Markets Remain in Fight or Flight Mode While Rolling the Dice on Recession Odds

Global Macro and Stock Markets Analysis

US equities fell .4 % in a choppy session to start the week with little change to the broader macro or recessionary narrative.

Markets remain in fight or flight mode while rolling the dice on recession odds.

Still, traders seem to be in the mood to stay bearish until proven otherwise. However, there is still a lingering risk- on tone despite horrific Chinese data.

Investors’ hopes remain elevated that yesterday’s worse than expected Chinese outruns could prove to be a ‘whatever it takes” moment, and local policymakers will step hard on the stimulus pedal.

Oil Fundamental Analysis

Oil prices are up near 2.5 % on a confluence of anticipated Chinese demand returning amid Russian supply concerns. But China’s covid slowdown is music to oil bull’s ears as the breadth of the shift is where the surprise lies.

In addition, Shanghai has announced a gradual reopening starting immediately. It aims to return to everyday life by June 1, so we should expect mobility to return to its usual post haste.

But importantly, this could mean more stimulus down the pipe as even a gradual reopening increases the prospects for policy easing.

China’s official institutions have been reluctant to enact an adequate stimulus program as the locked-down economy is not giving policymakers bang for their buck via the multiplier effect.

Oil investors will continue watching the China covid curve while playing the China rebound story through Oil futures and XLE.

FOREX Fundamental Analysis

Chinese Yuan CNH

Traders have moved off, at least this one has, the CNH/JPY competitive advantage trade as a motive to sell the Yuan. And are now looking at the typical RMB correlation associated with local equity markets.

While a depreciating RMB is theoretically positive for export-oriented firms, it is generally associated with lacklustre overall share market performances.

With a good chance, policymakers could use yesterday’s economic data low point as a watershed moment to release a flood-like stimulus once the economy opens. There should be a positive bounce in Chinese equities and possibly change the tide for USDCNH. But mainland stocks will need to do the heavy lifting, not the PBoC

Japanese Yen

For the yen, the tide may be starting to turn. The Japanese currency broke nine successive weeks of losses against the US dollar last week.

There has been a notable change in how the pair operates in the last week.

US rates had been behind the currency moves – pushing the US dollar higher against the yen, euro, franc, and Aussie.

Now the drivers are more technical. When rates go up and equities go down – the S&P 500 had fallen 6.4% since May 4 when the Federal Reserve lifted rates by 0.5 percentage points – dollar-yen is not rallying as much. Instead, it is now trending down.

Traders want to buy the yen – and the classic ‘risk-off’ hedge of holding yen calls. Again, this is rolling the dice on US recession odds which could cause a significant spill across the global markets.

For a look at all of today’s economic events, check out our economic calendar.

Best Stocks to Battle Inflation Fears for May 2022

As such, we’ve seen big selling over the past six months by Big Money investors like institutions and pension funds. Inflation and equity downturns can be a nasty combo punch for investors, and we’re seeing it now.

Markets and Big Money in the Last Six Months

My research firm, MAPsignals, tracks the Big Money because we believe that’s what tends to move markets. Right now, there’s huge selling (red bars) and an almost complete lack of buying (blue bars):

But there have been some sectors doing well despite the mass market downfall. Three are energy, materials, and utilities. They’re rising because of inflation and the current geopolitical situation’s effect on supply chains.

Chart, histogram Description automatically generated

But that doesn’t mean the only winners are there, just that those sectors are generally benefiting from current market conditions. See, when it comes to inflation, investors need stocks that can handle storms. Those tend to be strong, big companies with healthy balance sheets as well as pricing power that enables paying dividends. Here are five stocks that can go a long way to help battle inflation: ADM, MOS, CTVA, EOG, and JNJ.

Archer-Daniels-Midland Company (ADM) Analysis

Up first is Archer-Daniels-Midland, the agricultural commodities giant.

Companies with pricing power can do well in inflationary environments. With ADM focused on food staples and suffering from supply chain issues, it is experiencing elevated prices and strong demand at the same time. It’s weathered the storm well and pays a nearly 1.9% current dividend. Stocks like ADM are worthy of attention, especially on pullbacks. Check out Archer-Daniels-Midland:

  • 1-month performance (-10.8%)
  • Year-to-date performance (+25.0%)
  • Recent Big Money buy signals

To show you what our Big Money signals look like on a stock, have a look at all the buys in ADM over the past year:

Looking more broadly, Archer-Daniels-Midland has been a high-quality stock for years. The blue bars in the chart below show when ADM was a high-ranking stock likely being bought by a Big Money player, according to MAPsignals. When you see a lot of blue, like ADM has recently, it can be very bullish:

Source: www.MAPsignals.com

Those blue signals indicate Big Money buying and solid fundamentals. As you can see, Archer-Daniels-Midland’s sales and earnings growth have been strong, making it worthy of attention:

  • 1-year sales growth rate (+32.4%)
  • 3-year EPS growth rate (+19.1%)

The Mosaic Company (MOS) Analysis

Next up is Mosaic, a fertilizer and feed company that pays a nearly 0.8% current dividend.

Check out these technicals for MOS:

  • Year-to-date performance (+51.0%)
  • 1-month performance (-19.6%)
  • Recent Big Money buy signals

As markets have turned from growth to value and geopolitical tensions have risen, stocks in certain sectors, like materials, have benefitted. MOS is definitely one of those, as you can see the Big Money buying that’s been prevalent the last year:

Now let’s look long-term. Below are the top buy signals for Mosaic since 2009. The Big Money has been on it in waves:

Source: www.MAPsignals.com

Now let’s look under the hood. As you can see, Mosaic has had strong recent sales growth and owns a healthy profit margin:

  • 1-year sales growth (+42.3%)
  • Profit margin (+13.2%)

Corteva Inc. (CTVA) Analysis

Another inflation-beating name is Corteva, an agricultural firm focused on solving the world’s biggest food challenges. It currently pays a 1.0% dividend.

Strong inflation-beating stocks almost always have Big Money buying support. Corteva has had that in the past year, and its recent dip may provide an attractive buy opportunity.

  • Year-to-date performance (+13.0%)
  • 1-month performance (-10.3%)
  • Historical Big Money signals

Below are the blue Top 20 Big Money buy signals CTVA has made in the last year. Look at how Big Money drives up prices. That’s the JUICE!

Source: www.MAPsignals.com

Let’s look deeper. Earnings growth for Corteva has been impressive. I expect more of the same in the coming years. Its minimal debt is also encouraging for the future.

  • 3-year EPS growth rate (+121.9%)
  • Debt/equity ratio (+6.2%)

EOG Resources, Inc. (EOG) Analysis

Number four on the list is EOG Resources, which is a low-cost oil and natural gas company. It currently pays a dividend of slightly more than 2.5%.

Here are the technicals important to me:

  • 1-month performance (-2.6%)
  • Year-to-date performance (+36.5%)
  • Historical Big Money signals

With the energy sector on a rise for a while, EOG has seen a lot of Big Money buying:

Given that, it’s not surprising EOG Resources is a Big Money favorite recently. But it’s been like that for some time. Below are the Big Money Top 20 buy signals for EOG since 2004:

Source: www.MAPsignals.com

Let’s look under the hood. EOG Resources sales have jumped quite a bit and its profit margin keeps investors happy:

  • 1-year sales growth rate (+99.1%)
  • Profit margin (+23.6%)

Johnson & Johnson (JNJ) Analysis

Our last inflation beater is Johnson & Johnson, the health care giant. It’s involved in many aspects of health care and pays a nearly 2.6% dividend currently. JNJ has been strong since markets got rocky last fall:

Check out these technicals:

  • 1-month performance (-2.1%)
  • Year-to-date performance (+3.0%)
  • Historical Big Money signals

JNJ is a high-quality stock. It’s made the MAPsignals Top 20 buy report 113 times since 1990. As you can see below, it’s been a Big Money favorite:

Source: www.MAPsignals.com

Now let’s look below the surface a bit. JNJ sales have been growing, it’s highly profitable, and the stock is not too expensive right now:

  • 1-year sales growth rate (+13.5%)
  • Profit margin (+22.3%)
  • Forward price-to-earnings ratio (+17.2x)

Bottom Line

ADM, MOS, CTVA, EOG, and JNJ represent the best stocks to battle inflation for May 2022. This group has been able to handle volatile markets well. They’re strong, fundamentally-sound stocks that pay dividends and are set up for success in inflationary environments.

