A guest essay from Ten Stock Trader editor Greg Diamond... Burn your investing books... The value of technical analysis... He called the 'top' and 'bottom' in 2022... Tune in for Greg's prediction for 2024...
Editor's note: Today, I (Corey McLaughlin) am pleased to bring you a special guest essay from our friend and colleague, Ten Stock Trader editor Greg Diamond...
As I've mentioned here before, Greg has a spectacular track record of nailing big turning points in the markets, like most recently calling the "top" in January 2022 a day before the market began a brutal bear market. Then he called the "bottom" in October last year... and for a rally into 2023.
Now, Greg is going public with his latest call next week about a "rare, historic" move coming in 2024.
You'll want to hear him out...
If what I just described wasn't enough reason, here's some more... Greg is a former Wall Street trader who worked at a $3 billion hedge fund and a $65 billion pension fund. In this essay, he explains why he left that world behind to join Stansberry Research in 2017, bringing his unique style of technical trading to individual investors.
Since then, Greg's advice has become some of our most popular and well received. And Greg has become known among subscribers for his round-the-clock work ethic in addition to lucrative returns and big calls.
A version of this essay first appeared in the Digest way back in 2018 when Greg first launched his Ten Stock Trader advisory... It's a great introduction to who he is and his trading style. And it's as timely as ever, which only supports the point he's trying to make.
'I'll give you $1,000 if you burn that book right now'...
I was 22. Sitting at my desk, I had been lost in my reading – studying for my Chartered Financial Analyst ("CFA") exam.
I had started at the hedge fund just a few weeks before. My boss had trained under a trading legend. It was a huge opportunity to work with him. I was excited, but aware of the pressure. I wanted to learn as much as I could as quickly as possible.
But I was startled when my boss walked up and told me to burn my books. What the heck was he talking about?
It turned out this would be the beginning of an obsession.
This boss would lead me down an entirely different path than I had imagined.
And I never did end up getting that CFA certification...
But I'm getting ahead of myself...
Let me tell you what my boss said next (I'm paraphrasing a bit)...
Look, if you want to understand risk, if you want to understand trading, if you want to understand portfolio management... you can't just focus on fundamentals. It's not that fundamentals don't matter. But to get really high returns and really exceptional trading results, you have to understand... how markets move and what markets move, and the psychology behind why markets do what they do.
The CFA exam and materials focus almost entirely on fundamental analysis. They go deep into the weeds of debt and profits and management teams. And while all that is important... what my boss was trying to tell me was that he followed a different path.
You probably know there are two schools of thought when it comes to looking at the market.
There's fundamental analysis and technical analysis... And he wanted me to focus on technicals.
Technical analysis focuses on price behavior of a stock or asset through various indicators and price patterns.
As my boss said... "Technical analysis focuses on now, fundamentals on what was."
That's what I want to share with you here. It's an entirely different way of looking at the markets. Fundamental analysis works for a lot of people, but it's not how I invest...
Today, I'm going to introduce you to trading like the way the hedge funds do...
I spent more than a decade on Wall Street trading multimillion-dollar portfolios across multiple asset classes.
Gold, crude oil, stocks, futures, options, copper... I traded all of it.
Within weeks of joining the hedge fund, as I told you about earlier, my boss taught me the greatest lesson of my career.
Eventually, after years of intense studying, and a formal examination in front of the board of Chartered Market Technicians, I received my "CMT" designation.
Technical trading became my bread and butter.
But eventually, I got fed up with all the greed, backstabbing, and lying I saw on Wall Street.
The environment was toxic.
Several colleagues' marriages failed, and political games between bosses and employees took precedence over leadership and teamwork.
All I cared about was the markets. I didn't want any part of the other nonsense.
I would much rather live a simpler life with my wife.
I also grew tired of not knowing who I worked for. Why was I trading millions of dollars a day for clients I never met? Why try so hard to help the rich get richer?
So I walked away...
Soon after, I met Porter Stansberry.
I was floored by his analysts' knowledge and expertise, and even more blown away by how much they helped the individual investor.
I'm originally from North Carolina, and many of my family members served in the military.
Integrity, honesty, hard work... those are the principles I grew up on. And that's what I found at Stansberry Research.
Since then, I've been focused on showing people how to trade like hedge funds do.
'Human nature never changes'...
"History repeats itself."
