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Hello fellow investors! My name is Kevin Cook and I just joined the Zacks.com team as a Senior Stock Strategist. I can't wait to share with you all the ways we can work together to not simply survive in this market, but to thrive in it!
But, first things first...I want you to know a few things about my background and lessons learned over the years that prepared me to become a huge fan of the Zacks Rank stock rating system and related trading methods. Then we'll top it off with my current view of the market along with some strategies and picks to outperform. Let’s go.
FX Training Ground to Equities Laboratory
I was an institutional currency trader for over nine years, trading $100 million per day in the hyper-kinetic world of spot-futures arbitrage. As a dedicated electronic market-maker providing continuous liquidity to the biggest banks and hedge funds in the world, I was part of the groundbreaking team at CME Group ( CME - Analyst Report ) that turned FX Futures into the fastest growing segment of the $4 trillion-a-day forex market.
This "constant combat" role amidst the titans of the FX interbank market taught me a lot about risk management, position sizing, global economics and technical trading tactics. This was high-frequency trading before the computers took over -- one man or woman, with firepower and capital at the fingertips, using fast reflexes to buy yen or sterling or marks at one price in London or Toronto and sell them higher (or at a scratch, if we were lucky) in New York or Frankfurt.
But soon enough, we realized that a computer could do the arbitrage of 100 traders on keyboards. And I got the chance to help build, test and operate the first automated FX arbitrage algorithms early in the last decade. Essentially, I helped innovate myself out of a job, but it was time to move on anyway and I found one of the coolest opportunities in markets.
I went to PEAK6, the powerhouse equity options trading house in Chicago, and helped build an online options education community for their broker OptionsHouse.
I spent two years refining my options knowledge around some of the best pros in the business and became a market analyst representing PEAK6 on CNBC, Bloomberg and FOX Business, providing commentary on equities, commodities, currencies and options strategies.
I knew I had an extraordinary opportunity to advise investors at the recession lows of 2009 to buy long-term positions in cyclicals, technology and biotech, recommending Caterpillar ( CAT - Analyst Report ) at $40, "buying all the dips" in Apple ( AAPL - Analyst Report ) , and backing up the truck on the iShares NASDAQ Biotechnology Index ETF (IBB) at $65 and "putting it away."
After the PEAK6 media experiment finished up in 2010, I joined TheStreet.com as an options strategist for one of their newsletters. This was another great experience where I was able to take my new equity research skills and apply them to making specific trading recommendations every day for hundreds of subscribers.
I had some great trades in that eight months, with triple-digit winners in names like Ford ( F - Analyst Report ) , Suncor ( SU - Analyst Report ) , Chesapeake ( CHK - Analyst Report ) , Eaton ( ETN - Analyst Report ) , Marathon (MRO), Veeco Instruments (VECO), Sandisk ( SNDK - Analyst Report ) , Apple and Google ( GOOG - Analyst Report ) .
A Powerfully Predictive Indicator
I also had nice success in the past two years with other stocks that fit my criteria for momentum, growth or value -- combined with institutional sponsorship. But, I also had some wipeouts.
And I realized the one thing I had desperately been in search of since I started investing for myself (at least 15 years) was a core method and set of tools for screening the universe of equities and picking the highest probability winners based on this ethereal metric I heard equity fund managers call "earnings momentum."
Because even if I was right about the macro forces driving a sector, industry, or stock like Freeport McMoRan ( FCX - Analyst Report ) , ETN, or VECO, my big-picture ideas would fall flat if I got the earnings picture wrong. But I wasn't a trained equity analyst or finance graduate, so I knew I would never figure out a reliable and robust method on my own. It seemed I was doomed to the randomness of my own ADHD-scanning of markets, hoping to identify the winners amidst the noise.
Then this spring I found what I was looking for and all the lights went on. The Zacks Ranks stock rating system changed the game for me because now I had a proven fundamental model to screen thousands of stocks instantly every day based on the most reliable fundamental metric: earnings estimate revisions.
If you are already a Zacks Rank convert, I don’t need to explain any further. If you aren’t, then I want to direct you to the Education pages on the site for a breakdown of the philosophy, its mechanics and practical uses.
I am such a huge fan for this reason: the rigorously quantitative and objective model is actually predictive of stock prices because it has such a high probability of telling you what the big money is going to do weeks before they do it.
Second-Half Outlook and Ideas to Profit
So where are we now after this terrific bull run off the recession lows? My amateur-economist take is that we are still in the middle innings of this recovery which will extend into 2013. Emerging markets are still driving global growth and despite the extraordinarily accommodative monetary stance of the Fed, inflation is not of a run-away variety -- yet.
As we enter the summer months, I think the market will drift sideways to lower as the path of least resistance when catalysts are fairly balanced. When it's done resting, I believe we'll see the S&P 500 at the 1,500 level by this time next year.
Markets have shaken off and priced-in most bad news, but investors have also erred on the side of pricing in a good chunk of the good news, too, like record corporate profits and tons of cash still on the sidelines. Wild cards are housing weakness which may spur further Fed QE programs, and the US debt crisis which may start to mirror the European one.
In all cases, we could be in for some good volatility and selling as investors protect profits during this seasonally weak time of the year. In a bull market, most selling-related volatility is "good" and spells buying opportunities.
My favorite strategy will be to wait for a fear-driven sell-off, where volatility surges, to sell puts on my favorite names for the rest of the year. I want to accumulate positions in energy names like Suncor and Occidental Petroleum ( OXY - Analyst Report ) , materials names like FCX and Alcoa ( AA - Analyst Report ) , and industrials like CAT and ETN. The opportunity may occur this summer, or it may wait for a classic autumn meltdown.
In either case, the S&P should find support above 1,200 and bargains will be found on high-quality stocks with strong positive earnings outlooks. So keep an eye on the Zacks Rank for these names, especially as we head into Q2 earnings season.
Other than sovereign debt dramas, the really interesting fireworks will come after the Fourth of July when company numbers once again reveal the true nature of the investing landscape.
Kevin Cook is a Senior Stock Strategist for Zacks.com
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