DailyPlay – Rockwell Automation (ROK) – November 15th, 2021

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Market Outlook:

Inflation numbers announced last week saw equities retreat after a multi-week rally. However, we view this slight pullback in the major indices as a positive as equities were near overbought territory and the pullback allows for better risk/reward long opportunities. However, higher than expected inflation numbers indicate that inflation may be more permanent than transitory as originally believed. This will likely lead to higher rates in the near future which will be a headwind for equities, especially higher beta unprofitable companies as investors flock to safer value names. Retail Sales numbers announced this week will provide a better idea of how much inflation is impacting the retail sector and will provide further evidence to what the Fed may do next regarding rates. Our outlook for equities remains positive due to the strong earnings season where 80% of the companies in the S&P 500 that have reported so far have beaten analysts’ estimates. 

ROK Bullish Trade Idea:
Our bullish trade idea today is Rockwell Automation Inc (ROK). ROK is part of the Industrials sector which has finally seen some momentum after breaking out to new all-time highs and pulling back. We view ROK as an attractive play on the Industrials sector which will benefit from Federal Infrastructure spending as well as commercial infrastructure spending as the reopening continues. ROK is also well-positioned to take advantage of the reshoring of US manufacturing coupled with the oncoming capex cycle. With a focus on automation and leveraging R&D in high growth areas, ROK’s medium to long term picture looks positive. From a technical perspective, ROK recently broke to new all time highs and recently pulled back to retest the $327 previous resistance and bounced higher with good momentum. Both 1M and 6M trends are bullish and with a technical score of 9 (out of 10), ROK is a very strong stock that will likely continue higher.

As this is a debit spread, look to take profits at 75%-100% gain and cut losses at 50%:

• Take Profit: $20.47 – $23.40 Credit
• Stop Loss: $5.85 Credit

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