Analysis, Perspective, Trading Strategy
At the Edge of Chaos: Dude - is that a DELL or a Bond Yield Breakout?
Duarte in the Money Options
What a strange week it was as shares of Dell Technologies (DELL)
and the U.S. Ten Year Note (TNX) scored simultaneous breakouts and
raising questions about what’s next. So, is the market about to freak
out because bond yields are about to rise further? Or are investors
more likely to adjust and move money to what’s working? Indeed, if
the recent past is any guide, the odds favor the latter of the two
options as most likely, unless bond yields rise to the point where
the Fed has to act in order to calm the markets.
Granted, bond yields eased early in the week and stocks rallied,
but by Friday with a very hot PPI number the bond bears took over once
again and stocks started to struggle as TNX made a marginal new high.
Indeed, the obvious message for those who wish to heed it is that the
action in the stock market is now all about the interaction between
the Federal Reserve and the bond market. And with the Fed again and
again telling anyone who will listen that their only plan for the moment
is to continue QE, and to increase if necessary, stock traders have
little choice than to continue to buy stocks, unless, of course, the
bond market continues to move yields to the point where something gives.
Certainly, from a momentum and trend following standpoint there is
nothing to do but to play the long side, at least selectively, as long
as one is aware of the risk should an untoward event develop such as
a liquidity crisis, a high-profile corporate default, a geopolitical
surprise or further selling in the bond market. That said, there are
three more important bond related facts to consider:
- Inflation in the real world, as demonstrated by last week’s PPI
is not as tame as it is on CPI
- Bond yields (see below) remain in a long-term uptrend and could
be near yet another up leg
- Stocks of economically sensitive companies are outperforming traditional
growth stocks at the moment but it’s hard to know what will happen
if the rise in bond yields accelerates and bond yields reach an area
where even bets on an economic recovery won’t pan out
All of which suggests that even as bond yields may still retrace
some of their recent increases, money flows in the stock market are
still factoring in the possibility for inflation in response to supply
chain tightness and increasing demand in the expectation of an economic
recovery. Finally, from now until this bull market is over, it is most
likely that the reason that stocks will eventually fall will be related
to a rise in interest rates, whether from the Fed, the bond market,
Dude is that a Dell Breakout?
For a minute there I thought I was back in the late 1990s as shares
of Dell Technologies (DELL) caught my attention just before they broke
out to a series of new highs.
DELL is an interesting story for sure. Based in Round Rock, TX, just
outside Austin, the company, at least as a public entity saw its buzz
wear off after the Dot.com bust and went private, only returning to
the public domain in 2019 with the IPO rallying for a few months before
the stock collapsed in March 2020 in the midst of the COVID meltdown
- from which is has rebounded due to the changing infrastructure demands
of the IT marketplace. Somewhere in between the original Dell Computers
bought early cloud giant EMC in a leveraged buyout, which included
software company VMWare (VWM). Moreover, due to the size of the buyout
and the repercussions there has been plenty of confusing “financial
engineering” that has gone on throughout the saga. And the current
incarnation of DELL has plenty of debt to prove it along with comments
from management about using the company’s recent good fortunes to pay
Nevertheless, it seems as if the EMC and VMWare saga has finally
paid off for Michael Dell and company, at least in the short to intermediate
term due to the COVID-19 pandemic. In fact, where in the recent past
cell phones were the lead selling products in the high-tech field,
COVID changed everything as the work from home dynamic reshaped IT
needs across the board from rising corporate demand for servers and
cloud infrastructure to the increase in home and business need for
laptops for home schooling, which is in DELL’s hardware wheelhouse.
The result was a record year in revenues and earnings with a significant
gain in market share in notebook computers and a return to growth in
its storage business. Moreover, DELL expects the growth to continue
in its 2022 fiscal year as the “work form anywhere” dynamic expands.
The stock recently broke out and is a bit overbought based on its
RSI. Thus it is due for some consolidation which, barring a major market
event, should allow entry for anyone who’s missed the rally so far
with good support near $84 and the 20-day moving average. This could
change, of course. But based on the current posture of Accumulation
Distribution (ADI) and On Balance Volume (OBV), money is still moving
into the shares. Moreover, DELL reports earnings in late May which
should give the stock plenty of opportunity to resume its rise after
what I expect will be a brief pause.
I own shares in DELL as of this writing. For more stocks like DELL
and other recent winners consider a FREE trial to Joe Duarte in the
Money Options.com. Click here .
NYAD Makes A New High Confirming New Uptrend Leg in a Split
After a couple of weeks of consolidation and a brief flirtation with
a Duarte 50-50 sell signal, NYAD has made a series of new highs which
means that once again, until proven otherwise, we are in another Fed
QE fueled up leg in stocks. The key to success, though, is to be selective
as the market continues to rotate away from high momentum tech stocks
and into industrial stocks.
As always, it’s important to note that just
as we saw this time, as long as NYAD continues to make new highs,
remains above its 50- and 200-day moving averages and its corresponding
RSI reading remains above 50, the trend is up. This combined set
of observations has been extremely reliable since 2016.
So, for now NYAD gets the benefit of the doubt.
Still, we’ve had no new high on NYAD for the past couple of weeks
which is a concern although this is balanced by the lack of a sell
signal. Remember, as long as NYAD continues to make new highs, remains
above its 50- and 200-day moving averages and its corresponding RSI
reading remains above 50, the trend is up. This combined set of observations
has been extremely reliable since 2016. Currently NYAD is still in
a long-term uptrend.
The Nasdaq 100 index (NDX) temporarily bounced from its oversold
condition as I thought possible and stated here last week. The problem
is that NDX stopped short of closing above its 50-day moving average
as the rise in bond yields led to another selloff in tech. So the question
for now is whether NDX will be able to move higher in the wake of rising
bond yields if they continue; and more importantly, will it be able
to take out its recent highs and extend the rally to higher highs beyond
Still from a trading standpoint there is now a fairly high correlation
between lower bond yields and higher stock prices, at least in the
S & P 500, but not as much in the Nasdaq 100. This, in essence
returns the relationship between bonds and stocks to its traditional
status; at least partially.
In other words, until things change higher bond yields are once again
more likely to be negative for at least part of the stock market –
specifically high growth stocks especially in the technology sector,
with a few exceptions such as the one cited above in the case of DELL.
Have you thought about where to invest as bond yields fluctuate?
Find out with a Free Trial to my service. Click here .
Rotation Away from Tech Continues
Rising bond yields are forcing stock investors to make decisions
about where they put their money and the losers, at the moment, are
most of the high-flying technology stocks. Still, the overall trend
in the market remains up. What that means is that selectivity and trading
discipline are the key to success
For more on how to deal with the current market checkout my latest
Your Daily Five video here .
For more details on bonds, currencies, and stocks check out my recent
interview with Wall Street Reporter.com here .
Joe Duarte is a former money manager, an active trader and a widely
recognized independent stock market analyst since 1987. He is author
of eight investment books, including the best sellingTrading
Options for Dummies, rated a TOP
Options Book for 2018 by Benzinga.com - now in its third edition, The
Everything Investing in your 20s and 30s and six other trading
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