Buy Alert! Vlad’s Silver Lining Trade
RoboStreet – March 18, 2021
Fed Doubles Down Pushing Yields Higher
This week’s FOMC meeting produced no change in fiscal policy, but rather a reiteration of the dovish stance the Fed has held throughout the past couple of years. Fed Chair Jerome Powell stood firmly behind the position that he doesn’t expect to raise short-term interest rates through 2023, allowing inflation to trend toward their stated 2% goal and work toward full employment, which he said is a long way off.
After Powell’s press conference, the bond market showed minimal reaction, but come Thursday morning, the yield on the 10-year Treasury had jumped by 10 basis points to 1.75%, fueling a strong bid for financials, industrials, and value stocks while putting downward pressure on the Nasdaq.
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The SPY continued to make small gains led by the reflationary stocks. The main question is this a new leg up in the market or will there still be more volatility next week. Short-term, the SPY range remains between $380 and $400. The SPY is reaching overhead resistance at $400 and can retest recent lows at $380 level in the next two weeks (low probability event.)
The DXY is losing its momentum. The TLT is in the process of building a bottom. The bottoming process has started and the worse part of the sell off is now behind us. Market will finish the bottoming process in the next two weeks and will resume bullish momentum by the end of March or early April.
I would be a buyer using any short-term corrections, and use dollar cost averaging strategy to accumulate positions. Based on our models, the market (SPY) will trade in the range between $380 and $400 for the next 2 weeks.
Although the bond market had a delayed reaction to the Fed meeting, it’s oversold both on a fundamental and technical basis. The latest inflation data was pretty tame, oil prices look to be peaking near-term as are many commodity prices. This week’s initial jobless claims report of 771K was well above the 700K consensus and with the dollar starting to show some fresh weakness, the case for a pullback in bond yields is sound.
Shares of TLT are sitting right on a key 5-year trend line where a short-covering rally is quite possible if any further soft economic data crosses the tape.
Assuming this scenario starts to play out and rates start to back up with the dollar losing further ground, a bull case for silver can be made. Not only is silver an excellent hedge against a weak dollar and inflation, but its use as an industrial metal in the market favoring the industrial sector also makes good sense to have some exposure.
The best way to invest in silver as a pure-play is to go long the iShares Silver Trust ETF (SLV). Because of silver industrial application, it has held up very well in the wake of a pronounced sell-off in gold. Shares of SLV have been building an 8-month base, trading between $24-$26 for the most part and now look poised to break out Applying our proprietary AI platform to SLV, the Forecast Toolbox has a Model Grade “B” rating with a Predicted Resistance price target of $29.83, implying a move up of 23%. Considering where investors and place capital where the risk/reward prospects are so compelling, SLV should be on investors’ watch list if not in their portfolios when we recommend doing so in our RoboInvestor advisory service.
At RoboInvestor, our AI models the very best directional trades that have a duration of a week to maybe a couple of months as a stated objective. Our algorithms screen for the highest quality trades in stocks and ETFs the cover market sectors, commodities, currencies, interest rates, and volatility. We will also recommend using inverse ETFs for bearish strategies as well.
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The market has been generally good to investors year-to-date, but there is now some heavy sector rotation occurring as the investing landscape is changing with the prospect of more stimulus and big changes in tax policy. Having an agnostic set of AI tools to navigate through a more uncertain investing landscape is in my view crucial.
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