To learn more about MAPsignals’ Big Money process please visit: www.mapsignals.com

Disclosure: the author holds long positions in EOG in personal and managed accounts.

Contact

https://mapsignals.com/contact/

Big Money Buys Black Stone Minerals

And the limited partnership focused on oil and natural gas mineral rights could rise even more due to strong sales and a nearly 7.1% current dividend. But another likely reason is Big Money lifting the stock.

Black Stone Minerals Attracts Big Money

So, what’s Big Money? Said simply, that’s when a stock goes up in price alongside chunky volumes. It’s indicative of institutions betting on the shares.

Smart money managers are always looking for the next hot stock. And Black Stone Minerals has many fundamental qualities that are attractive.

This sets up well for the stock going forward. But how the shares have been trading points to more upside. As I’ll show you, the Big Money has been loading up on shares recently.

You see, fund managers are always looking to bet on the next outlier stocks…the best in class. They spend countless hours sizing up companies, reading reports, speaking to analysts…you name it. When they find a company firing on all cylinders, they pounce in a big way.

That’s why I’ve learned how critical it is to gauge Big Money demand for shares. To show you what I mean, have a look at all the Big Money signals BSM has made this year.

The last few weeks have seen Big Money activity, too. Each green bar signals big trading volumes as the stock ramped in price:

Source: www.mapsignals.com

In the last year, the stock attracted 10 Big Money buy signals. Generally speaking, recent green bars could mean more upside is ahead.

Now, let’s check out technical action grabbing my attention:

Outperformance is important for leading stocks.

Black Stone Minerals Fundamental Analysis

Next, it’s a good idea to check under the hood. Meaning, I want to make sure the fundamental story is strong too. As you can see, Black Stone Minerals has been growing sales at double-digit rates and is projected to grow earnings as well. Take a look:

  • 1-year sales growth rate (+70.5%)
  • 2-year vs. 1-year EPS growth estimate (+20.5%)

Source: FactSet

Marrying great fundamentals with technically superior stocks is a winning recipe over the long-term.

In fact, BSM has recently become a top-rated stock at my research firm, MAPsignals. That means the stock has buy pressure, strong technicals, and growing fundamentals. We have a ranking process that showcases stocks like this on a weekly basis.

BSM has a lot of qualities that are attracting Big Money. It’s made this list six times this year, with its first appearance on 03/15/2022…and gaining 36.7% since. The blue bars below show the times that Black Stone Minerals was a top pick:

Source: www.mapsignals.com

It’s been a top stock in the energy sector according to the MAPsignals process. I wouldn’t be surprised if BSM makes additional appearances in the years to come. Let’s tie this all together.

Black Stone Minerals Price Prediction

The Black Stone Minerals rally could have further to go. Big Money buying in the shares is signaling to take notice. Shares could be positioned for further upside, plus it pays a nearly 7.1% current dividend. Given the historical gains in share price and strong fundamentals, this stock could be worth a spot in a diversified portfolio.

Disclosure: the author holds no positions in BSM at the time of publication.

Learn more about the MAPsignals process here.

Contact

https://mapsignals.com/contact/

Sell High-Beta Stocks. Buy Low-Volatility Stocks. It’s The Business Cycle

Summary

A sound investment strategy takes advantage of the economic environment.

The economic environment drives the relative performance of investments.

The business cycle tells which stocks should be in your portfolio: high-beta vs low volatility.

The main forces driving the business cycle

There are three main types of economic indicators: leading, coincident, and lagging. The lagging indicators are the most important ones for investors because they determine the length of the business cycle and the severity of the economic correction needed to bring them down so the economy can expand again.

Inflation, interest rates, and labor costs are the most important lagging indicators. A rise in inflation reduces consumers’ purchasing power. The rise in interest rates makes purchases of anything less affordable – housing and autos in particular. Rising labor costs hinder profitability. Consumers react to the rise in inflation and interest rates by cutting first the purchase of big-ticket items. This is also the time consumer confidence of the University of Michigan declines sharply.

The slowdown in housing and auto sales are the first developments reflecting the economy is downshifting. Such slowdowns are reflected in equity prices. Coincident indicators such as employment and sales eventually also begin to sputter.

The investment opportunity in equities takes place when the leading indicators – those which were the first to signal the slowdown – are going to rise again.

One of the most important tenets of the business cycle is the slowdown will continue until the causes that created the slowdown are brought under control.

The main causes of the slowdown are the rise in the main lagging indicators: inflation and interest rates. The slowdown will continue as consumers reduce spending until their purchasing power restored again. This happens when inflation and interest rates decline. This is also the time when labor costs decrease, improving business profitability.

As retail sales increase because of rising consumers’ purchasing power, the other coincident indicators also rise: employment, production, and income. These developments will reinforce themselves and the positive loop will continue until the economy overheats.

This is the time when the lagging indicators raise their ugly heads, and the business cycle starts all over again.

Where are we now?

The lagging indicators are rising. Consumer prices keep moving higher – up more than 8%. Interest rates – short-term and long-term – have reached new highs for this business cycle. The two-year Treasury yield soared from 0.2% to 2.6% in the last 12 months. The stock market, an important leading indicator, shows no gains since June 2021 as of this writing. Auto sales and housing have been weakening after several months of rising inflation and interest rates.

Consumers cut spending on big-ticket items first when income after inflation declines as it is happening now (see graphs of buying conditions from University of Michigan survey below). In other words, an increase in the lagging indicators (inflation and interest rates) lead a peak in the leading indicator consumers’ buying conditions (see above chart).

The business cycle is just past Point 7 (see first chart above). The next trends will be slower growth in the coincident indicators. Retail sales and income after inflation are already contracting. Production and employment are still strong. They will have to weaken to reflect cuts in production to reduce inventories.

Inflation and interest rates will decline following more weakness in the coincident indicators (sales, income, production, and employment). In the meantime, growth in business activity will continue to decline until inflation and interest rates drop enough to increase consumers’ purchasing power. It will be a long and drawn-out process.

Economic growth drives sectors’ performance

The environment faced by the financial markets is slower economic growth. This is an important trend because the sectors outperforming the market when the business cycle declines, reflecting slower economic growth, are the non-cyclical sectors (XLP, XLU, XLV, XLRE) ( see chart below, energy being the exception).

The chart shows the percent change over the last 200 days. During a period of stronger growth cyclical stocks (XLI, IYT, XLF, XLE, XLB, XME) outperform the market. The strong performance of the non-cyclical sectors confirms the stock market is past its phase of fast growth.

High-beta and low volatility stocks respond to economic forces

High-beta (ETF: SPHB) and low-volatility stocks (ETF: SPLV) perform in different ways depending on the trend of the business cycle as shown on the following chart.

The above chart shows two sets of graphs. The upper panel represents the graph of the ratio SPHB/SPLV. The busines cycle indicator computed in real-time from market data and reviewed in each issue of The Peter Dag Portfolio Strategy and Management is in the lower panel.

High-beta stocks (SPHB) outperform low-volatility stocks (SPLV) (the ratio in the uppere panel rises) when the business cycle rises, reflecting stronger economic growth due to declining or stable inflation and interest rates.

However, low-volatility stocks (SPLV) outperform high-beta stocks (the ratio in the upper panel declines) when the business declines because of rising inflation and interest rates – as it has been happening since late 2021.

Key takeaways

  • The leading indicators will continue to decline reflecting rising inflation and interest rates.
  • During such time low volatility stocks (SPLV) will continue to outperform high-beta stocks (SPHB).
  • The leading indicators, such as stock prices, autos, housing, consumer sentiment of the University of Michigan, will bottom and rise again following a decline in inflation and interest rates.
  • The decline in inflation and interest rates will be preceded by declines in the coincident indicators (sales and income after inflation, production, and employment).
  • This will be the time when high-beta stocks (SPHB) start outperforming low-volatility stocks (SPLV).

