Good evening, and welcome to this week’s edition of Stealth Trades!
The stock market is back!
I have been talking the last couple months about how we were due a pullback.
After a relentless march higher, it was long overdue.
And as you know by now, short-term dips are actually healthy for stocks. They give the market a chance to “digest” the move and rid itself of weak-handed sellers.
In just a week, our market health model has gone from fully bearish to fully bullish.
This is an impressive show of strength and exactly what we want to see – strong buying in response to the dip.
Right now, the shipping sector is showing the greatest strength. This has been the leading group for the last two months.
We bought Golar LNG (GLNG) in our Alpha Stocks service a few days ago. This is a mid-cap marine shipping stock coming out of a consolidation base and breaking out higher.
DHT Holdings (DHT) is another marine transport stock that looks good here (see chart below):
It is scheduled to report earnings on Tuesday. But if I was a betting man, I would wager they beat expectations.
Scorpio Tankers (STNG) reported better-than-expected numbers on Thursday triggering a breakout from a similar pattern:
So did Teekay Tankers (TNK)…
Safe Bulkers (SB) and Overseas Shipholding Group (OSG) also look extremely strong here, and both are ripping to new all-time highs.
Beneath the surface, everything looks strong.
The percentage of stocks above their 20, 50, and 200-day moving averages have been steadily increasing for the last three weeks.
We have also seen 7 straight days of more stocks making new highs than new lows:
As of Friday morning, at the time of this writing, the S&P 500 index trades within 0.5% of its all-time highs.
Given the strong price action, robust market internals, and standout strength in the shipping sector, this is when I would be stepping on the gas.
BOAT is the ticker symbol for the global shipping ETF. And as you can see in the chart below, it is flying up the right side of the chart.
Those looking to gain some exposure in this area would be wise to scan through charts over the weekend to identify potential buy targets.
If you have a TradingView account, click ‘Save as watchlist’ to add it. If you don’t have TradingView, it will still give you the 28 names and tickers.
We can dive into these Monday afternoon in our live Stealth Trades session at 4pm ET. If you are getting this email, you have access.
Good evening, and welcome to this week’s edition of Stealth Trades!
Six months ago, we built a model.
It gauges the health of the stock market to identify bullish conditions where we should be buying and bearish conditions when we ought to remain cautious.
Right now, the latter is advised.
Above is a daily chart of the S&P 500 index. A green background designates a bullish market. This is when we want to be buying stocks.
Red, on the other hand, tells us that conditions are less than ideal. During these periods, we want to be less aggressive or flat.
The indicator is a combination of several inputs including price levels, market internals and breadth measurements.
And while no model is perfect, I am happy with the results.
Below is the same S&P 500 chart over the last five years:
It quickly went red 2 days into the COVID selloff. It also painted red for most of the 2022 bear market.
When conditions were favorable, however, it stayed green. This includes the 2020-2021 bull market as well as the strong rallies we experienced in mid-2023 and the last several months.
Does it pinpoint the precise top and bottom to the day? Of course not. Nothing does.
But it does what it is supposed to. It helps us tune out the noise and get an unbiased, scientific view of the landscape.
New traders are led to believe that top performers make money every week, every month.
It’s not true.
I have met some of the greatest traders of all time. In fact, I am currently in Las Vegas in a 2-day session with Tom Basso – a hedge fund manager featured in the Market Wizards book by Jack Schwager (look him up).
So, I can tell you with confidence, NONE of them are profitable each and every month.
Whatever your strategy, it will have periods of underperformance.
Value investors like Warren Buffett significantly underperformed the markets in the post-COVID bubble of 2020:
Momentum traders had a tough time in 2022 when the majority of rallies failed, and institutions were selling stocks hitting new highs.
Buy and hold investors all saw their accounts lose value in 2008. At the same time, short sellers and futures traders made a fortune in that volatility.
Whatever your strategy, you have to know its strengths and weaknesses. If your goal is significant outperformance, you must be willing to sit out when conditions are not ideal for you.
If I am tracking insider trades, I pay very little attention to my market health model. Why? Because insiders are experts at buying dips.
They have a long history of opportune buying near market lows – when my model is going to be painting bright red.
On the other hand, trading breakouts in high momentum stocks like we do in my Alpha Stocks service can be tough under bearish conditions.
