Now that the S&P has pulled back from all-time highs, investors are wondering how to maneuver their assets going forward. For those exposed to the market surge since the 2016 election, it has been rewarding, with returns over 30% in the S&P 500 alone. For those who overlooked the opportunity, there is now an urge to catch up with the rest of the pack. If you are in the later camp I know what you're thinking . . .
How did I miss out on 30%?!
Maybe you were too cautious because you didn't feel you knew enough about stocks. Maybe it was nervousness about the uncertainty surrounding the administration. Understanding yourself and the psychology behind why you missed out is important. But more important is NOT missing the next opportunity, and NOT being fearful to take the risk that comes with nailing that move.
As we approach the middle of the 2019 trading year, it is paramount to have a game plan going into the summer. Now that we have seen an aggressive pullback, we will likely see some consolidation, before ultimately moving higher. Any further upcoming pullbacks will be caused by market events that will be fueled by anxious bears. This is the time to strike!
If investors know what sectors to buy and what stocks to focus on, the rewards can lead to double-digit percentage gains next year. The opportunity that is awaiting patient investors that have cash ready to be put to work, can create a life changing year in 2019.
Below I talk about upcoming market risks, sector rotation winners and why buying the next big dip will be rewarding.
Short-term market risks
1) Trade War with China – The biggest issue for the second half of the year will be the trade war with China. While relations have broken down recently, there are many reasons for both sides to make a deal. In what will be the biggest catalyst for a market move higher, if a deal gets done, investors need to be invested.
2) 2020 Recession – The recent pullback in stocks has brought about questions on the possibility on a recession in the next year. The yield curve has inverted, which can be a sign of trouble. However, most economic indicators still show strength. Stocks are a forward-looking indicator and could at the moment be pricing in the probability of a recession in the next couple years. If the economy shows otherwise, stocks that have been sold, will be bought back quickly. Even if the economy does slow down, recessions can be some of the best times to buy stocks, as valuations come down and stocks become "cheaper".
3) Volatility – The VIX has been elevated this year, meaning markets are nervous about something. While some risks are obvious, some are sometimes not seen until they show their ugly face. A high VIX signals there is something beneath the covers.
Continued . . .
Is the Market Rigged?
How often have you owned a stock that gets pummeled with no logical explanation? This is often caused by computer-driven High-Frequency Traders (HFTs). They fire off massive amounts of short trades to drive stock prices down, then profit from the rebound. Their gains come at the expense of human investors.
The good news is that Zacks has mounted a Counterstrike to catch the best of these "manipulated price drops" as they rebound. For example, we recently closed gains of +28.7%, +29.3%, +58.1%, and even one for +14.2% in just 2 days.1
Access to these trades must be limited. It closes to new investors Sunday, June 9.
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With the Trump victory in 2016, smart money had to reallocate their assets to areas that would benefit from a Trump presidency. This reallocation caused violent sector rotation causing certain sectors to surge. Despite the recent sell-off, some sectors are still up big over the last couple years.
Let's go over some ETF stats since the 2016 election:
• S&P 500 (SPY): 30% plus
• Consumer Discretionary (XLY): 48%
• Health Care (XLV): 30%
• Industrials (XLI): 29%
• Financials (XLF): 36%
• Technology (XLK): 58%
Take note of these ETFs. The sectors that outperformed since the election will continue to perform through the Trump presidency. However, if the risks mentioned above come to light, these sectors will give investors opportunity at discount prices. Buying an ETF might be easy to do when this happens, but finding the right stocks to buy is much tougher.
Buying Stocks on a Dip
Buying stocks has more risk than buying an ETF, but can lead to greater reward. When markets sell off, we can utilize the Zacks Rank to separate the weaker stocks from the profitable ones. By combing the fundamentals of the Zacks Rank and technical analysis, investors can decipher which stocks to buy and which ones to ignore.
In addition, sell-offs tend to be manipulated by computer-driven algorithm trading that can over exaggerate a move lower. An investor who recognizes this abuse can squeeze a couple more percentage points out of a trade than an investor who doesn't.
Since early 2016 we have seen the earnings recession, the Brexit, the election and multiple trade war headlines. Each time that investors bought the dips they have been rewarded handsomely. While the recent pullback has been more aggressive, this buying the dip mentality could be rewarding again in 2019.
How to Fully Capitalize
So far in 2019 we have seen a major bounce from the 2018 sell off and some aggressive selling on trade war news. So, is another bounce coming late in 2019? Why not profit from it?
In addition to the often irrational stock swings created by headlines, there is another force at play that we can use to our advantage.
Computer-driven High-Frequency Traders (HFTs) continue to push down worthy stocks and then profit from the rebounds. We can, too.
That is the mission of my portfolio, Zacks Counterstrike.
Counterstrike is designed to sniff out when a stock price is moving the wrong way for the wrong reason. We take advantage by buying the best of these unfairly beaten-down stocks. Then when price moves our way, we lock in gains and look for the next opportunity.
We're now holding a few selected stocks that are primed to sweep upward. Our goal is to generate quick and consistent double-digit gains. Recently, in fact, we've closed gains of +28.7%, +29.3%, +58.1%, and even one for +14.2% in just 2 days.1
Look into this portfolio today and as an added bonus you may download our Special Report, Internet of Things: Connecting to the Trillion-Dollar Trend. It spotlights 6 tickers our experts believe could see massive gains as 5G technology unleashes the full capabilities of this new "information superhighway" projected to generate up to $11.1 trillion in economic impact.
Important: To maximize the profit potential of our recommendations, we must limit the number of members who have access to the Counterstrike portfolio and Internet of Things Special Report. This opportunity ends on Sunday, June 9.
See Counterstrike and Internet of Things Stocks Now >>
Wishing you great financial success,
Jeremy Mullin has been a professional trader for more than 14 years with specific expertise in profiting from patterns set by High-Frequency Traders. He is the editor of Zacks Counterstrike.
¹ The results for the trades listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research's newsletter editors.