Stock Market Crash Déjà Vu? Follow This Market Rotation Sequence

Since the topping formation manifested in January 2022, S&P 500 has dropped 14% off the peak with increasing volatility both to the upside and to the downside. This is mainly due to the unfolding of the Wyckoff distribution pattern (as explained in the video before the selloff happened in the past 2 weeks) and the stock market rotation where the smart money flows from the growth theme and the technology sector to the defensive sectors like consumer staple (XLP), utilities (XLU), health care (XLV) and the commodities including the energy sector (XLE).

Stock Market Rotation During Wyckoff Distribution

The outperformance in the energy sector since January 2022 is especially obvious as shown in the comparison chart between S&P 500 E-mini Futures (ES) and the energy sector (XLE) below:

Since January 2022, S&P 500 experienced a selloff as a sign of weakness followed by a weak rally while the energy sector (XLE) rallied up to all time high (highlighted in green).

Since 21 April 2022 XLE had a biggest down wave (highlighted in orange), which is considered as a Wyckoff change of character to stop the uptrend into a consolidation or even a reversal. This is a significant event because this kind of the stock market rotation is similar to what happened during Wyckoff distribution in 2008 before the market crash. Refer to the chart below:

In late 2007 S&P 500 formed a topping formation followed by a break down as a sign of weakness. In January till May 2008, S&P 500 had a weak rally up barely tested the axis line where the previous-support-turned-resistance while the energy sector (XLE) created a new high (as highlighted in green).

The next selloff in XLE (highlighted in orange) signaled a breakout failure, which is also a Wyckoff change of character that led to a reversal. This is similar to what’s currently unfolding in XLE as shown in the first chart. The market rotation sequence during the Wyckoff distribution phase is almost the same in 2022 and 2008.

Wyckoff Distribution Pattern in S&P 500: 2022 vs 2008

Let’s compare the price structure of S&P 500 in 2022 and 2008 to find out the similarity of the Wyckoff distribution pattern, as shown below.

From the top pane, S&P 500 had a Wyckoff distribution formation formed by the end of 2021 followed by a break down (highlighted in red) in January 2022 as a sign of weakness (SOW1). The stock market breadth at that time also confirmed the bearish bias as I discussed in the video.

The subsequent price movements including the automatic rally (AR), potential upthrust after distribution (UTAD) and the sign of weakness (SOW2), which is still unfolding, are similar to 2008’s as shown in the bottom pane.

Now the S&P 500 is testing the last line of the support at 4100. Should 2008’s price structure be a decent analogue for reference, a last point of supply (LPSY) as a weak rally (highlighted in orange) can be expected before the market collapse.

S&P 500 Price Prediction When Market Crash

Check out the 2 bearish scenarios that lead to a market crash with the price target and what you can expect for S&P 500 to violate this crash (at least for the time being) in the video below.

Although there was presence of demand shown up last week in S&P 500, the bull needs to prove itskself to rally away from the vulnerable area and to at least commit above 4300 to avoid the bearish scenario to crash below 4100. Visit TradePrecise.com to get more stock market insights in email for free.

DCP Midstream Feels the Big Money Energy

And the liquid natural gas producer could rise even more due to strong earnings and a nearly 4.5% current dividend. But another likely reason is Big Money lifting the stock.

Big Money Attracted to DCP Midstream

So, what’s Big Money? Said simply, that’s when a stock goes up in price alongside chunky volumes. It’s indicative of institutions betting on the shares.

Smart money managers are always looking for the next hot stock. And DCP Midstream has many fundamental qualities that are attractive.

This sets up well for the stock going forward. But how the shares have been trading points to more upside. As I’ll show you, the Big Money has been consistent in the shares.

You see, fund managers are always looking to bet on the next outlier stocks…the best in class. They spend countless hours sizing up companies, reading reports, speaking to analysts…you name it. When they find a company firing on all cylinders, they pounce in a big way.

That’s why I’ve learned how critical it is to gauge Big Money demand for shares. To show you what I mean, have a look at all the Big Money signals DCP has made since 2020.

The last few weeks have seen Big Money activity, too. Each green bar signals big trading volumes as the stock ramped in price:

Source: www.mapsignals.com

In the last year, the stock attracted 20 Big Money buy signals. Generally speaking, recent green bars could mean more upside is ahead.

Now, let’s check out technical action grabbing my attention:

Outperformance is important for leading stocks.

DCP Midstream Fundamental Analysis

Next, it’s a good idea to check under the hood. Meaning, I want to make sure the fundamental story is strong too. As you can see, DCP Midstream has been growing sales at double-digit rates and is trading at a modest forward price-to-earnings ratio. Take a look:

  • 1-year sales growth rate (+84.3%)
  • Forward P/E ratio (8.3x earnings)

Source: FactSet

Marrying great fundamentals with technically superior stocks is a winning recipe over the long-term.

In fact, DCP has recently become a top-rated stock at my research firm, MAPsignals. That means the stock has buy pressure, strong technicals, and growing fundamentals. We have a ranking process that showcases stocks like this on a weekly basis.

DCP has a lot of qualities that are attracting Big Money. It made its first appearance on this list last week on 04/19/2022, so Big Money may have a new gem on its hands. The blue bar below shows when DCP Midstream was a top pick – that upward trajectory is beautiful:

Source: www.mapsignals.com

It’s been a top stock in the energy sector according to the MAPsignals process. I wouldn’t be surprised if DCP makes additional appearances in the years to come. Let’s tie this all together.

DCP Midstream Price Prediction

The DCP Midstream rally could have further to go. Big Money buying in the shares is signaling to take notice. Shares could be positioned for further upside, plus it pays a nearly 4.5% current dividend. Given the historical gains in share price and strong fundamentals, this stock could be worth a spot in a diversified portfolio.

Disclosure: the author holds no positions in DCP at the time of publication.

Learn more about the MAPsignals process here.

Contact

https://mapsignals.com/contact/

Best Dividend Stocks to Buy Now for May 2022

See, dividend payers are typically big, stable companies with rock-solid balance sheets. They not only can rise in value, but also provide stable cash flows. They’re holding their own right now, helping buoy markets overall. Let me show you what I mean.

Markets and Big Money in the Last Six Months

My research firm, MAPsignals, measures Big Money investor activity. That includes institutions, pension funds, big individual investors, and so on. Our research shows Big Money moves markets.

In fact, we created the Big Money Index (BMI), which is a 25-day moving average of Big Money buy and sell activity. It tends to be a leading indicator of market movement. Here is the BMI over the last six months laid over SPY:

The BMI is trending up lately because there are sections of strength within the market. Today, I want to focus on four of them – energy, staples, real estate, and health care. Unsurprisingly, they also happen to be big dividend-paying sectors.

Energy stocks have been on fire due to the geopolitical situation right now. Investors have often leaned on them in uncertain times because they pay dividends.

Staples too have been seeing inflows. Recession fears are setting in and investors want the certainty of companies selling what people need.

Chart, histogram

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The real estate sector saw three HUGE buying days recently as people rush to holding tangible assets with strong cash flows.

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Lastly, health care companies pay big, growing dividends, which is music to investors’ ears right now. Historically, it’s been a defensive area for investors, and it’s performing well now.

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Not only do these sectors pay dividends, but the cream-of-the-crop dividend payers in these sectors increase their dividends regularly. That means investors get a raise, which is always welcome. So, those four strong sectors are featured in the top five dividend-paying stocks we like: XOM (energy), MO (staples), EXR (real estate), JNJ (health care), and ABBV (health care).

Exxon Mobil Corporation (XOM) Analysis

Up first is Exxon Mobil, which is an oil and gas producing giant that has consistently paid a big dividend (currently it’s at 4.0%).