So, when the model suggests taking caution like it does now, I tend to trade less and with smaller size.
Don’t misinterpret what I am saying. I am not suggesting this is the start of a long bear market. In all likelihood, it will be nothing more than a short-term pullback.
But after the hugely profitable period we experienced from November to April, the last thing I want to do is give back those hard-earned gains.
Unlike baseball, trading is not a game of called strikes. You can watch 100 pitches go by before taking a swing. The game starts and stops when YOU decide.
So wait for your moment. Demand ideal market conditions, perfect stock setups, whatever it is that gives your strategy an edge.
If you are selling options, you want the VIX above 20 and high premiums on those contracts. If you BUY options, your ideal environment is the opposite.
Wait for market conditions to be green for YOUR strategy.
Good evening, and welcome to this week’s edition of Stealth Trades!
This bull market is not dead. In fact, I believe it is just getting warmed up.
After 4 months of consistently higher prices, stocks finally took a breath over the last few weeks.
But the pullback has been minimal. And, so far at least, it has been a healthy one.
Above is a weekly chart of the S&P 500 index. Sometimes it is best to zoom out a bit and put things in perspective.
The April retracement was just over 5%. Sub-10% pullbacks are routine in longer-term uptrends, and this one is no different.
Zooming in closer on a daily chart we can see the market’s reaction to news over the last couple days:
As of Friday morning, at the time of this writing, the index is bouncing back nicely. More importantly, we saw support buying on Thursday following a disastrous GDP report.
The economy, as measured by gross domestic product, was expected to show growth of 2.4% last quarter. But the number came in much lower at just 1.6%.
Unsurprisingly, stocks gapped down on this news. But prices rose throughout the trading session to end the day down only slightly.
That afternoon, Alphabet and Microsoft both reported better-than-expected earnings numbers. As two of the largest and most widely held stocks in the world, this sent markets even higher this morning.
These are both good signs.
When the market quickly recovers from bad news like Thursday’s GDP report, it is telling you where the bias is. In fact, it is one of the few ways to identify turning points in stocks.
The 2022 bear market low came on the day of the worst inflation numbers in decades. The fact that stocks went UP after such terrible news was the signal to start buying.
A more recent example is Tesla (TSLA). Tuesday’s earnings report showed lower than expected sales and profits. It missed on both metrics. But the stock went up.
Tesla has underperformed for the last year. It is down 50% over the last 9 months.
But this could very well be the low.
In terms of sector strength, we are still seeing money flow mainly into inflation trades.
Utilities, energy, basic materials and the like are all assets that keep pace with inflation. When these areas of the market are leading, it is generally reflective of institutions hedging their portfolios.
But that could soon change. And if the rally in the general market continues, I expect to see different groups leading the charge in the next week or two.
Until then, we remain cautiously optimistic. I still believe there is great opportunity in the gold and silver market and have not yet sold any of my holdings there.
We are also keeping a close eye on the energy market. Note the breakout pattern on the weekly chart of XLE below:
Be prepared for oil and gas prices to rise over the next 3-6 months which will create opportunities to profit from these stocks.
Good evening, and welcome to this week’s edition of Traders War Room!
For a decade, gold has gone nowhere.
After peaking at $1,900/ounce in 2011, the yellow metal has failed to deliver.
But that is finally changing…
Gold is up almost 20% in the last two months after breaking out from a 13-year base.
The weekly chart above shows the price of gold over the last 15 years. Notice the shallowing base formation we typically see before a breakout.
For long-term trades, this is about as pretty as they come.
The nice thing about commodities like gold is that they tend to trend much better than stocks. Metals, oil, even coffee can make steady runs that last several years.
Gold has a history of what I call “super cycles.”
Starting in the late 1960s (as far back as I have price data), gold consolidated for four years before marching 340% higher.
This period from 1972 until 1975 was a super cycle.
It happened again in the early 2000s…
After spending a decade forming a base in the $300-$500 range, gold soared to over $1,900 over the next six years.
And here we are today, breaking out of a similar pattern after another decade of no action.
These past moves in the gold market give us a precedent for what we might expect from this rally. If history repeats itself, that means gold at roughly $8,000 per ounce.
Don’t think it can’t happen. It will. The only question is when.
The backdrop is set. Record inflation, a fiat currency backed by unfathomable debt, and 13 years of catch-up could easily double or triple the price of gold. I’m surprised it’s not already higher.
