TAN) (Solar Energy).

If you are a follower of the NASDAQ All-Stars, then you may recall taking significant gains of 20%-65% in Moderna (NASDAQ:MRNA), Atlassian Corp (NASDAQ:TEAM), Advanced Micro Devices (NASDAQ:AMD), NVIDIA Corporation (NASDAQ:NVDA), and TSLA, to name just a few.

Market Insights from our Big View service:

  • All 4 key indices have reclaimed their respective 10-day moving averages, as they are in the process of mean reverting and look to have upside until potential resistance at their 50-day moving averages. (+)
  • Despite the rally in Utilities (XLU) to close the week just below its 200-day moving average, our Triple Play indicator still shows that Utilities are underperforming the rest of the market on this rally. (+)
  • After every sector that we monitor was negative last week, this week every sector was positive with the exception of Energy (XLE) due to the overbought levels in energy stocks leading into this week. (+)
  • Speculative sectors such as Consumer Discretionary (XLY) +9.2% led this week. (+)
  • Risk-Off plays like Utilities (XLU) +5.4% and Consumer Staples (XLP) +5.5% lagged other major sectors this week, confirming a Risk-On scenario. (+)
  • Commodity prices got hit across the board, while speculative sectors like Clean Energy (PBW) and Solar (TAN) outperformed the market even though Oil-based energy plays sold off (but may have found support within their longer-term trend). (+)
  • Market Internals for both SPY and the NASDAQ Composite according to the McClellan Oscillator and the Advance//Decline indicator drastically improved with price this week and did not reach overbought levels, indicating more room for further price growth next week. (+)
  • The number of stocks above key moving averages improved drastically for both SPY and IWM components, but are not yet overbought. (+)
  • According to the Triple Play indicator, Value (VTV) is now lagging the market while Growth (VUG) is definitively taking leadership on a short-term basis. (+)
  • The strongest member of Mish’s Modern Family this week is definitively Biotech (IBB) as it is the only member that is now trading above its 50-day moving average. (+)
  • China (FXI) is the only major country fund/ETF that is positive over the past 3 months, an active position in Mish’s trading service. (+)
  • Keep an eye on the Chinese yuan (CYB) as it looks likely to breakout above key resistance around the $26.05 level after closing 2 cents above its 50-day moving average to end the week. (+)

Bearish/Risk Off

  • On a longer term basis, the Russel 2000 (IWM) is still below its 200-week moving average and not mean reverting at the same pace as the other indices which is an indication of retail-side sectors lagging in the current recovery. (-)
  • Over the past 2 weeks we are still showing relatively weak volume across the key indices even with a major rally in price. (-)
  • Even with prices improving, the New High/New Low ratio for both the S&P 500 and NASDAQ components still look anemic. (-)
  • Cash Volatility (VIX.X) has retreated into a weak warning phase to close the week but remains in Risk-Off territory. (-)
  • After a strong beginning to the week for bonds, Friday saw Treasury bonds (TLT) roll over a bit, however, they seem to still be in the process of mean reverting to the upside for the time being as long as TLT holds above its 10-day moving average. (-)
  • Agriculture (DBA) sold off hard but managed to find support at its 200-day moving average, while Doctor Copper—Global X Copper Miners ETF (NYSE:COPX)—broke down to a new 2022 low and looks to have potential for more downside if it can’t bounce here from oversold levels. (-)
  • On a short-term basis Oil (USO) broke down below its 50-day moving average on price as well as the 200-day moving average on Real Motion, and any strength to start next week would be an indication that Oil stocks will mean revert back to the upside and potentially re-establish the sectors long-term positive trend. (-)

Neutral

  • Risk Gauges marginally improved except for IWM. (=)
  • With the exception of China (FXI) keeping up with the pace of US Equities, the remainder of the foreign equity market (EEM & EFA) are lagging US stocks on a relative basis during the current rally. (=)
  • Gold (GLD) is sloppy and choppy with seasonals potentially kicking into the upside. (=)

Source

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