Even though great stocks can be volatile, like Exxon Mobil the last few years, these companies are worthy of attention. Check out XOM:

  • 1-month performance (11.8%)
  • Historical Big Money signals

Just to show you what our Big Money signals look like, have a look at the buy signals XOM has made the last year in the chart below. Green bars show it was likely being bought by a Big Money player according to MAPsignals.

When you see a lot of them, as XOM has this year, I call it the stairway to heaven:

Source: www.MAPsignals.com

But, what about fundamentals? As you can see, XOM’s sales are strong, and its debt is manageable:

  • 1-year sales growth rate (+57.4%)
  • Debt/equity ratio (+31.5%)

Altria Group, Inc. (MO) Analysis

Next up is Altria Group, which is a tobacco company that has paid dividends for decades. Its current dividend yield is 6.5%.

Check out these technicals for MO:

  • 1-month performance (+7.1%)
  • Recent Big Money signals

Let’s look long-term. These are the top buy signals for Altria Group since 1990. The Big Money has bought time and again:

Source: www.MAPsignals.com

Let’s dive deeper. As you can see, Altria Group has been a stabile giant:

  • 1-year sales growth rate (+1.3%)
  • 3-year sales growth rate (+2.5%)
  • Profit margin (+11.7%)
  • Forward price-to-earnings ratio of 11.4x earnings

Extra Space Storage Inc. (EXR) Analysis

Another dividend-paying name we like is Extra Space Storage, which owns and operates self-storage facilities throughout the U.S. and Puerto Rico. It pays a nearly 2.3% dividend right now.

Strong dividend payers usually have Big Money buying the shares, and EXR has that. It’s also jumped in price recently:

  • 1-month performance (+13.1%)
  • Historical Big Money signals

Below are the top Big Money signals EXR has made since 2010. That’s the JUICE!

Source: www.MAPsignals.com

Now let’s look under the hood. Extra Space Storage’s sales growth and profits are impressive. I expect more in the coming years:

  • 1-year sales growth rate (+12.0%)
  • Profit margin (+50.5%)

Johnson & Johnson (JNJ) Analysis

Number four on the list is Johnson & Johnson, which is a health care behemoth and one of the biggest companies in the world. It just posted great earnings and raised its dividend by 6% (it currently yields almost 2.5%).

Here are the technicals important to me:

  • Year-to-date performance (+7.0%)
  • Historical Big Money signals

Below are the top Big Money signals for JNJ since 2006:

Source: www.MAPsignals.com

Let’s examine a bit more. Johnson & Johnson has been growing nicely and it should continue:

  • 1-year sales growth rate (+13.5%)
  • 2-year vs. 1-year EPS growth estimate (+5.5%)

AbbVie, Inc. (ABBV) Analysis

Our last dividend payer is AbbVie, which is a pharmaceutical company with many different focus areas. It makes a lot of money, which means it can pay big dividends (currently it yields more than 3.6%).

Check out these technicals:

  • Year-to-date performance (+15.0%)
  • Historical Big Money signals

ABBV is a high-quality stock with a high-quality dividend. That’s why it’s made the Top 20 report 14 times since 2012:

Source: www.MAPsignals.com

Now look under the hood. The company has had solid sales and earnings growth:

  • 3-year sales growth rate (+20.6%)
  • 3-year EPS growth rate (+44.3%)

Bottom Line and Explanatory Video

 

XOM, MO, EXR, JNJ, & ABBV represent top dividend-paying stocks to buy now for May 2022. Strong fundamentals, big and growing dividends, and historical Big Money buy signals make these stocks worthy of extra attention.

To learn more about MAPsignals’ Big Money process please visit: www.mapsignals.com

Disclosure: the author holds long positions in MO, EXR, & ABBV in personal and managed accounts, and no positions in XOM or JNJ.

Contact:

https://mapsignals.com/contact/

 

Sector Rotation Strategy Reveals The Outperforming Sectors For Trend Trading

The stock market has experienced tremendous volatility since late November 2021 and the 4 major indices such as S&P 500 (ES), Dow Jones (YM), Nasdaq 100 (NQ) and Russell 2000 (RTY) has corrected more than 10% from the peak to the trough in February 2022. Since then, the rally in March 2022 is considered as a Wyckoff change of character, which changed the short-term market environment from downtrend to uptrend.

Due to the high volatility (both to the downside and to the upside) as shown up in the market, picking the right sectors followed by buying the outperforming stocks are the keys to be profitable in stock trading.

Smart money has rotated out from the previous leaderships and progressively into different sectors as a result of the on-going sector rotation. Let’s start with a top-down approach to determine the outperforming sectors below.

Top 4 Outperforming Sectors – XLE, XLP, XLU, XLV

There are two elements to focus on in order to determine the outperforming sectors when analyzing the sector charts using the ETFs, which are the relative strength and the price structure. Refer to the chart of XLE (Energy), XLP (Consumer Staples), XLU (Utilities) and XLV (Health Care) below:

XLE has been in a clear uptrend with higher high and higher low since January 2022 while the relative strength (below the chart and annotated in orange) trending up. S&P 500 is used as a benchmark in the relative strength indicator. Rising in the relative strength means XLE outperforms S&P 500 since January 2022.

XLP, XLU and XLV shows outperformance in the relative strength index since December 2021 while their price just hit a higher high recently.

These 4 sectors – energy, consumer staples, utilities and health care show strong price action with their prices break the previous high while outperforming S&P 500.

Sectors Comparison – XLB, XLRE, XLI, XLF

Next let’s compare XLB (Materials), XLRE (Real Estate), XLI (Industrial) and XLF (Financial) below.

The top 2 charts, XLB and XLRE showed outperformance in the relative strength pane since November and December 2021 yet their prices still did not break above the previous swing high. These 2 sectors outperform S&P 500 yet they are not the strongest because of the price structure, which might take more time to unfold.

XLI and XLF show similar relative strength comparing to S&P 500 while their price structures form lower low and lower high, which is a sign of weakness.

Lagging Sectors – XLK, XLY, XLC

The last 3 sectors, XLK (Technology), XLY (Consumer Discretionary), XLC (Communication Services) are the lagging sectors, as shown below.

Both their price structures and the relative strength trend down with lower low and lower high. These 3 sectors are clearly not in favored by the smart money since December 2021.

It is essential to focus on the outperforming sectors like XLE (Energy), XLP (Consumer Staples), XLU (Utilities), XLV (Health Care), XLB (Materials) and XLRE (Real Estate) and to dive into the outperforming industry groups within the sectors before picking the stocks showing Wyckoff accumulation pattern for trend trading.

Stock Market Outlook Video Using Wyckoff Method

Let’s find out where the prices of S&P 500, Nasdaq 100, Dow Jones and Russell 2000 likely to go to. Watch the video below to determine how to use Wyckoff method to derive a directional bias with the volume and the price action alone. Visit TradePrecise.com to get more stock market insights in email for free.

Viper Energy Grows on Big Money

And the Texas oil and gas company could rise even more due to its strong revenues, earnings, and growing dividend. But another likely reason is Big Money lifting the stock.

Big Money Pounces on Viper Energy

So, what’s Big Money? Said simply, that’s when a stock goes up in price alongside chunky volumes. It’s indicative of institutions betting on the shares.

Smart money managers are always looking for the next hot stock. And Viper Energy has many fundamental qualities that are attractive.

This sets up well for the stock going forward. But how the shares have been trading points to more upside. As I’ll show you, the Big Money has been consistent in the shares.

You see, fund managers are always looking to bet on the next outlier stocks…the best in class. They spend countless hours sizing up companies, reading reports, speaking to analysts…you name it. When they find a company firing on all cylinders, they pounce in a big way.

That’s why I’ve learned how critical it is to gauge Big Money demand for shares. To show you what I mean, have a look at all the Big Money signals VNOM has made the last year.

The last few weeks have seen Big Money activity, too. Each green bar signals big trading volumes as the stock ramped in price:

Source: www.mapsignals.com

In the last year, the stock attracted 12 Big Money buy signals. Generally speaking, recent green bars could mean more upside is ahead.

