Rippy Global Weekly Outlook - March 6 to March 11
March 6-March 11, 2023 by Adit Dayal for RIPPYGLOBAL.
Good evening everyone and it’s time for another weekly outlook from your friends over at Rippy Global. Last week, SPY closed an overall +2% for the week and ended a three week losing streak. Economic data reports recently have been very strong and this has been scaring traders into the idea that the Fed will raise interest rates.
The bulls entered the market on Thursday when a Fed speaker hinted that rate hiking could be halted as early as this Summer.
Last week, we saw some huge movements in AI (artificial intelligence) stocks. Specifically, the poster-boy AI stock, $AI which had a massive +35% day after earnings and investment firm Wedbush upgraded the stock, citing it’s improving financial conditions and increased demand for it’s products.
In fact, venture capitalists are going in on AI companies at a record pace:
The question we should ask now is: are AI stocks worth the hype?
The way these AI stocks are trading is reminiscent of the speculative run we once saw in cannabis and blockchain stocks - any company that even mentions they are in it will see a large increase in demand. But as we saw in those industries, this is not viable long term.
The reason I know this is more of a bubble than a new trend is because companies have started just throwing AI keywords in their earnings reports as to attract investor attention. This reminds me of when companies would do this with blockchain, like when like Long Island Iced Tea. rebranded itself Long Blockchain Corp. to avoid getting delisted.
So what’s the best way to trade this?
1) Short Term:
Small cap AI stocks will be the best for short-mid term trades while the bubble is still growing and until it shows signs of stopping you should capitalize on it. The recent names with good volume and momentum are $BBAI $BFRG $SOUN. One underrated China AI play is $DAO. Watch for companies who release reports with artificial intelligence and then capitalize on it by buying in at key support levels. Whenever I trade small cap stocks, I make sure to not hold overnight, or if I do I make sure the company does not ned to raise capital because the last thing you want is to be caught in a stock offering.
2) Mid/Long Term:
Large cap companies who are using AI as a means to increase company productivity and revenue are a safe but great way to play the sector. For example, Microsoft owns 49% of OpenAI and Facebook and Google executives have both said they want to be leaders in AI. These companies are not reliant on AI to continue profitability, but it sure will help. Investors should also watch Nvidia as they have a key role by producing 80% of the chips used to run AI machines, and that ChatGPT currently is requiring 10,000 chips to run.
3) Safest Play:
In my opinion, the safest AI trade is via the $ROBT ETF. This is the Nasdaq Artificial Intelligence and Robotics ETF. It is diversified with many great companies so your risk is mitigated for the long run and will run with the momentum in the short term.
It is currently breaking out of this bull flag:
Let’s take a look at some upcoming catalysts for this week:
#1) Very light earnings week with no heavyweight company reporting.
#2) Jerome Powell is speaking in front of Congress right after market open on Tuesday so there will be a lot of added volatility and on Wednesday he will appear before the House Financial Services Committee.
#3) Apple is rumored to release new iPhone colors for the spring in order to boost slow Springtime sales and they will have their annual investors meeting on Thursday.
#4) The White House is releasing their proposed budget on Thursday, so watch for movement in contact names like LMT.
#5) The February jobs report will release on Friday at 8:30 AM, remember, unemployment needs to rise to show that the Fed’s plan is releasing.
The S&P 500 ($SPX index) held our key levels from last week and is still making higher lows and higher highs, which is the definition of an uptrend. Orders determine price action, not opinions, so until we create a new low, I continue to remain bullish overall.
My key breaks are $4062 for bulls and $3987 for bears.
The best ways to play the S&P 500 are via. SPY/SPX options or SPXL (3X Bull S&P 500 ETF.
Options Flow Reading
Here are the biggest options orders by size on Friday:
The largest trades were in AMZN, F, and SSRM which was unusual. The largest order in a stock under $5 was a Buyer 8187 $BB 4.5C 3/17 for 9 cents. This is a cheap trade that’s way out of the money.
INDIVIDUAL STOCKS & LEVELS
Let’s recap some of the levels of some popular names:
Tesla continues to trade choppy after a lackluster investors day from them. It is trading healthy, consolidating after that large move to the upside. If Tesla can reclaim $205, $232 is possible for the next leg up out of this flag. Under $185 gives room to $170.
Apple has a lot of catalysts this week as I mentioned above which can cause it to break out of this inverse head and shoulders pattern. $152.50 is key for bulls and $147 is key for bears.
I think this is the week that oil stocks break out of this chart pattern as $USO which is the oil ETF is very coiled and the market is optimistic about a Chinese recovery. The leveraged way to play this is via $GUSH which is the 2X etf. There was a rumor last week that the UAE wanted to leave OPEC in order to pump more oil but they denied that.
The top insider buys this week were in $LAZY and $DPZ which both have great charts with momentum.
Thanks for reading this weekend’s article, have a great week!
-Adit Dayal (https://twitter.com/tradelikehulk)