The easiest way to take a position in gold is buying GLD – an exchange traded fund that tracks the price of gold.
But there’s another way too…
Gold mining stocks typically move in multiples of what gold does. This is because relatively small increases in the price of gold can dramatically increase their profit margins.
GDX is the gold miner ETF, and as you can see in the chart below, it is still well off its 2020 highs.
Mining stocks are soaring with leading names up 30-40% in just the last month.
But if this indeed the super cycle gold bugs have been waiting for, there is a LOT more left to come. Even a move to $3,000 an ounce would cause some of the smaller miners to climb several hundred percent.
I am hosting a LIVE webinar tomorrow morning to cover this opportunity in depth. The details are below:
SPECIAL WEEKEND WEBINAR EVENT Saturday, April 13th @ 11am ET (10am CT) Register Here
We will be discussing both the gold market and a proven strategy for buying the best stocks at the right times.
Good evening, and welcome to this week’s edition of Stealth Trades!
They never learn…
These “expert” economists that run the Federal Reserve are anything but.
At the end of 2021, the Fed planned to raise rates 3 times with a target rate of less than 1.0%.
It raised rates 7 times. And the target rate soared to 4.50%.
They said inflation would be “transitory” …
It wasn’t. 2 ½ years later, prices are still rising at an above-average pace.
Heck, it was their own reckless money printing that caused the inflation in the first place!
These clowns have a long history of incorrect forecasts and bad projections.
And when they screw up, they OVER correct to fix their own mistake, wreaking havoc on consumers and the everyday investor.
If they are not going to get it right, the least they could do is learn to shut up.
But everyone wants their 15 minutes of fame. And on Thursday, Minneapolis Federal Reserve Bank President Neel Kashkari got his.
He gave an interview to Pensions & Investments on LinkedIn Live.
And unlike Fed Chairman Jerome Powell, who is careful to follow scripted remarks, Kashkari spouted opinions of his own. And at 2:03pm ET, he said this…
“But if inflation continues to move sideways, makes me wonder if we should cut rates at all this year.”
You don’t do that.
Especially after Powell just confirmed the Fed’s plans to cut rates 3 times in 2024.
This mixed messaging caused panic. And traders dumped stocks like they were on fire.
Above is a 5-minute chart of the Nasdaq index showing how things played out.
Thursday morning, the indexes were less than 1% from all-time highs.
By the close, the Nasdaq was touching the 50-day moving average… the first time it has done so since November.
In one hour, we learned what investors fear the most – interest rates.
Outside of a Black Swan event, failure to act by the Fed and follow through with its promise of rate cuts is the only thing that will kill this bull market.
Hopefully, Powell and his clown posse will go into damage control.
Traders will be looking for assurance. They want to hear that Kashkari misspoke and rates will soon come down. The sooner that happens, the better.
This may very well end up being a small, short-term pullback. Stocks are in the middle of a historic rally, so the trend is definitely on our side.
As of Friday morning, at the time of this writing, the index is just 3% off its highs. It is in no way time to panic.
But we just witnessed the first sign of weakness in 5 months. If this behavior continues, we will start playing defense.
Until then, stay the course.
Right now, I am looking for two things – stocks pulling back to obvious support areas, and stocks that held up better than others in Thursday’s selloff.
The first group is to identify pullback buys in leading names.
UBER pulled back to its 50-day moving average (red line) and is already bouncing off that level.
This is a classic pullback buy setup.
Stocks that held up better than the rest will be the market leaders.
META, for example, was up on the day.
That is a clear sign of strength.
Try not to exit the market prematurely. You want to play trends until they end, not until you think they will end.
Or as I like to say… Either ride her ‘til she bucks you, or don’t ride at all.
Good evening, and welcome to this week’s edition of Stealth Trades!
I ignore 95% of the stocks I look at.
The reason?
They don’t “trade well.”
Not all stocks are created equal. Some trend well. They respect key moving averages and break out strong from clean patterns.
Others are a mess. They’re up 20% one week and down 20% the next. They don’t follow structure. They move erratically.
This makes trading them a crap shoot.
The game of trading is all about putting the odds in our favor. I have spent the better part of two decades studying what makes stocks move and why. And the only edge I have found is in focusing on institutional favorites being actively bought by large funds.
