Last Week’s Market Panic Was A Good Thing. Here’s Why…
Last week, I told my Profit Amplifier subscribers that we were going to buy the dip, and this is still my intention.
Unfortunately, the dip was deep enough to trigger masses of stop orders and incite a bit of short-term panic among market participants, sending the S&P 500 below its key 200-day moving average. Once media got ahold of the situation, they only added to its intensity.
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While the selloff may seem like Armageddon to some, we must put it into context and remember that stocks have been breaking performance records and moving almost straight up for much of the past decade with only a few pauses.
This is not the first break below the 200-day MA that we’ve seen recently. In fact, penetrations have happened several times this year in February, April and May.
The way I see it, this is the best thing that could have happened. It not only flushed out some of the excessive premiums on many stocks, but it also gave us a free look into how investors really felt about specific stocks and sectors. When a market is down 8% and certain stocks are barely breaking down, you can see where selling is less likely to occur in the future. Safe havens and high-dividend stocks are the exception here because those will typically see inflows during the early stages of a correction.
#-ad_banner-#Again, I’m not saying this is the last selloff of 2018, but we would be foolish not to try to take advantage of it.
The problem here is that all this volatility, coupled with dramatic shifts in technical patterns, makes for very difficult modeling. In other words, it’s hard to trust your instruments when their calibration may be a little off.
In a market driven by media and algorithms, we must be careful not to get in their way. We saw this irrational behavior with oil, which is now seeing my thesis come to fruition as stockpiles continue to rise and prices plummet.
As a pilot, I know that, in emergency situations, when the advanced systems in my aircraft are breaking down, there are typically a few instruments I can trust. In the plane, it’s my compass, airspeed, and altimeter (and sometimes my eyes if I’m not in the clouds). In the stock market, I can typically trust tried-and-true fundamentals and how investors have recently reacted to those fundamentals in turbulent times.
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This week, only one trade met those tried-and-true fundamentals to merit recommendation to my Profit Amplifier readers — a fresh trade in Constellation Brands (NYSE: STZ), our hat trick that I had hoped to turn into a four-time winner. I sent my writeup into my editor first thing Friday morning, but shortly after the market opened, the stock jumped back up to my target before we had a chance to get it out to my readers.
But Profit Amplifier subscribers shouldn’t worry — we also booked a gain in our trade against Campbell Soup (NYSE: CPB) — shares dropped below $37 as the market fell, giving us a 20% gain in only five days. So my subscribers shouldn’t worry, I’m on the lookout for another winning trade and hope to have it in their inboxes early next week.
For now, my subscribers and I plan to buy the dip and look to equalize the portfolio around November 1. When the mid-term elections start to dominate the headlines, I’m preparing my readers for what could be one of the most volatile times in the market we’ve seen in quite some time.
While the rest of the crowd is simply buying stocks and hoping for the best, my subscribers and I have spent years taking more than our fair share of gains with my simple trading strategy. I’m talking about returns of 31%, 35%, and more — all in a matter of weeks, rather than months or years. Bottom line, it could be the best way to increase your returns while preserving capital and reducing risk. Of course, that’s only if it’s done correctly.
You can learn how we plan to protect ourselves — and even profit — in my new special report. I lay out exactly what I think is going to happen in the weeks to come, why, and what you can do about it. Go here now to read everything.