Now, let’s check out technical action grabbing my attention:

Outperformance is important for leading stocks.

Viper Energy Fundamental Analysis

Next, it’s a good idea to check under the hood. Meaning, I want to make sure the fundamental story is strong too. As you can see, Viper Energy has been growing sales at double-digit rates and its earnings outlook is promising. Take a look:

  • 3-year sales growth rate (+30.4%)
  • 2-year vs. 1-year EPS growth estimate (+23.6%)

Source: FactSet

Marrying great fundamentals with technically superior stocks is a winning recipe over the long-term.

In fact, VNOM has been a top-rated stock at my research firm, MAPsignals, for years. That means the stock has buy pressure, strong technicals, and growing fundamentals. We have a ranking process that showcases stocks like this on a weekly basis.

VNOM has a lot of qualities that are attracting Big Money. It’s made this list 13 times since it began trading in 2014, with its first appearance on 04/17/2018…and gaining 32.5% since. The blue bars below show the times that Viper Energy was a top pick:

Source: www.mapsignals.com

It’s been a top stock in the energy sector according to the MAPsignals process. I wouldn’t be surprised if VNOM makes additional appearances in the years to come. Let’s tie this all together.

Viper Energy Price Prediction

The Viper Energy rally could have further to go. Big Money buying in the shares is signaling to take notice. Shares could be positioned for further upside, plus VNOM pays a nearly 4.8% current dividend. Given the historical gains in share price and strong fundamentals, this stock could be worth a spot in a diversified portfolio.

Disclosure: the author holds no positions in VNOM at the time of publication.

Learn more about the MAPsignals process here.

Contact

https://mapsignals.com/contact/

Big Money Bulls Chase Matador Resources

And the independent U.S. oil and gas producer could keep climbing due to strong earnings and demand. But another likely reason is Big Money lifting the stock.

So, what’s Big Money? Said simply, that’s when a stock goes up in price alongside chunky volumes. It’s indicative of institutions betting on the shares.

Smart money managers are always looking for the next hot stock. And Matador Resources has many fundamental qualities that are attractive.

This sets up well for the stock going forward. But how the shares have been trading points to more upside. As I’ll show you, the Big Money has been consistent in the shares.

You see, fund managers are always looking to bet on the next outlier stocks…the best in class. They spend countless hours sizing up companies, reading reports, speaking to analysts…you name it. When they find a company firing on all cylinders, they pounce in a big way.

That’s why I’ve learned how critical it is to gauge Big Money demand for shares. To show you what I mean, have a look at all the Big Money signals MTDR has made the last year.

The last few weeks have seen Big Money activity, too. Each green bar signals big trading volumes as the stock ramped in price:

Source: www.mapsignals.com

In the last year, the stock attracted 20 Big Money buy signals. Generally speaking, recent green bars could mean more upside is ahead.

Now, let’s check out technical action grabbing my attention:

Outperformance is important for leading stocks.

Next, it’s a good idea to check under the hood. Meaning, I want to make sure the fundamental story is strong too. As you can see, Matador Resources has been growing sales at huge rates and is profitable. Take a look:

  • 3-year sales growth rate (+41.5%)
  • Profit margin (+31.4%)

Source: FactSet

Marrying great fundamentals with technically superior stocks is a winning recipe over the long-term.

In fact, MTDR has been a top-rated stock at my research firm, MAPsignals, for years. That means the stock has buy pressure, strong technicals, and growing fundamentals. We have a ranking process that showcases stocks like this on a weekly basis.

MTDR has a lot of qualities that are attracting Big Money. It’s made this list 14 times since 2014, with its first appearance on 03/11/2014…and gaining 135.6% since. The blue bars below show the times that Matador Resources was a top pick.

Source: www.mapsignals.com

It’s been a top stock in the energy sector according to the MAPsignals process. I wouldn’t be surprised if MTDR makes additional appearances in the years to come. Let’s tie this all together.

The Bottom Line

The Matador Resources rally could have further to go. Big Money buying in the shares is signaling to take notice. Shares could be positioned for further upside. Given the historical gains in share price and strong fundamentals, this stock could be worth a spot in a growth-oriented portfolio.

Disclosure: the author holds no positions in MTDR at the time of publication.

Learn more about the MAPsignals process here.

Contact

https://mapsignals.com/contact/

 

Why Schlumberger Stock Is Up By 9% Today

Key Insights

  • WTI oil moves towards the $130 level as the U.S. is ready to impose a ban on Russian oil. 
  • Energy-related stocks enjoy strong demand amid a global rally in the commodity markets.
  • Schlumberger stock remains reasonably priced and has a decent chance to gain additional upside momentum in the upcoming weeks. 

Schlumberger Stock Gains Ground As WTI Oil Gets Close To The $130 Level

Shares of Schlumberger gained strong upside momentum as WTI oil moved above the $129 level after reports indicated that the U.S. would ban imports of Russian oil.

Schlumberger provides services to the energy industry in more than 100 countries. As a service company, Schlumberger stands to benefit in the longer term as countries will have to invest in new production to find alternatives to Russian oil & gas.

Energy-related stocks have been rallying in recent days as Western companies decreased or stopped purchases of Russian energy, causing the prices to spike. This rally continues as investors prepare for a world where oil costs more than $100 per barrel.

What’s Next For Schlumberger Stock?

Analysts expect that Schlumberger will report earnings of $1.8 per share in the current year and $2.36 per share in the next year, so the stock is trading at less than 20 forward P/E. Analyst estimates have been moving higher in recent weeks, and they will surely get updated to account for the recent developments in the oil markets.

Many funds have tried to move away from oil-related stocks due to the upcoming shift to renewable energy, but the recent events highlighted the importance of energy independence and diversification, so stocks like Schlumberger may enjoy stronger support in the upcoming weeks.

I’d also note that oil-related stocks may benefit from the flow of funds into safe-haven assets as investors try to protect themselves from additional downside in the markets. At less than 20 forward P/E, some traders will note that Schlumberger may be a decent alternative to high-PE tech stocks.

For a look at all of today’s economic events, check out our economic calendar.

Big Money Energizes ConocoPhillips

So, what’s Big Money? Said simply, that’s when a stock goes up in price alongside chunky volumes. It’s indicative of institutions betting on the shares.

Smart money managers are always looking for the next hot stock. And ConocoPhillips has many fundamental qualities that are attractive.

This sets up well for the stock going forward. But how the shares have been trading points to more upside. As I’ll show you, the Big Money has been consistent in the shares.

You see, fund managers are always looking to bet on the next outlier stocks…the best in class. They spend countless hours sizing up companies, reading reports, speaking to analysts…you name it. When they find a company firing on all cylinders, they pounce in a big way.

That’s why I’ve learned how critical it is to gauge Big Money demand for shares. To show you what I mean, have a look at all the Big Money signals COP has made the last year.

The last few weeks have seen Big Money activity, too. Each green bar signals big trading volumes as the stock ramped in price:

Source: www.mapsignals.com

In the last year, the stock attracted 26 Big Money buy signals. Generally speaking, recent green bars could mean more upside is ahead.

Now, let’s check out technical action grabbing my attention:

Outperformance is important for leading stocks.

Next, it’s a good idea to check under the hood. Meaning, I want to make sure the fundamental story is strong too. As you can see, ConocoPhillips has been growing sales at double-digit rates and is profitable. Take a look:

  • 3-year sales growth rate (+30.8%)
  • Profit margin (+17.5%)

Source: FactSet

Marrying great fundamentals with technically superior stocks is a winning recipe over the long-term.

In fact, COP has been a top-rated stock at my research firm, MAPsignals, for years. That means the stock has buy pressure, strong technicals, and growing fundamentals. We have a ranking process that showcases stocks like this on a weekly basis.

COP has a lot of qualities that are attracting Big Money. Going way back to 2004, it’s made this list eight times, with its first appearance on 01/05/2004…and gaining 534.70% since. The blue bars below show the times that ConocoPhillips was a top pick:

Source: www.mapsignals.com

It’s been a top stock in the energy sector according to the MAPsignals process. I wouldn’t be surprised if COP makes additional appearances in the years to come. Let’s tie this all together.