These are the stocks that allow me to buy them from low-risk entry points with maximum profit potential.
I’ll show you an example…
This is Primoris Services, ticker symbol PRIM. It is an industrial construction company.
The stock is currently coming out of a textbook breakout pattern. After a 25% rally in January, PRIM consolidated through a series of shallowing pullbacks from left to right.
Notice how each retracement was shallower than the last:
This is a stock I would buy here. In fact, we did just that in my Alpha Stocks service yesterday.
PRIM is in the right group – construction has been a leading theme of this bull market and the area I am seeing the most strength right now.
It is also breaking out from a clean pattern which we outlined above.
But this stock also “trades well.” It has a history of making quick runs higher after patterns like this. I’ll show you what I mean…
This is a chart of PRIM from late-2022 to late-2023:
Notice how well the stock trades – steady up moves followed by constructive consolidation periods. No wild gyrations. No whippy price action. Just clean moves from tight bases.
Here are the 12 months leading up to present day:
Now let’s contrast that with another housing-related stock benefitting from the construction boom – Ethan Allen (ETD).
Take a look at this mess of a chart:
There are no clean trends. The stock does not respect its 200-day moving average. There are no clean bases. It reverses randomly and for seemingly no reason.
In essence, this is a choppy mess.
Guessing what this stock will do from one week to the next is a coin toss at best. I have no edge here.
This would be one of the 95% of stocks I pass on.
Am I too picky? Possibly. I also might be exaggerating. Maybe it’s more like 80% of stocks that look like this.
But you get the idea.
Whatever pattern you are trading, go back a little. How has this stock responded to that setup in the past?
If you are new to chart reading, stick to obvious setups. If a chart confuses you, move on. A year from now, it will take you 2 seconds to know if a stock is worth trading or not.
Knowing how to avoid the dogs is one of the best skills a trader can develop. Stock selection is key.
The bulk of your gains will come from picking the right names, not from buying at the perfect price. And the best stocks usually trade well.
Good evening, and welcome to this week’s edition of Stealth Trades!
We are in the early stages of a major construction boom.
I went as far as hosting free Saturday webinars last year to make my case and highlight what I believed was a huge opportunity in building stocks.
Nothing has changed.
I am as bullish today as I was then, even though many of these stocks are already up 100% or more.
Take a look at the sector performance over the last 6 months:
I have put a yellow star next to every construction-related group. Over the last 30 days, building products, home builders and lumber hold 3 of the top 5 spots.
The evidence is crystal clear. This is where money is flowing.
Why? It’s simple really. No one is selling their homes. More than 60% of mortgages are locked in with a sub-4% interest rate.
They’re not going to sell. Who wants to give up a 3% mortgage to take out a new one at 7.5%. The payment will be doubled.
This has caused a record low in housing supply.
New construction is the only game in town, and homebuilders are seeing record profits because of it.
So how can YOU profit from it?
There are two ways to invest in the housing boom. The first, and most obvious, is to buy homebuilder stocks – names like D.R. Horton (DHI) and Dream Finders Homes (DFH).
We bought the latter in my Alpha stocks service back in November and we are up 72% since.
The setup was simple – a shallowing base off the moving averages at the end of a pullback.
But there have been several other opportunities to buy.
This one was about as pretty as they come – a 60% rally off the lows to clear the 200-day moving followed by a series of shallowing retracements. Notice how volume rose and fell in sync with the stock too. This was a clear sign of accumulation.
By the way, we cover these entry tactics every Monday at 4pm ET in my live zoom classes. If you are getting this email, you have free access.
Anyway, homebuilder stocks are the obvious play.
The other area to watch is the building materials sector. Companies that make drywall, flooring, light switches and everything in between also benefit from increased home construction.
Eagle Materials (EXP), for example, makes concrete and Gypsum boards. We bought this stock around the same time as DFH, and it has performed beautifully.
There was another breakout buy opportunity in late January, and I’m sure there will be more.
If you are looking for a stock to buy now, you might consider Trex Company (TREX). They make wood-alternative decking, outdoor furniture and fencing. The is currently breaking out from a similar shallowing base pattern:
TREX is also sitting at the elusive “century mark” as we call it. $100 tends to be a significant area for stocks. You’d be surprised how many people say, “I’ll sell it if it gets to $100.” Sounds stupid, but it’s true.
