Testing New Support, Inflation Prospects, Economic Normalization in 2024 and One New Buy
January 7th, 2024 Update
Let's begin with the Equal Weight SP500: we're now outside the consolidation box I've been monitoring for several months. The question remains: will we test the upper boundary of this box as a new support zone? We'll need to wait and see. Notably, the volume was high, confirming some selling pressure after the recent strong rally. No assumptions here; it's wiser to err on the side of caution until proven otherwise.
Turning to the daily chart of the 10-year treasury yield, which moves inversely to the SP500, rates have been climbing. As I've mentioned in previous posts, my expectation is for rates to either move sideways or decline once more, contingent on inflation expectations and the actual inflation trend.
On the downside, the upcoming CPI reading on inflation is expected to be slightly higher, as indicated by the Cleveland FED Nowcast estimation:
On a more positive note, the figure for January, disclosed in February, is likely to finally dip below 3% (estimated at 2.95%). Should this transpire, I anticipate the 10-year treasury yield will trend southward again, which bodes well for equities, assuming other factors remain constant.
Shifting the focus to sectors, Healthcare is exhibiting notable strength. Given the anticipated uncertain and sideways market conditions in 2024, it makes sense as a defensive sector. Within Healthcare, Biotechnology and Medical Devices are leading the charge.
My take:
We find ourselves in a phase of global economic normalization after the unprecedented disruptions and responses from central banks and governments in the wake of the pandemic.
The trend in central banks' policies is shifting from tightening to containing inflation towards more accommodative monetary measures, distinct from both Quantitative Easing and Quantitative Tightening.
Consequently, some still predict a hard landing. If they're correct, the stock market could experience a rapid correction.
Alternatively, we could return to a world economy stabilizing and eventually growing, avoiding a major recession in the US.
In such a scenario, we should witness the SP500 continue to ascend until valuation makes sense.
I still subscribe to the idea of a soft landing. Nonetheless, we must remain vigilant, closely monitoring economic indicators. Encouragingly, Q4 GDP growth in the US is at 2.5% and on the rise, suggesting no immediate recessionary signs.
Let's remain open to different potential scenarios.
PORTFOLIOS
It is a market that deserves patience. Nonetheless, I’ll try a pilot buy this week in my 10X SMALL CAP PORTFOLIO.
10X SMALL CAP PORTFOLIO
I was stopped out from STNE 0.00%↑ for a 16% gain. Now I am left with MonelyLion who is behaving like a Monster stock as the combined position is up 189%. I raised slightly my Stop Loss. See below my Portfolio details:
New Buy
I am creating a STOP BUY order for 770 shares of ESPR 0.00%↑ at $2.6.
Esperion Therapeutics, Inc., is a Healthcare company with a 290M Market Cap, about 100M in Sales, Growing above 50% YoY, and becoming profitable.
I am not buying a breakout. I am buying a retest of the 21EMA only if it goes to $2.6 again. If triggered, I’ll place my first Stop Loss at $2.15 (-17%).
From the same Healthcare group, I found also TGTX 0.00%↑ and ABEO 0.00%↑ to be interesting this week. I picked ESPR 0.00%↑ for the reasons above.
10X LARGE CAPS
I am not touching or doing anything this week on this portfolio.
That’s all for the week.
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Important: This is not investment advice. Consult a licensed financial advisor before making any investment decision.