How We’re Trading “Enthusiasm” Trend (Without Falling For It…)
Stocks sold off sharply on Monday. For now, I believe the price action was bullish.
The Wall Street Journal noted:
“Stocks, bond yields and oil prices fell Monday as investors focused on the potential for the Delta variant, a jump in inflation and strained U.S.-China relations to weigh on the global economic recovery. An uptick in consumer prices could lead the Federal Reserve to dial back its easy money policies sooner than anticipated.”
None of those issues were resolved by Tuesday, but stocks rebounded and recovered most of their losses.
From an overly simplified technical perspective, the decline in SPDR S&P 500 ETF (NYSE: SPY) stopped right at the 50-day moving average.
That’s the seventh time this year we’ve seen SPY bounce off that MA. Now that this 50-day MA has been tested (and respected) so many times, it has proven itself to be an important metric to watch in the future.
What This Means For Us
Tuesday’s rally confirms my belief that investors want to buy stocks. That Journal article included a quote from the chief investment officer at BMO Wealth Management: “A lot of our client conversations have really been people trying to look to find time to put money to work. People step in, and they don’t want to get caught missing an opportunity to buy at a few points lower.”
This doesn’t mean we can ignore the risks, but it does mean we should recognize we are in a bullish environment. As old timers used to say, investors are more worried about investing their capital than the return of their capital.
I won’t join in unbridled optimism, but I will trade the trend.
For example, I recently made a trade recommendation for Morgan Stanley (NYSE: MS). It is a company that has positioned itself to benefit from this enthusiastic investing environment.
Last year, MS bought E*Trade. As the company noted at the time:
“The addition of E*TRADE positions us as an industry leader in Wealth Management across all channels and segments, and significantly increases the scale and breadth of our Wealth Management franchise, which now oversees $3.3 trillion in assets. E*TRADE has built a best-in-class, direct-to-consumer digital channel and a strong brand over the past 38 years. The addition of their premier offering will provide enhanced capabilities to all our clients and Financial Advisors.”
E*Trade is just one of the company’s recent acquisitions.
Source: Morgan Stanley
Solium, which Morgan Stanley acquired in 2019, offers Shareworks, software used by public and private companies to manage their employee stock options. Morgan Stanley offers a way for employees to exercise those options and a place for the wealth to be managed.
The company noted that a year after options are exercised, over half of the value of that transaction is managed by Morgan Stanley. E*Trade provides another platform for managing money, for customers without the $250,000 minimum required for Morgan Stanley’s traditional advisors.
Eaton Vance allows the company to expand its portfolio of managed funds. This means MS can earn a fee helping companies manage employee stock options, earn a fee when the options are exercised, earn fees for managing employee wealth, and earn fees for managing the investments the advisors recommend to employees.
How I’m Trading This Stock Right Now
This is a model with significant long-term income potential. While I like MS for the long run, this trade is a short-term income strategy.
The bottom panel in the chart above shows an award-winning indicator I developed to help us identify trades over at my premium Income Trader service.
This “Fast Money Crossover” technique allows us to generate immediate income from MS – in this case about 3.2%. We’ll be in the trade for 59 days or less, which means we’re earning about 20% annualized. And as long as MS doesn’t fall below a certain threshold, we can repeat another trade again if we want.
Trading strategies like this allow us to play the trend without getting overexposed and falling into the “enthusiasm” trap. It allows us to quickly profit and move on to the next trade, without committing too much capital (for too long)…
This strategy has delivered a 90.2% win-rate for my readers year after year, allowing them to generate thousands in extra income each month…
In just three easy steps, they’re able to get a simple “P.I.N.” code that unlocks access on-demand cash payouts every Wednesday, like clockwork. You could be making $748 (or more) instantly from these trades in just a few minutes.
Want your chance to get in on the action before the next trade goes live? Go here now.