This is why stocks often find resistance at these large round number prices. So don’t be surprised if TREX stalls here for a few days. It’s normal.
I’ll be running through my list of home construction stocks in Monday’s live session to see if we can find additional opportunities. I hope you can join me.
Good evening, and welcome to this week’s edition of Stealth Trades!
As an active trader, I go to great lengths to keep the pulse of the market.
I track the major indexes for signs of accumulation and distributions. I track performance by sector and group to see where the money is flowing. I watch the top-performing stocks to stay abreast of market themes. I follow market breadth indicators like the number of net new highs.
I even chart the percentage of stocks above key moving averages and compare that to index trends in order to identify divergences beneath the surface.
It is a lot of work.
A lot of people have no interest in doing it. They want a simpler approach… one that can still deliver market-beating returns.
And for those folks, the answer is stage analysis.
Stage analysis, at least the way I use it, is based on the work of Richard Wyckoff. His books, published almost 90 years ago, are as relevant today as they were then.
Wyckoff laid out the 4 Stages of the Stock Cycle, and it is the backbone of my entire investment philosophy.
I teach this every Monday at 4pm ET in our Live Stealth Trades sessions. If you have not yet attended, I encourage you to do so. They’re free, and I have nothing to sell you.
All growth stocks go through 4 distinct stages. The length and severity of each will vary, but the playbook is the same.
I issued a new trade alert for Advance Auto Parts (AAP) on Friday morning for this very reason. Below is a weekly chart of that stock with the 4 Stages of the Stock Cycle overlaid.
Stage 1 is the Accumulation Stage. This is where institutional investors begin building positions in a stock they believe to be undervalued based on future expectations.
Stage 1 typically lasts between 6 and 24 months. During this time, the stock does nothing. It bounces around in a range near the lows of the last several years finding a bottom after a significant price decline.
You will often hear these stocks referred to as “value stocks” or “laggards.”
Stage 1 is like watching paint dry. Nothing exciting happens here. But when the stock eventually emerges from this consolidation area and breaks the Stage 1 high, things start to get interesting.
Stage 2 is known as the Markup Stage, and this is where 90% of your gains as an investor will come from.
When a stock emerges from its Stage 1 base, it usually means something exciting is happening with the company. Maybe it has a hot new product or service. Maybe sales and earnings are growing at a high rate. Maybe the company hired a new CEO who is turning the company around (this was the case for Advance Auto Parts). Or maybe the stock is simply in the right place at the right time (AI, crypto, semiconductors, etc.).
Whatever the reason, the stock is now in demand. It has gone from a dud to a stud, and institutions are actively buying it up.
When large institutional investors like Warren Buffett buy a stock, it takes some time. There is not enough liquidity for them to buy it all at once. It typically takes several months to build up a full position.
For this reason, stocks tend to trend well in Stage 2. The constant buying pressure guides the stock higher. Every dip is bought, and the stock typically finds support along its 50-day moving average.
Below is a weekly chart of Mohawk Industries (MHK) during its Stage 2 rally in 2017:
Note how the stock is trending almost perfectly along its 50-day moving average (red line).
But eventually, the party comes to an end. Institutions have to sell to collect their profits. This might happen when the stock has reached what they believe to be fair value. Or the company could begin showing weakness and posting earnings below expectations.
Whatever the reason, the big guys sell with far less grace than they buy. When they want out, they dump it – quickly.
This triggers Stage 3 –Distribution.
Stage 3 is where I see most retail traders get in trouble. They watched the stock soar several hundred percent, all the while scared to buy at the top. Then finally… a pullback!
The stock drops 30% in a few weeks and they jump in.
But this is a mistake. With the large institutional investors no longer buying, the stock has lost its support. The move is over. This is the beginning of the end, not a buying opportunity.
The easiest way to spot Stage 3 is by watching the volume on the dip.
Look at the weekly chart of Crocs (CROX) below:
After climbing over 300% in Stage 2, the stock fell 31% in a week. That should be enough to tell you the party is over. But note the volume at the bottom of the chart…
This decline came on huge volume – the highest since the stock began trading. And if that wasn’t enough, CROX fell another 19% the following week, again on record volume.
The market is telling you very clearly that the easy money stage is over. Wall Street is dumping the stock, and it will fall further in Stage 4.
