The stock market has been climbing higher for months. Since March 23, the Dow and S&P 500 are both up 43%.
But markets never move in a straight line, and investors are starting to remember that.
On Monday, July 13, the short-term speculation reached an extreme.
Tesla’s (Nasdaq: TSLA) stock was up 43% since the start of the month and climbed another 14% before finishing the day in the red.
Tech stocks are on a massive run because investors know they’re the only game in town. The economy runs purely on tech right now.
Crowds are not forming. Most people are staying home. The only things keeping the economy chugging along are machines like the one you’re using to read this article.
How long can it go before the stock market crumbles under its own weight in the midst of what almost all analysts agree will be the worst earnings season since the Great Depression?
I won’t pore over economic figures or technical analysis to argue why the market is due for a drop. All that information is at your disposal if you want to look it up.
I don’t need to because a sober mind paints a clear picture.
The Worst Earnings Season in 100 Years
And every day the economy doesn’t return to normal, the more the damage spreads.
Local economies are closing again. Virus numbers are up. Life is not returning to normal.
The rampant speculation in tech stocks only proves the point that things are bleak.
Money crowds into the best opportunities until it finds new ones or the opportunities dry up. There are no opportunities left.
The market cannot forever keep rising on pure speculation and momentum. The economy can’t survive on pure stimulus.
Market commentators can talk all they want about how markets have a forward-looking view and that’s why stocks keep rising. They say investors don’t care about the virus anymore because it’s yesterday’s news.
This is all easier said than done.
It’s easy to intellectualize that we’re entering the worst earnings season in 100 years. It’s another thing to hold through it.
Said more simply, it’s easy to say markets will keep looking forward. It’s another thing to actually do it.
Crowd behavior drives stocks. As ghastly figures and earnings reports come out day after day, investors will panic and flee the market.
Thursday’s results showed the jig is already up.
On Thursday evening, Netflix reported earnings that failed to meet expectations.
Netflix is one of the FANG stocks (Facebook, Amazon, Apple, Netflix and Google) whose sales improved through the pandemic, quarantine and shutdown because record numbers of people are at home and need something to watch. If the streaming giant can’t shake this, how can we expect other companies to?
The situation gets more complicated when you consider Netflix’s earnings: They’re up 165% year over year.
But if the market can’t get excited about Netflix’s results — if investors panic over sales that are $6.33 billion instead of $6.39 billion, though earnings per share beat by nine cents — what does that say for the rest of the market?
Don’t Trade the Stock Market Every Day
There are ways to profit through all of this.
On Monday morning, I put every dollar I could muster into shorting Tesla stock. I also bet against several big tech stocks by buying put options. My portfolio grew 50% that day.
On my Tesla trade, I made 300% in six hours.
I made a similar move at the start of April after the market fell too far, too fast. It was clear a historic bounce was in store once federal officials passed a stimulus bill. I recovered half my losses in a week.
The key is this: You can’t trade the markets every day.
Instead…
- Be patient.
- Keep cash on hand.
- And wait for opportunities that are pure layups.
I take more of a speculative approach when it comes to my trading. I look at the big picture, rely on event-driven news and simply look at stock charts.
M&M Chief Investment Strategist Adam O’Dell
Money & Markets Chief Investment Strategist Adam O’Dell is also highly selective and tactical in his approach to trading, but his approach is more systematic — and therefore repeatable.
Adam is the ultimate systems trader. He eats, drinks and breathes the stuff. In his Cycle 9 Alert service, which has one of the best options track records in the industry, he, like me, doesn’t trade every day. He only recommends the best trades. He waits patiently, like a cat stalking its prey at night, striking when the iron his hot.
Thanks to the system he’s used for consistent profits since 2012, Adam can narrow the market down to the best high-probability trades. Thanks to his system, neither Adam nor his Cycle 9 readers must be “glued” to their computer screens 24/7, waiting for the next opportunity to present itself.
Now, I enjoy the markets, so I don’t mind wading through the mire of the day-to-day price action. But if you don’t have as much time in your day to study and track stocks, Cycle 9 Alert is a great way to play the best, most select opportunities.
For instance, Adam recently found an opportunity in a subscription-based online clothing retailer. It helped hand his readers a 70% profit in two weeks.
And his system identified a lead gene-sequencing stock that gave his Cycle 9 readers a 103% profit in just over two weeks.
It’s an incredible strategy for tackling the stock market during these volatile times. You can find full details on Cycle 9 Alert here.
Regards,
Chris Cimorelli
Analyst, Money & Markets