Is the market rolling over or just catching its breath? … why our technical experts are bullish … the support level they’re eyeing today … Louis Navellier subscribers lock in a 77% winner
Inflation isn’t playing nice.Last week, hotter-than-expected numbers from the CPI and PPI reports rattled Wall Street. This morning, the elevated-inflation trend continued with the Fed’s preferred inflation gauge, the Personal Consumption Expenditures Index (PCE). The PCE numbers rose 0.6% in January and 4.7% from one year ago. That topped expectations of 0.5% and 4.4%, respectively.As I write Friday mid-afternoon, the markets are selling off because of the implications for the Fed’s reaction.From CNBC:
All of the numbers suggest inflation accelerated to start the new year, putting the Fed in a position where it likely will continue to raise interest rates.
Is the market rolling over, or are we watching healthy consolidation before more bullishness?
That’s the big question on investors’ minds today – even more so after this morning’s data.Regular Digest readers know that I’ve leaned bearish for months, and have grown especially concerned after January’s run-up in the market. But our technical experts John Jagerson and Wade Hansen of Strategic Trader have a more bullish view of conditions today. And wise investors always challenge their market beliefs, doing their best to discover why their narrative could be flawed.To begin understanding why John and Wade remain confident, let’s pick up from their Wednesday update as they discuss recent market declines and a growing anxiety in investors:
Traders are clearly spooked this week – and it’s not surprising why.The S&P 500 dropped by -2% on Tuesday while small caps declined -2.95%; we haven’t had a day this bad since last November.From a technical perspective, the drop this week pushed the S&P 500 below horizontal support at 4,100 and the Russell 2000 small-cap index back to its last support level.
Since John and Wade’s Wednesday update, the losses have continued. The S&P trades at 3,960 as I write Friday.
Was January a “Bull Trap”?
That’s the question investors are asking. Fortunately, it’s the one John and Wade squarely address.Back to their update:
During a bear market, brief rallies are referred to as “bull traps” because they fool buyers into jumping into the market before trapping them with losses as prices decline again. If you have been watching the financial headlines this week, you’ve probably seen that term thrown around.We don’t think the last two months have been a bull trap; bear markets fool investors when the underlying fundamentals are negative.However, the general outlook right now is positive. Labor and consumption are still strong, manufacturing numbers are recovering, and inflation rates have been receding (or at least stopped rising.)
So, what accounts for February’s market weakness then?John and Wade point toward the same dynamic we’ve profiled this week here in the Digest…Wall Street is finally pricing in “higher for longer” from the Fed.Back to the Strategic Trader update:
…Because inflation levels haven’t fully dropped back to the Fed’s target yet, investors are pricing in higher rates for longer.To put this in perspective, last month, investors thought the odds that the Fed’s target rate would reach 5.25-5.5% this year was virtually zero.However, as of [Wednesday], the bond market is pricing in a nearly 75% chance that the Fed’s target rate will be 5.25% or more by June.
Those odds have inched up since Wednesday. As I write, they’re nearly 80%.
Why “higher for longer” won’t kill January’s bull market
So, traders are now pricing in a target range of 5.25% -5.50% later this year. Meanwhile, the current target range is 4.50 % – 4.75%.John and Wade point out that a “75-basis point move this year isn’t much.”While it’s enough of a hike to keep things volatile in their short-term, they don’t believe it’s significant enough to cause a larger breakdown in the S&P.In fact, they’re calling for a bounce very soon at a key level we identified earlier this week in the Digest…The S&P’s long-term down-sloping trendline.From our Wednesday Digest:
In January, the S&P finally broke through its down-sloping trend line, something it hadn’t been able to do in all of 2022.But as February’s weakness as continued, the S&P has fallen and is now approaching this down-sloping trend line.As you can see below, the trend-line continuation level is roughly 3,925.
That’s only about 1.5% below us as I write Wednesday morning.I should point out that the S&P’s 200-day moving average comes in at roughly 3,940, adding even more importance to this general level.How the S&P handles this 3,925 – 3,940 range will be incredibly important. If we bounce, it suggests the bulls have more strength and January’s rally might have longer legs.
Drawing trendlines and respective support/resistance levels is part science, part art. So, while we highlighted the S&P’s range of 3,925 – 3,940 as a key support level, John and Wade put it slightly lower at 3,900.And here’s what they expect:
…We think it is unlikely that the S&P 500 will break all the way down to its long-term trendline support of 3,900 this quarter before bouncing back to its recent highs.
As I write Friday, the S&P trades at 3,960. That’s roughly 1.5% above John and Wade’s support level at 3,900. If they’re right, be looking for a bounce.Here’s their bottom-line looking forward:
The S&P 500 broke horizontal support but is above its stable trendline. Rising interest rates spooked traders who are expecting the Fed to raise rates further and for longer to bring those numbers back under control.However, on the positive side, market fundamentals are still solid.Labor and consumption are good, and [Tuesday’s] Flash PMI numbers showed services going back into “economic expansion” territory.In our view, the recent decline is a “correction” that will bounce at a higher low within the bullish trend that has emerged in 2023.
Meanwhile, congratulations to Louis Navellier’s Accelerated Profits subscribers
Yesterday, Louis recommended subscribers lock-in 77% gains on a one-third portion of their investment in Axcelis Technologies, Inc. (ACLS).Louis recommended the position last February. So, during a period in which the S&P lost more than 13%, Axcelis rewarded subscribers with gains of nearly 80%.I highlight this discrepancy to make an important point…We’re in a stock-picker’s market, not a buy-and-hold index-fund market – especially after the recent hotter-than-expected inflation data.This means your stock-selection process is more important than ever.Louis’s stock-selection process rests on one thing…Computers.In short, he uses numbers and algorithmic rules to guide his investment decisions – not hunches, emotions, or gut-feel. Forbes actually gave him the title “King of Quants.”This isn’t lip-service. To illustrate Louis’ focus on the numbers, let’s go to his profit-alert for Axcelis:
As you may recall, fourth-quarter revenue rose 29.3% year-over-year to $266.1 million, topping estimates for $248.64 million. Earnings increased 62.9% year-over-year to $1.71 per share, up from $1.05 per share in the fourth quarter of 2021. Analysts expected earnings of $1.38 per share, So Axcelis Technologies posted a 23.9% earnings surprise.During fiscal year 2022, Axcelis Technologies achieved revenue that surpassed its $4850 million revenue model. Full-year revenue increased 38.9% year-over-year to $920 million, while earnings jumped 85.5% year-over-year to $183.1 million, or $5.46 per share. These results also bested estimates for earnings of $5.04 per share on $902.59 million.Following ACLS’ recent strength, the stock is now up more than 77% on the Accelerated Profits Buy List. So, let’s take some of those profits off the table today.
I should point out that the strong return from ACLS isn’t an anomaly.Since June 30 of last year, Louis’ Accelerated Profits subscribers have seen 20 of their stocks rise at least 33%. The S&P is up only 3% over that same period.Last week, Louis held a special event that details his quantitative approach and the top-tier stocks it finds.From Louis:
I just put together a full presentation that explains all the details behind this rare caliber of stocks…Including how you can access dozens of these recommendations over the next year.
To watch Louis’ free presentation, click here. At a minimum, it will help you understand why a focus on quantitative strength is so critical for today’s market.A final “congrats” to the Accelerated Profits subscribers.Have a good evening,
Jeff Remsburg
