All Eyes on Big Tech Earnings this Week. Contrarian Play?

July 26, 2021

Another day, another all-time large-cap equity index high, right? Today, let’s take a look at an ETF that could interest traders looking for a contrarian strategy.

The bull market has continued, albeit with some warning signs beneath the surface of the market.

Last week, markets flexed their resiliency muscles by quickly erasing a 700 + point Dow Jones Industrial Average on Monday and ending the week at all-time highs. Easy monetary policy has continued, and liquidity is high. There was no shortage of buyers that were ready, willing, and able to buy that dip.

Even though the Fed has telegraphed its message of increasing rates in the future, Fed bond purchases have continued for the time being. The purchasing of these bonds helps to keep rates lower and create liquidity across markets.

Since June of 2020, the Fed has been buying $80 billion a month in Treasury bonds and $40 billion in MBS (Mortgage Backed Securities).

There is quite a lot happening this week. Consumer Confidence is set for release tomorrow. We will hear from Fed Chair Powell on Wednesday with the FOMC statement and the subsequent conference call. Advance GDP and Core PCE are on the table for later in the week.

All of the above happens during earnings week for the tech giants, namely Apple, Facebook, Google, Tesla, Amazon, and Microsoft.

What can we do on a week like this when the S&P 500 is at or near an all-time high?

Last week, we examined the divergence of the Dow Jones Transports and the Dow Jones Industrial Average.

The Transports:

Figure 1 - Dow Jones Transportation Average March 8, 2021 - July 26, 2021, Daily Candles Source

Transports have been weak, and today the index traded up to and touched the 78.6% Fibonacci retracement level from its July 1, 2021, high to its July 19, 2021 low. What is going on with the transports?

We can see lower highs and higher lows that have been occurring since May. Today is providing a nice bounce and intraday reversal so far.

As we can see, there is a downtrend in place in an otherwise sector uptrend dominant marketplace, let’s go with what is working here.

Looking for an ETF to take advantage of this downtrend is no easy task. Currently, I do not see a liquid way to take the inverse side of the transportation, so we will examine a short position in IYT.

Figure 2 - iShares Transportation Average ETF March 18, 2021 - July 26, 2021, Daily Candles Source

We see IYT doing its job rather well, seeking to track the investment results of an index composed of U.S. equities in the transportation sector.

Considering this downtrend could be a way to gain some alternative exposure in today’s market.

We are in a big earnings and economic data release week. There could be volatility in either direction in the major indices.

Since I am cautious on the indices in the current landscape per previous Stock Trading Alert publications, a trade in the transports could be a way to take advantage of an existing countertrend, while the major market indices have been trading at highs.

Now, for our premium subscribers, let's look to pinpoint potential entry levels in IYT, and recap the other markets that we are covering. Not a Premium subscriber yet? Go Premium and receive my Stock Trading Alerts that include the full analysis and key price levels.

Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter - it's absolutely free and if you don't like it, you can unsubscribe with just 2 clicks. If you sign up today, you'll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

Thank you.

Rafael Zorabedian
Stock Trading Strategist

Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

This content is for informational and analytical purposes only. All essays, research, and information found above represent analyses and opinions of Rafael Zorabedian, and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. You should not construe any such information or other material as investment, financial, or other advice. Nothing contained in this article constitutes a recommendation, endorsement to buy or sell any security or futures contract. Any references to any particular securities or futures contracts are for example and informational purposes only. Seek a licensed professional for investment advice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Information is from sources believed to be reliable; but its accuracy, completeness, and interpretation are not guaranteed. Although the information provided above is based on careful research and sources that are believed to be accurate, Rafael Zorabedian, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. Mr. Zorabedian is not a Registered Investment Advisor. By reading Rafael Zorabedian’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Trading, including technical trading, is speculative and high-risk. There is a substantial risk of loss involved in trading, and it is not suitable for everyone. Futures, foreign currency and options trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment when trading futures, foreign currencies, margined securities, shorting securities, and trading options. Risk capital is money that can be lost without jeopardizing one’s financial security or lifestyle. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Rafael Zorabedian, Sunshine Profits' employees, affiliates, as well as members of their families may have a short or long position in any securities, futures contracts, options or other financial instruments including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice. Past performance is not indicative of future results. There is a risk of loss in trading.


The symbol for silver ‘AG’ comes from the Latin word ‘agentum’ meaning silver.

Silver Phoenix Twitter                 Silver Phoenix on Facebook