The Bottom Line

The ConocoPhillips rally could have further to go. Big Money buying in the shares is signaling to take notice. Shares could be positioned for further upside. Given the historical gains in share price and strong fundamentals, this stock could be worth a spot in a growth-oriented portfolio.

Disclosure: the author holds no positions in COP at the time of publication.

Learn more about the MAPsignals process here.

Disclaimer

https://mapsignals.com/contact/

 

EOG Resources Has Big Money Energy

And the Houston-based oil and gas company could rise even more due to a rebound in oil demand, a 2.7% current dividend, and its cost-cutting efficiencies. But another likely reason is Big Money lifting the stock.

So, what’s Big Money? Said simply, that’s when a stock goes up in price alongside chunky volumes. It’s indicative of institutions betting on the shares.

Smart money managers are always looking for the next hot stock. And EOG has many fundamental qualities that are attractive.

This sets up well for the stock going forward. But how the shares have been trading points to more upside. As I’ll show you, the Big Money has been consistent in the shares.

You see, fund managers are always looking to bet on the next outlier stocks…the best in class. They spend countless hours sizing up companies, reading reports, speaking to analysts…you name it. When they find a company firing on all cylinders, they pounce in a big way.

That’s why I’ve learned how critical it is to gauge Big Money demand for shares. To show you what I mean, have a look at all the Big Money signals EOG has made the last year.

The last few weeks have seen Big Money activity, too. Each green bar signals big trading volumes as the stock ramped in price:

Source: www.mapsignals.com

In the last year, the stock attracted 25 Big Money buy signals. Generally speaking, recent green bars could mean more upside is ahead.

Now, let’s check out technical action grabbing my attention:

Outperformance is important for leading stocks.

Next, it’s a good idea to check under the hood. Meaning, I want to make sure the fundamental story is strong too. As you can see, EOG has been growing sales and managing debt nicely. Take a look:

  • 3-year sales growth rate (+3.3%)
  • Debt/equity ratio (+33.3%)

Source: FactSet

Marrying great fundamentals with technically superior stocks is a winning recipe over the long-term.

In fact, EOG has been a top-rated stock at my research firm, MAPsignals, for years. That means the stock has buy pressure, strong technicals, and growing fundamentals. We have a ranking process that showcases stocks like this on a weekly basis.

EOG has a lot of qualities that are attracting Big Money. Going way back to 2000, it’s made this list 39 times, with its first appearance on 09/18/2000…and gaining 1,276.33% since. The blue bars below show the times that EOG was a top pick:

Source: www.mapsignals.com

It’s been a top stock in the energy sector according to the MAPsignals process. I wouldn’t be surprised if EOG makes additional appearances in the years to come. Let’s tie this all together.

The Bottom Line

The EOG rally could have further to go. Big Money buying in the shares is signaling to take notice. Shares could be positioned for further upside, and it pays an attractive 2.7% current dividend. Given the historical gains in share price and strong fundamentals, this stock could be worth a spot in a growth-oriented portfolio.

Disclosure: the author holds no positions in EOG at the time of publication.

Learn more about the MAPsignals process here.

Disclaimer

https://mapsignals.com/contact/

 

Big Money Energy Engulfs Pioneer

And the shale-focused energy producer could rise even more due to strong performance and an increasing dividend yield. But another likely reason is Big Money lifting the stock.

So, what’s Big Money? Said simply, that’s when a stock goes up in price alongside chunky volumes. It’s indicative of institutions betting on the shares.

Smart money managers are always looking for the next hot stock. And Pioneer has many fundamental qualities that are attractive.

This sets up well for the stock going forward. But how the shares have been trading points to more upside. As I’ll show you, the Big Money has been consistent in the shares.

You see, fund managers are always looking to bet on the next outlier stocks…the best in class. They spend countless hours sizing up companies, reading reports, speaking to analysts…you name it. When they find a company firing on all cylinders, they pounce in a big way.

That’s why I’ve learned how critical it is to gauge Big Money demand for shares. To show you what I mean, have a look at all the Big Money signals PXD has made the last year.

The last few weeks have seen Big Money activity, too. Each green bar signals big trading volumes as the stock ramped in price:

Source: www.mapsignals.com

In the last year, the stock attracted 27 Big Money buy signals. Generally speaking, recent green bars could mean more upside is ahead.

Now, let’s check out technical action grabbing my attention:

Outperformance is important for leading stocks.

Next, it’s a good idea to check under the hood. Meaning, I want to make sure the fundamental story is strong too. As you can see, Pioneer has been growing earnings and sales at double-digit rates. Take a look:

  • 1-year earnings growth rate (+65.0%)
  • 3-year sales growth rate (+17.6%)

Source: FactSet

Marrying great fundamentals with technically superior stocks is a winning recipe over the long-term.

In fact, PXD has been a top-rated stock at my research firm, MAPsignals, for years. That means the stock has buy pressure, strong technicals, and growing fundamentals. We have a ranking process that showcases stocks like this on a weekly basis.

PXD has a lot of qualities that are attracting Big Money. It’s made this list eight times since 2016, with its first appearance on 4/24/2018…and gaining 20.30% since. The blue bars below show the times that Pioneer was a top pick:

Source: www.mapsignals.com

It’s been a top stock in the energy sector according to the MAPsignals process. I wouldn’t be surprised if PXD makes additional appearances in the years to come. Let’s tie this all together.

The Bottom Line

The Pioneer rally could have further to go. Big Money buying in the shares is signaling to take notice. Shares could be positioned for further upside, plus PXD will pay a combined base and variable dividend yield estimated to be around 11% in 2022, per the company. Given the historical gains in share price and strong fundamentals, this stock could be worth a spot in a growth-oriented portfolio.

Disclosure: the author holds no positions in PXD at the time of publication.

Learn more about the MAPsignals process here.

Disclaimer

https://mapsignals.com/contact/

 

XLE: You can Trust this Energy ETF, Both for Growth and Dividends 

Looking over a longer period comprising the March 2020 market crash, it is evident that the S&P 500 Energy sector as shown in the yellow chart below still trails the broader S&P 500 index. For its part, the SPDR Energy Select Sector ETF (XLE) has delivered an 11.56% gain during the last two years with most of the upside occurring in 2021.

Source: Trading View

Looking ahead, according to the U.S. Energy Information Administration (EIA), spot Brent crude prices are expected to average $79 this quarter. This is down from the current value of $87.7, but the EIA further adds that “developments in the global economy and the many uncertainties surrounding the pandemic” in the coming months could push oil prices up or down from its price forecast.

These uncertainties need to be understood in the context of the supply-demand paradigm.

The supply-demand paradigm

Here, the EIA’s statement that “U.S. natural gas consumption in 2021 was nearly the same level as 2020, and this will remain virtually flat in 2022 and 2023” is noteworthy as it means that there will be less oil-to-gas switching to clear any excess in the amount of oil produced. Thus, in addition to Brent’s spot price itself, the demand for natural gas also constitutes a tailwind for XLE. This said the ETF’s share price is also influenced by two other factors.

First, there is the ongoing sector rotation into energy, finance, and consumer sectors which have started in the second quarter of 2021 and gained momentum from November, which should also determine energy stock returns throughout this year.

Second, the global economic recovery after the drop in activity during the Covid-led confinements created a strong demand from September last year, while inventories, especially in Europe were low. These factors were responsible for the prices of natural gas skyrocketing in Europe as from October 2021 with the fuel-substitution effect being contagious to spot oil prices. This explains the bounce seen in energy sectors’ ETFs including the Vanguard Energy Index Fund ETF (VDE) from that period.

Gauging the supply side, a series of problems weighed on capacity including some countries seeing their production drop due to maintenance delays caused by the pandemic as well as failure to make timely investments in aging upstream infrastructure. This supply shortage was exacerbated by governments, (especially in China and Europe) giving priority to renewables projects and carbon credits while their “green energy” experts failed to foresee the imbalance between supply and demand.