Stage 4 is the Markdown Stage. Any remaining institutional investors will dump the stock. Retail traders will foolishly buy the dips and suffer large losses as the stock continues to decline.
Most Stage 4 declines see stocks fall 50-80%. In CROX’s case, the stock fell 98% to a low of 79 cents.
If you are a short seller, this is your window. If not, stay away from stocks in Stage 4. You have everything going against you.
Wait for the stock to bottom, put in a new Stage 1, and emerge into another Stage 2 rally.
These are the 4 Stages of the Stock Cycle. And every major growth stock goes through them, over and over and over again throughout the life of the stock.
Some Stage 2 rallies may only last 6 months. Others several years. As I said earlier, the severity of each stage will differ from stock to stock and year to year. But the cycle remains the same.
Buying stocks at the beginning of a new Stage 2 rally is, in my opinion, the gold standard for longer-term investors. Watch a weekly chart and with a 30 or 40-week simple moving average (150 or 200-day). Wait until the stock is at least 30% above its 52-week low (some will be 100% or more) and breaking above the highs of its Stage 1 base.
Ideally, you want to see the stock breaking out on above-average volume. This is a look at the daily chart of Advance Auto Parts (AAP) – the one we recommended buying this morning – currently breaking out of Stage 1.
Note the significant increase in volume (white arrow) as AAP surges through the $75 level. This was the high of Stage 1.
As far as when to sell, there are a few schools of thought.
Shorter-term swing traders like me look for a multiple of risk. So, if I risk 20% on the trade, I want to make at least 40%.
Trend traders who want to catch the bulk of the move can use a simpler exit like a weekly close below the 75-day moving average. You won’t get out at the highs, but you will catch the bulk of the move whether that be 50% or 500%.
Regardless of your approach, early Stage 2 breakouts are, in my opinion, the best place to buy stocks.
Good evening, and welcome to this week’s edition of Stealth Trades!
The market is beginning to feel “toppy.”
Stocks have pushed higher since November in one of the strongest rallies we have witnessed in years.
Four months of higher highs and higher lows without so much as a 3% dip. It is almost unheard of.
I have been passionately bullish since the October lows. But even I did not expect a move this pretty.
During this period, several stocks have made parabolic moves.
Nvidia, the mega-cap semiconductor stock and clear market leader, more than doubled in two months. It came out of a textbook base pattern and quickly rocketed to nearly $1,000/share.
This stock added a TRILLION dollars to its value in 60 days.
Super Micro Computer did even better…
SMCI shares surged from $300 to $1200 in 50 days.
It QUADRUPLED in 7 weeks!
Eventually, both of these stocks will crash. The AI hype will wear off, sales and earnings will slow down, and investors will see a decline of 50-80% in these holdings.
But when?
While I do not think the bull market is over (in fact, far from it), I do think we could be seeing a short-term top.
Every bull market has a theme. And within that theme you will find the market leaders.
The leaders of this rally are obvious: Nvidia (NVDA), Super Micro (SMCI), Meta Platforms (META), Microsoft (MSFT), Palantir (PLTR), and maybe a few others.
These are the stocks you want to keep an eye on. When they begin to fail, the rest of the market is usually not far behind.
Today, NVDA showed clear weakness. After gapping up to new all-time highs in the morning, the stock sold off, falling 10% intraday on heavy volume.
This is something known as a “downside reversal.” A stock makes a new high, then reverses to close down on the day. When you see this, especially on above-average volume, it could be a sign that the top is in.
As of the time of this writing – 1 hour before the Friday closing bell – the Nasdaq and S&P 500 indexes are also showing a downside reversal pattern. So is AMD, META, and SMCI.
Another data point beginning to worry me is the narrow market breadth.
Breadth refers to market participation. When the indexes are rallying, we want to see the majority of stocks rallying along with it.
Right now, that is not the case.
The chart below shows the S&P 500 index on top and the percentage of stocks above their respective 50-day moving average beneath.
The divergence is hard to miss.
While the index has gained nearly 10% this year, participation has fallen from 85% to 55%. In other words, almost half the stocks on the major exchanges are in short-term downtrends.
How is this possible?
The indexes are market-cap weighted. Larger stocks like Microsoft, Nvidia and Amazon have significantly more impact than smaller names.
