Stocks ‘overbought, not broken,’ says this trader who has nailed some big calls

There are good reasons not to bet against stocks right now, even if tech’s lengthy run has some wary, according to our call of the day from LaDucTrading.com founder Samantha LaDuc.

LaDuc, an active trader since 2008, has proven her chops in the predictions department. She nailed an early 2022 warning of a “coming tech wreck” that would knock 20% off the Nasdaq — it dropped 33% that year. She also began talking in September 2022 about how investors were being “paid to wait” in cash — that is putting money in short-term Treasury bills that have been yielding 5% for the better part of two years. That became a hot place for investors to park money.

MarketWatch recently caught up with LaDuc again to harvest some fresh predictions. At the top, she sees a stock market that is “overbought, but not broken,” for a couple of reasons.

“It was exactly Nov. 16 where I said tech concentration risk is now starting to look a lot like the runup in 1999. The big difference is that big money is even bigger and chasing tech stocks with other big money,” said LaDuc.

In mid-January, LaDuc doubled down and got even more bullish, with a call for the S&P 500
SPX
to hit 5,340 and the Invesco QQQ
QQQ,
which tracks the Nasdaq-100, to reach 444, possibly hitting 472. The big volatility spike seen on Tuesday following a relatively overheated inflation report hasn’t swayed her.

See: Rising Vix likely portends more losses ahead for stocks, history shows

Apart from the fact big money is still chasing stocks, LaDuc says so-called fiscal dominance makes betting against equities risky.

“It’s an economic condition that arises when debts and deficits are so high that monetary policy kind of loses traction, but the debt services cost, they rise beyond a certain level so that their main implication is that they need more monetary financing,” she explains.

So what kind of stocks does she like? “The market in tech may be overbought, but there are many opportunities in oversold tech and undervalued small caps for active investors,” she said.

For diversification outside of some of the more “extended” Big Tech names, she suggests looking at oversold small-cap stocks via the iShares Russell 2000 Value ETF
IWN
and companies that have done IPOs and fared poorly — tracked via the Renaissance IPO ETF
IPO
as well as retail stocks
XRT,
which all “may finally be ready to deliver the best trading backdrop as the market moves higher and the rally broadens out.”

Read: IPO freeze gives way to cautious optimism as dealmakers see signs of a thaw

Among some savvy stock calls under her belt, LaDuc suggested her followers buy Toyota
TM,
-1.72%
in early June 2023 — the stock is up around 56% since that call, and more recently suggested investors short Tesla
TSLA,
+2.55%,
which has dropped around 36% since.

LaDuc nodes to possible wild cards that could upset her bullish view. She says if the 10-year Treasury yield gets and stays above 4.7% again — she’s targeting 6.5% by the end of the year — and the U.S. dollar
DXY
shoots above ¥152
USDJPY,
-0.37%,
both would act as a headwind for stocks.

The markets

Stock futures
ES00,
+0.15%

YM00,
+0.14%

NQ00,
+0.18%
are modestly higher, as Treasury yields
BX:TMUBMUSD10Y

BX:TMUBMUSD02Y
continue to pull back. The dollar
USDJPY,
-0.37%
is still holding above ¥150.

The buzz

Deere stock
DE,
+1.45%
is tumbling after the agriculture sector bellwether gave a downbeat outlook.

Children’s Place shares
PLCE,
+28.57%
jumped 13% on news that an investor group has built up a majority stake, a day after a profit warning and news it was working to find new financing.

The highlight of a massive data day will be January retail sales, expected to drop 0.2% after last month’s 0.6% rise. Also at 8:30 a.m. are weekly jobless claims, the Empire State and Philly Fed manufacturing surveys and import prices. Industrial production is coming at 9:15 a.m., followed by a home builder confidence index at 10 a.m.

A pair of Fed speakers are also ahead: Fed Gov. Christopher Waller at 1:15 p.m. and Atlanta Fed Pres. Raphael Bostic at 7 p.m.

Quarterly holdings from big investors and companies are in. Nvidia
NVDA,
+2.46%
revealed holdings in SoundHound AI
SOUN,
-0.88%,
with those shares up 73% in premarket. Investments in Nano-X Imaging
NNOX,
+6.53%
and Recursion Pharmaceuticals
RXRX,
+11.49%
are also sending those shares sharply higher.

Warren Buffett’s Berkshire Hathaway trimmed its stake in Apple
AAPL,
-0.48%
and Paramount
PARA,
+1.46%
and loaded up on Sirius XM
LSXMK,
+0.77%
and Chevron
CVX,
+0.28%.
George Soros’ investment fund made new bets on low-cost airlines including JetBlue
JBLU,
-2.44%,
Spirit
SAVE,
+0.94%
and Sun Country
SNCY,
+1.27%.
Stanley Druckenmiller’s Duquesne Family Office dumped stock in Alphabet
GOOGL,
+0.55%,
Amazon
AMZN,
+1.39%
and Broadcom
AVGO,
+0.84%,
but stuck to Nvidia
NVDA,
+2.46%.
That’s as Michael Burry’s Scion Asset Management bought Alphabet and Amazon. New York hedge fund Tiger Global slashed positions in Alphabet
GOOGL,
+0.55%,
Meta
META,
+2.86%,
Microsoft
MSFT,
+0.97%
and Nvidia.

Read: Even Warren Buffett is no match for the S&P 500

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