The imbalance to persist

This imbalance is likely to persist in 2022, despite OPEC’s continued production increase and uncertainty associated with the Omicron variant impacting travel. Understandably, some smaller oil companies have been reticent to pump out more oil.

There may be some temporary respite in oil prices as from the start of February when China, together with the U.S. and some other major consumers, will release crude oil from their national strategic stockpiles. This coordinated action aimed at reducing global prices will induce some volatility in XLE, but this will be only for a limited period.

The reason is that the imbalance will persist with one of the reasons being the recovery in international travel.

In this respect, according to Statista, the total fuel consumption of commercial airlines worldwide which increased each year from 2005, reached a maximum of 98 billion gallons in 2019 before falling from 2020 due to Covid. It decreased to 57 billion in 2021. Now, there has been optimism that has been prevailing since the start of the year that the Omicron strain may prove to be less damaging to the health of people and by ricochet the economy.

This optimism is also backed by data, which indicates that despite Covid infection rates reaching an all-time high, the actual death rate is trending lower. Whatever the reasons for this, be it a higher vaccination rate or a less dangerous variant, more people are willing to take a flight. This is in turn proven by the number of international flight departures rapidly inching back up to 2019 levels according to the Bureau of Transportation statistics.

Thus, glancing back at the above chart, XLE could again climb back to its April 2019 high of $68-69 levels by the second quarter of 2022. Even if this upside is somewhat delayed due to volatility, the SPDR ETF pays substantial dividends.

The dividends

Holdings include oil supermajors Exxon Mobile (XOM) and Chevron Corporation (CVX) with a combined weight of 43.4% of overall assets. These are integrated oil and gas companies operating in every segment of the industry. Activities include extraction/production, midstream, petrochemical manufacturing, refining, and, even downstream activities like marketing and distributing refined petroleum products. People buy these companies primarily for their dividends.

The other holdings which are drilling, refining, or equipment provider plays also pay regular distributions to shareholders. This culminates in XLE paying a 3.62% yield. Here investors will notice that distributions that are paid on a quarterly basis reached the highest point in the fourth quarter of 2019 at $3.58.

Source: Chart prepared using data from Nasdaq.com

This was followed by a period of fluctuating quarterly payments around the $0.5 mark, before eventually rising from the third quarter of 2021. With oil prices remaining sustainably high, energy companies should continue to benefit from higher profitability which in turn enables them to sustain dividend payments and perform share buybacks.

Finally, with demand outstripping supply, the imbalance should persist in 2022. Inflationary pressures may slightly affect demand, but, here, recent fund flows indicate that XLE is inversely correlated to the broader market (SPX). Thus the energy sector ETF seems to be acting like an inflation hedge, a role which is also supported by its ability to pay above-average dividends yields. Consequently, XLE can be trusted for further upside and higher quarterly dividend payments too.

Disclosure: I/We are long XLE. This is an investment thesis and is intended for informational purposes. Investors are kindly requested to do additional research before investing.

 

One Chart Reveals The Sector Rotation In The Stock Market

In case you are still wondering what’s happening in the stock market since November 2021, the chart below will give you a clear picture.

Based on the ratio chart IVW/IVE where IVW is S&P 500 Growth ETF and IVE is S&P 500 Value ETF, it can be observed that the price peaked in mid of November 2021 followed by a lower high and lower low and had a sharp selloff in the first week of January in 2022.

As shown the price action of the above chart, the growth stocks started to underperform the value stocks in December 2021 (since it formed a lower high and a lower low) and the scenario is getting worse as reflected in the selloff last week.

Another thing to pay attention to is the increasing of the volume during the correction as this suggested urgent selling by the institutional investors. Nuances of the price and volume are to be studied via volume spread analysis in order to detect the subtle difference between institutional selling versus a normal pullback.

Effect of Fed’s Tapering to the Stock Market

This is In line with the Federal Reserve’s announcement of reducing the monthly bond buying program back in November 2021 because lots of leading growth stocks like Sea (SE), Shopify (SHOP), Upstart (UPST), Zscaler (ZS), Bill.com (BILL) started a steep correction since mid of November 2021.

There are tell-tale signs behind the sharp decline of the growth stocks, which you can refer to the post on the deterioration of the stock market breadth to find out how to judge the overall health in the stock market.

As the growth stocks are very sensitive and vulnerable to credit tightening environment, it is not surprised to see them kick start the correction especially given their rich valuation in 2021.

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Sector Rotation to Energy, Finance and Consumer Sectors

While the sector rotation is on-going with the growth stocks being abandoned, cyclical and defensive sectors like Energy (XLE), Finance (XLF) and Consumer (XLP) are breaking all-time high, as shown in the chart below:

Consumer staple (XLP) sector is traditionally a defensive sector. So, it is not surprised to have money flows in upon a market correction or a technology sector selloff. The cyclical sectors like the energy and finance are bucking the trend of the market thanks to the Santa Claus rally in crude oil and the expectation of rising interest rate macro environment, with at least 2-3 rate hikes coming in 2022 as guided by Fed.

S&P 500 Price Prediction

S&P 500 futures (ES) broke below the critical support at 4710 on 5 Jan 2022 and subsequently it failed to rally back above, which is a bearish sign for more weakness ahead. Should S&P 500 break below 4660, lower price targets at 4600 and 4500 could be expected. Refer to the chart below:

Since S&P 500 is vulnerable for a correction, if you are keen for a long trade, it is essential to carefully select the stocks within these outperforming sectors (XLP, XLE, XLF) with the best entry setup and high reward to risk ratio. Stop loss is essential for trading in case the trade setup fail due to the market weakness. Else shorting weak stocks like those in the ARKK ETF could be a better choice.

Financial Sector May Rally 11% – 15% Higher Before End Of January 2022

The US Federal Reserve is keeping interest rates low. At the same time, the US consumer continues to drive home purchases and holiday shopping. Strong economic data should drive Q4 results for the financial sector close to levels we saw in Q3:2021. If that happens, we may see a robust rally in the US Financial sector over the next 45 to 60+ days.

The strength of the recent rally in the US major indexes shows just how powerful the bullish trend bias is right now. Some traders focus on the downside risks associated with the US Federal Reserve actions and/or the concerns related to inflation and global markets. I, however, continue to focus on the strength in the US major indexes and various sector trends that show real opportunities for profits.

Comparing Sector Strength

The following two US market sector charts highlight the performance over the last 12 vs. 24 months. I want readers to pay attention to how flat the Financial Sector has stayed since just before the 2020 COVID event and how the Financial Sector has started to trend higher over the past 12 months. This is because the shock of COVID briefly disrupted consumer activity. Yet, consumers are coming back strong, driving retail sales, home sales, and the continued strong US economic data. Therefore, it makes sense that the Financial sector should continue to show firm revenue and earnings growth while the US consumer is active and spending.

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Over the past two years, Discretionary, Technology, and Materials drove market growth compared to other sectors. Remember, the initial COVID virus event disrupted market sector trends over the last 24+ months.

Chart, waterfall chart

Description automatically generated

(Source: StockChart.com)

Taking a look at this 1 Year US Market Sector chart shows how various sectors have rebounded and how the Discretionary and Materials sectors have flattened/weakened.

Pay attention to how the Energy and Real Estate sectors have been over the past 12 months. Also, pay attention to how the Financial sector is strengthening.

I believe that the continued deflation/deleveraging that is taking place throughout most of the world will continue to drive global central banks to stay relatively neutral regarding rising interest rates. This will likely prompt an easy money policy throughout most of 2022 and drive continued revenues/earnings for sectors associated with consumers’ engagement with the economy.

If inflation weakens into 2022 while wage and jobs data stays strong, we may see more moderate strength in the Financial, Healthcare, Discretionary, and Technology sectors over the next 6 to 12+ months.