In fact, a whopping 55% of the S&P 500’s 2024 return comes from just four stocks – NVDA, META, MSFT and AMZN.
This trend could reverse. It is possible we see a rotation out of mega-cap tech names and into a broader group of stocks.
But if institutions sell what have been this year’s high-flying stocks, it will likely trigger a short-term correction in the market.
I want to be clear – I am NOT saying the bull market is over. But a lot of stocks feel extended right now.
This move needs to be digested. Weak hands need to be flushed out. Traders who are over-leveraged and chasing parabolic moves need to be stopped out.
Every so often, the market must knock the froth off. Otherwise, it sets itself up for a major correction like the 1999 Tech Bubble.
This afternoon, I put on a hedge. I sold short QQQ – an exchange traded fund representing the Nasdaq – at around 440. My stop loss is just above the high of the day at 449.
This represents a 2% risk.
I hope the trade does not work out. I am happy to take a small 2% loss if stocks continue higher.
Another way to hedge one’s portfolio is with a put option.
The QQQ Apr19 $435 put trades for about $7 ($700/contract). Each contract represents 100 shares of stock. So, for $700 you could hedge a $43k stock portfolio for the next 6 weeks.
That comes out to an “insurance” cost of roughly 1.5%.
And while I would not recommend maintaining an option hedge year-round since it would eat up a lot of your gains, it seems prudent here after such a profitable 4 months.
Good evening, and welcome to this week’s edition of Stealth Trades!
Good evening, and welcome to this week’s edition of Traders War Room!
Here’s what most people don’t realize about the stock market…
It is only good about 30% of the time.
What do I mean by “good”?
I’m referring to a healthy, trending, bull market environment where the odds are stacked in our favor.
You see, the market only trends about 30% of the time. The other 70% of the time, stocks are moving down or sideways.
This is the S&P 500 index over the last two years (104 weeks):
The yellow boxes highlight periods of sustained uptrends. Out of 104 weeks, only 27 of them meet my criteria.
So, it is crucial to take advantage of these windows of opportunity.
The last few months have been phenomenal for us and our members.
In our Alpha Stocks service, we have caught huge moves from market leading stocks like Dream Finders Homes (+65%), Alpine Immune (+71%), Black Diamond Therapeutics (+64%), Eagle Materials (+48%), Bit Digital (+51%), Mohawk Industries (+38%), Interactive Brokers (+31%), and countless others.
In our FIRE Trader service which uses a precise pattern to identify low-risk entries into high-flying stocks we have bought stocks like SRRK which went up 82% in 43 days, ABSI that soared 113% in 14 days, and VKTX which is up 302% from where we bought it 7 weeks ago.
Heck, the last two stocks we recommended in the Insider Effect are up 44% (RLMD) and 65% (SANA) in less than a month!
Gains like this can only be achieved in a strong, trending market environment.
The strategies are sound. Our entry and exit tactics are proven. But the real magic comes when they are applied at the right time.
2022 was tough. It was a bear market. We had some good trades, we made a little money, but nothing like what we are seeing right now.
That’s just part of the game.
You must be willing to weather the storm when conditions are poor if you are going to have real success. Because make no mistake – another bear market will come.
These conditions will not last forever.
There will be times when the markets pull back or trade sideways for weeks or even months.
But when conditions are good, that’s when you want to step on the gas… to get full exposure and make big profits during these lucrative periods.
So, how do you know when conditions are “good”?
Allow me to introduce… THE POWER TREND.
The Power Trend is a concept developed by Mike Webster and Charles Harris during their time at Investors Business Daily, and it can be applied to any major index like the S&P 500.
Here are the rules that trigger a Power Trend:
The low is above the 21-day EMA for at least 10 days
21-day EMA is above 50-day SMA for at least 5 days
50-day SMA is in an uptrend
Index closes up for the day
Here is a look at what started the one we are in right now…
And this is where we are today…
Power Trends present some of the best money-making opportunities for traders. Even long-term investors, if they go back and look, will find that the vast majority of their gains come during these periods.
So when will the rally end?
I don’t know. But this is what signal the Power Trend is over:
21-day EMA crosses under 50-day SMA or
Close 10% below recent high and below 50-day SMA
When one of those two things happens, I take my foot off the gas and cut down exposure or go completely to cash.
