The Selloff Continues? My thoughts for the coming week - 2023/02/21
Hello and welcome to another issue of 🕵 The Seeker 🕵
"The constant pursuit of knowledge is the only path to true understanding." - Confucius
Last Week
Total roller-coaster, throughout the last week, with a selloff on Thursday and Friday. Confirmation that inflation is stickier than we thought, and the FED will have to step up their game and hit the breaks harder.
The 60/40 portfolio isn’t dead at all and the market sentiment moves into Overweight on the Fixed Income, with some experts going long on the Junk Bonds as well.
Stocks are currently trading at the last summer's highs despite the weakening earnings and the higher move in the interest rates, which only tells us one thing. We are deep into Greed territory.
Defaults are no longer a mirage.
The US 13-week yield is up 1300% YoY resulting in expensive quick financing and a higher risk of insolvency. As a reference, the last time the yields were that high was 2006-2007 before the big crash. All in all, this cannot end well, as inflation isn’t still under control and the labor market isn’t cooling off. The FED signaled they won’t be pivoting soon, and 50bps is back on the table for the March meeting. I will be very cautious in buying now and will look for Value and inflation-proof businesses.
What to expect this week
Tuesday - Feb. 21st
US, EU, UK, Germany, Japan - PMI
Wednesday - Feb. 22nd
FOMC Minutes! - Big moves and high volatility expected
Germany CPI
Thursday - Feb. 23rd
US - GDP, Core PCE and Jobless Claims
Euro-Area CPI
The FOMC will be the thing to watch this week!
My opinion is that the pace of monetary-policy tightening may accelerate or best case scenario not slows down. This will result in a selloff and testing the 20-week moving averages in all three major indexes SPY 0.00%↑ QQQ 0.00%↑ DIA 0.00%↑
Stock Pick
My stock pick this week is on the defensive side. I am going with TMO 0.00%↑
They are a global company that offers life sciences solutions, analytical instruments, specialty diagnostics, and laboratory products and services to a variety of industries including pharmaceutical, biotechnology, clinical, academic, government, and healthcare markets.
Looking at the Daily Chart a good opportunity for a buy is forming.
The stock is on a 5-month uptrend establishing higher highs and higher lows. Currently, the price is trading at 2.5 standard deviations from the mean and I expect a potential reversion with a 5-7% move upward, before consolidation.
Our proprietary quantitative spread indicates that we are currently in an extremum. In the past that usually resulted in a reversal.
Analysts are bullish on the stock as well, and 16 out of 25 are grading it as a Strong Buy. The 1-year average price target currently sits at 651$ or 16% higher than the current price.
I think the risk/reward opportunity here looks juicy and I will be looking for a level to enter.
Final Thoughts
Overall, I think the worst days, still haven’t come and we are in for a battle against a stickier than expected inflation. The FED most probably will have to push the breaks harder, to tackle the hot labor market, which can translate into the need to crash the stock market. The Fixed income game is looking beefy at the moment, which also adds to the sentiment of exiting stocks in the search of higher return and lower risk possibilities. I will be cautious here and look for overbought companies as a result of the January rally.
😎 Cheers! 😎
Disclaimer: Please note that the information provided in this article is for general informational purposes only and does not constitute financial, legal, or professional advice. The information provided should not be relied upon as a substitute for financial, legal, or professional advice. Before making any decision, it is important to consider all relevant information and consult with a professional who can provide personalized advice based on your specific circumstances. The author and publisher of this article cannot be held liable for any actions taken based on the information provided. This is not a recommendation to buy or sell any specific securities or financial instruments.