Read more about Global Deleveraging Here: Delivering Covid Bubble Possible Volatility Risks In Foreign Markets

Chart, waterfall chart

Description automatically generated

(Source: StockChart.com)

Financials May Pop 11% Or More Over The Next 6+ Months

This Weekly IYG, IShares US Financial Service ETF, highlights the recent sideways price trend in the Financial sector and the potential for a 9% to 13% rally that may take place as the markets shift into focus for the Q4:2021 earnings. Yes, inflation is still a concern, but as long as the US consumer continues spending and engaging in the economy, the Financial Services and US Banks should show strong returns.

If the US markets rally into the end of 2021, possibly reaching new all-time highs again, this trend may carry well into 2022 and drive Q4:2021 and Q1:2022 revenues and earnings for the Financial sector even higher.

Graphical user interface, chart

Description automatically generated

This Weekly XLF chart shows a very similar setup to IYG. I firmly believe the recent fear in the markets related to the US Federal Reserve, the new COVID variants, and the global markets deleveraging process is missing one critical component – the strength of the US markets and the strength of the US Dollar.

Chart, histogram

Description automatically generated

As the rest of the world struggles to find support and economic strength, the US markets continue to rebound on the strength of the US consumer, the recovering economy, and the growth of these sectors. As long as the US Federal Reserve does not disrupt this trend, I believe Q1:2022 could be much more robust than many people consider. I also think the deflation/deleveraging process will work to take the pressures away from recent inflation trends.

What could this mean for 2022?

Early 2022 may well work as a “rebalancing” process for the global markets – possibly taking the pressures away from the strength in energy, commodities, and staple products/materials. This means pricing pressures will decrease while consumers are still earning and spending. The Financial sector should benefit from these trends over the next 6+ months.

Watch for the Financials to start to increase throughout the end of 2021 and into early 2022. There are many ways to consider trading this move, but ideally, I think the rally will take place before the end of February 2022.

Q1 is usually relatively strong, so that this trend may last well into April/May 2022. It all depends on what happens that could disrupt the current market sector trends. If nothing happens to disrupt the strength of the US Dollar and the strength of the US markets, then I believe the Financial Sector has a very strong opportunity for at least 10% to 11% growth.

Want to learn more about the potential for a financial sector rally?

Learn how I use specific tools to help me understand price cycles, set-ups, and price target levels. Over the next 12 to 24+ months, I expect very large price swings in the US stock market and other asset classes across the globe. I believe the markets are starting to transition away from the continued central bank support rally phase and may start a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern start to drive traders/investors into Metals.

If you need technically proven trading and investing strategies using ETFs to profit during market rallies and to avoid/profit from market declines, be sure to join me at TEP – Total ETF Portfolio.

Have a great day!

Chris Vermeulen
Chief Market Strategist

 

Stocks Retreat Despite Encouraging Initial Jobless Claims Report

Fitch Downgrades Evergrande To “Restricted Default”

S&P 500 futures are losing ground in premarket trading as traders take some profits off the table after the recent rally.

Fitch Rating has recently downgraded China Evergrande Group to “restricted default”, a move which may put some pressure on global markets. Worries about Evergrande’s financial health and the potential domino effect among China’s developers have put some pressure on markets before, but traders were able to shrug off fears of financial contagion.

It remains to be seen whether global markets will pay close attention to Evergrande’s misfortunes as traders are mostly focused on Omicron and the outlook for Fed’s policy.

Initial Jobless Claims Decline To 184,000

U.S. has just released Initial Jobless Claims and Continuing Jobless Claims reports. Initial Jobless Claims report indicated that 184,000 Americans filed for unemployment benefits in a week. Analysts expected that Initial Jobless Claims would total 215,000. Continuing Jobless Claims increased from 1.96 million to 1.99 million compared to analyst consensus of 1.9 million.

The better-than-expected Initial Jobless Claims report may fail to provide additional support to stocks. The job market is strong, so the Fed will have an opportunity to reduce its asset purchase program at a fast pace.

Traders should keep in mind that an ultra-important Inflation Rate report will be published tomorrow, so trading may be choppy as market participants prepare for this event.

WTI Oil Pulls Back After Rally

WTI oil failed to settle above the 20 EMA at $73.20 and moved below the $72 level amid worries about the impact of new virus-related restrictions in various countries. Worries about the potential negative impact of Evergrande’s default have also served as a bearish catalyst for oil markets.

It should be noted that WTI oil managed to get from $62.50 to $73 in just five trading sessions, so some traders are ready to use any negative developments as an excuse to take some profits off the table. Not surprisingly, oil-related stocks are losing ground in premarket trading.

For a look at all of today’s economic events, check out our economic calendar.

Stocks Mixed As Traders Take Profits After Two-Day Rally

Traders Wait For New Catalysts

S&P 500 futures are swinging between gains and losses in premarket trading as traders take a pause after the strong rally.

S&P 500 managed to get close to all-time high levels after two successful trading sessions. Tech stocks were leading the way on Tuesday. Shares of Apple, Microsoft, Alphabet, Amazon were up by 2.5% – 3.5%.

While S&P 500 will likely face some resistance in the 4700 – 4750 area as some traders will decide to take profits off the table, there is enough potential for more upside in case the right catalysts emerge. The broader Russell 2000 index is down by about 8% from highs that were reached back at the beginning of November. In case Russell 2000 moves towards recent highs, S&P 500 will get above the 4750 level.

WTI Oil Moves Higher As Crude Inventories Decline

The recent API Crude Oil Stock Change report indicated that crude inventories declined by 3.1 million barrels while analysts expected that they would increase by 2.1 million barrels. The surprising decline in crude inventories provided additional support to oil markets and pushed WTI oil above the $72 level.

Today, traders will focus on EIA Weekly Petroleum Status Report. Currently, analysts expect that EIA report will show that crude inventories decreased by 1.7 million barrels. In case EIA report indicates a bigger inventory draw, oil may get additional support which will be bullish for oil-related stocks.

U.S. Dollar Is Losing Ground Despite Higher Treasury Yields

The U.S. Dollar Index faced significant resistance near 96.50 and pulled back below the support level at 96.50 while Treasury yields continued to move higher. The yield of 2-year Treasuries has recently managed to get above 0.70% and continued its upside move as bond traders were worried about inflation.

Dollar’s weakness was not bullish for gold and silver as traders focused on rising yields. Gold and silver pay no interest, so higher yields serve as a bearish catalyst for them.

For a look at all of today’s economic events, check out our economic calendar.

Stocks Gain Ground As Traders Shrug Off Virus Worries

Stocks Look Ready To Continue Monday’s Rally

S&P 500 futures are up by more than 1% in premarket trading as Omicron-related worries decrease

Early reports suggest that Omicron may be more transmissible than Delta. However, Omicron may be more likely to cause mild disease. The markets will have to wait for a few weeks before researchers come up with their first scientific conclusions on Omicron, but traders are willing to buy stocks after the recent pullback as it looks that worst fears have not materialized.

Leading tech stocks like Apple and Tesla are up by more than 2% in premarket trading, and it looks that yesterday’s strong rally in tech stocks will continue today.

WTI Oil Made An Attempt To Settle Above $72

WTI oil continues to move higher as traders bet that the spread of Omicron will not put too much pressure on the recovery of demand for oil.

In addition, it looks that the recent Saudi Arabia’s decision to increase prices for Asian customers served as a strong upside catalyst for oil markets.

In this environment, oil-related stocks will move higher at the start of today’s trading session and will have a good chance to gain additional upside momentum.

U.S. Dollar Gets Closer To Yearly Highs As Treasury Yields Increase

The U.S. Dollar Index, which measures the strength of the U.S. dollar against a broad basket of currencies, has recently managed to get above the resistance at 96.50 and is moving towards the next resistance level at 96.70. The yearly high for the U.S. Dollar Index is located at 96.94, so the American currency is already close to this level.

The yield of 2-year Treasuries has recently managed to get above yearly highs and is currently trying to settle above 0.68% as bond traders remain worried about inflation.

A combination of higher yields and stronger dollar has already put some pressure on gold, which is trying to settle below the $1775 level. A move below this level will open the way to the test of the important support level at $1750 which will be bearish for gold mining stocks.

For a look at all of today’s economic events, check out our economic calendar.