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How To Trade The Current Bear, And Planning For The Coming Bull

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The historic 11-year bull market, which showed no signs of slowing at the beginning of the year, was stopped in its tracks due to the coronavirus.

Stocks ended their record bull run on March 11th, after closing more than -20% lower from their all-time highs just 4 weeks earlier.

It was the fastest we’ve ever seen a bull market turn into a bear.

But unlike previous bear markets, which are typically a result of a slowing economy, this one came about due to an unforeseen exogenous event.

Prior to the outbreak, we arguably had the strongest economy of our lifetime with 50-year low unemployment, 20-year high in household income, near record high consumer confidence, and record high corporate profits.

But in an effort to slow/stop the spread of the virus, the unprecedented containment measures, which have temporarily shuttered businesses and restaurants and kept people at home, have wreaked havoc on our economy.

If it can help save lives, it will all be worth it.

And once the worst is behind us, the economy and stocks are expected to soar as pent-up economic demand is unleashed.

At the moment, however, stocks are reacting to the shutdown.

Yet the pullback we’ve seen is also presenting what some are calling an opportunity of a lifetime.

Continued . . .


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For Perspective 

The top 10 worst bear markets (using the Dow), following the Great Depression, shows that it declines on average by -39.27%. And it lasts on average of 16.9 months.

This bear market, at its worst, saw the Dow down by -38.37%, the S&P down by -35.27%, and the Nasdaq down by -32.45%.

Not that far from the average.  

But the rallies that followed have been even bigger. Within a year after a bear market, stocks surge on average of 44.74%. And go on to gain on average 66.34% by year 3.

Following the Great Recession in 2007-2009, the market gained 63.40% in year 1; 100.58% by year 3; 153.58% by year 5; and more than 357% during the entire 11-year bull market.

And given the strength of the economy going into this, it’s all the more likely that we’ll bounce back big and in record time.

Trading The Bear 

Just like stocks need to fall by -20% for a bull market to end and a bear market to begin, they also need to go up by 20% for a bear market to end and a bull market to begin.

And that’s exactly what we’ve already seen for the Dow.

After hitting their lowest close on March 23rd, stocks then shot up by 21.30% over the next 3 days, officially exiting bear market territory on March 26th.

All in all, the Dow’s bear market lasted only 11 days. And is now in a new bull market.

For the record, the S&P and the Nasdaq have not yet exited their bear market. The S&P ‘only’ closed as high as 17.55% from their lowest close, while the Nasdaq only closed up 13.66%.

But it’s highly likely that these two benchmarks will eventually follow the Dow.

And given the trillions of dollars in aid and stimulus injected into the economy, not to mention near zero interest rates, that could be much sooner rather than later.

For the S&P, they only need to close at or above 2,877.72 for their bear market to end and a new bull to begin.

For the Nasdaq, it’s 8,285.51.

Set yourself an alert. When we close above those levels, it will definitely be cause to celebrate.

But that doesn’t mean you have to wait.

Now is the time to start building your list of dream stocks.

Riding The Bull

The big gains that follow a bear market can be quite spectacular.

But since a large part of any bull market recovery typically comes at the very beginning, it’s imperative that you stay in the market and plan for the rebound.

The trick is to get into the right stocks.

There’s nothing wrong with raising cash by getting out of your laggards and poorest performers – stocks you know you should have gotten out of long before this pullback even happened.

But then replacing them with the strongest stocks that will be the new market leaders.

You don’t have to go all in at once. But you can start taking nibbles at these discounted prices.

That’s true for your favorite stocks. As well as plenty of new stocks that you may not have even heard of yet.

Because this virus outbreak, and the upheavals it’s brought about for businesses and consumers, will usher in lots of new and exciting opportunities.

But you want to be building your dream portfolio now, near the bottom.

And by the time the new bull market is underway, you’ll be all in with the strongest stocks, and beating the market.

Proven Profitable Strategies

Picking the best stocks is a lot easier when you focus on proven, profitable strategies to do it.

For example, did you know that stocks with a Zacks Rank #1 Strong Buy have beaten the market in 26 of the last 32 years with an average annual return of 24.5% per year? That's nearly 2.5 x the S&P with an annual win ratio of more than 81%.

That includes 2 bear markets and 3 recessions.

By concentrating on what has proven to work in the past, you’ll have a better idea as to what your probability of success will be now and in the future.

And one of the best ways to begin picking better stocks is to see what the pros are doing.

Whether you’re a growth investor, or a value investor, prefer fast-paced momentum stocks, or mature dividend-paying income stocks, there are certain rules the experts follow to maximize their gains.

This applies to large-caps and small-caps, biotech and high-tech, ETF’s, stocks under $10, stocks about to surprise, even options, and everything in between.

Regardless of which one fits your personal style of trade, just be sure you’re following proven profitable methods that work, from experts who have demonstrated their ability to beat the market.

The best part about these strategies is that all of the hard work is done for you. There’s no guesswork involved. Just follow the experts and start getting into better stocks on your very next trade. 

4 Stocks To Start With

As we talked about earlier, one of the smartest ways to maximize your gains is to find out what the pros are doing and consider following along.

Here’s an easy way to do that:  

Download our just-released Ultimate Four Special Report.

These are 4 stocks hand-picked by our experts. Each has strong fundamentals and exceptional growth potential for Q2.

They’re ideally suited to flourish in today’s stay-home market, and then soar as the coronavirus pandemic subsides and pent-up consumer demand is unleashed.

Stock #1: This recent IPO retailer is virtually immune to the coronavirus, serving a rampantly growing online market. Although held just under its all-time highs, it looks to skyrocket once the economy returns to normal.

Stock #2: Have you overlooked this top-quality, cash-rich tech juggernaut? Well positioned in today’s work-from-home environment, its revenue, profits, and earnings all look strong. Right now, its stock price looks ridiculously low.

Stock #3: A cybersecurity firm thrives in an industry that never sleeps, fighting crimes that are doubling from $3 trillion in 2015 to an expected $6 trillion by 2021. With a client base that works remotely, they’re set for growth now, and also when the crisis lifts in months to come.

Stock #4: It’s a semiconductor powerhouse with great leadership that’s at the right place at the right time. When you buy this stock, you’re investing in the massive coming growth of gaming, shopping, manufacturing, education, robotics, medicine, and more.

Don’t miss the ideal time to get into these Ultimate Four. We’re limiting the number of people who share our Special Report, so the opportunity to download it ends midnight Sunday, April 5.

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Thanks and good trading,

Kevin

Kevin Matras serves as Executive Vice President of Zacks.com and is responsible for all of its leading products for individual investors. He invites you to download Zacks’ newly released Ultimate Four Special Report.