These adages stick around because they're true.
They're even true in the markets. The ups and downs of the market are nothing more than the graphic representation of human behavior... expressed on a chart of buyers and sellers.
And this market behavior tends to repeat.
That's how technical analysis works. We know what's happening because we've seen this all happen before.
Here is a perfect example of a type of technical analysis called intermarket analysis that was warning of a storm brewing at the start of the financial crisis in 2007... WELL before the market crashed.
Intermarket analysis is based on correlations between asset classes, and when one of these asset classes turns down, it may be a warning sign for other asset classes (in this case stocks). We know this because these chart patterns have shown up before, and other assets have fallen.
Take a look...
The S&P 500 Index (in black) and U.S. 30-year interest rates (in blue) traded in tandem for much of the early 2000s – then, in 2007, the correlation broke down. Interest rates started to turn down – a sign of a slowing economy.
Look at the red line...
See how stocks made new highs, while interest rates failed to? That was a warning that something was wrong.
Of course, most of the fundamental analysts pointed to strong earnings and solid "fundamentals." I could hear my boss's words in my head... The only thing that mattered was what prices were signaling.
The ultimate fundamentalist – former Federal Reserve Chairman Ben Bernanke – proclaimed around this time that the effects of "the subprime sector on the broader housing market will be limited and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system."
You know what happened next.
This is the essence of technical analysis – understanding the behavior of markets and history. This concept is lost on many investors who simply write it off. They simply don't understand and aren't willing to put in the time and effort necessary.
Technical analysis is much more than trend lines and charts. It is understanding the past to profit in the future. In tomorrow's Digest, I'll discuss the only thing that matters when it comes to investing... and share some important technical indicators and terms.
Editor's note: Stay tuned for Greg's follow-up essay tomorrow. And in the meantime, you can register for his brand-new free video briefing that will go live on Tuesday, November 14.
Greg plans to cover his latest market outlook and share his prediction about what's to come in 2024, more about his background and trading approach, and how you can put his hedge-fund-quality research to work in your own portfolio.
His style and technical-analysis approach might not be for everyone, and Greg doesn't profess that people should use his strategy for their entire investment portfolio. But it can be part of it – and a lucrative one to consider.
He warned that a big market move would come in March 2020 three months before that month's COVID-19 crash began... As I mentioned before, he called the big turning points in 2022 and for a rally into this year...
Why wouldn't you want to hear what he's saying now? Every time Greg has made a major call like this, folks have had the chance to double their money in his recommended trades... not just once, but five to 10 different times.
And even if you'd ignored Greg's trade recommendations and simply listened to his broad outlook for the market, you could have saved your portfolio from major losses and could have been positioned to make big gains over the past several years.
We've heard just that from many of our subscribers.
So, I urge you to click here to get more details and sign up for Greg's latest free video event. When you do, you'll also get a free report titled "3 Stocks to Trade Right Now," plus free access to a version of a proprietary investing tool that's one of the best in our business.
New 52-week highs (as of 11/7/23): Adobe (ADBE), Cintas (CTAS), CyberArk Software (CYBR), DraftKings (DKNG), Microsoft (MSFT), Motorola Solutions (MSI), O'Reilly Automotive (ORLY), Qualys (QLYS), Roper Technologies (ROP), Trane Technologies (TT), and Walmart (WMT).
In today's mailbag, feedback on yesterday's Digest about "keeping your eye on the ball" in this market... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"Corey, just for grins: Fed is sitting back and watching Mr. Market do their work for them on interest rates for them for two meetings... while continuing, I recall, about $85 billion per month [quantitative tightening]. The new fiscal year's first 33 days of debt financing increased... wait for it... just over $500 BILLION. My higher math times 12 comes to raising the deficit $6 trillion to $39.5 trillion next 30 September. Hopefully, Treasury slows down some. Are we in an era where all the history and charts are meaningless? I think Porter is right, we're going to hit the wall... and the wall wins." – Subscriber Dana G.
Corey McLaughlin comment: Dana, thanks for the note. You're right. We're staring up at an ever-growing debt wall...
Total U.S. government spending for fiscal year 2023 is $6.1 trillion. With total revenue at $4.4 trillion, that's a $1.7 trillion deficit. Remember, because of how Congress and the "debt ceiling" operations work, the Treasury is currently financing past spending decisions, not even future ones yet.
Here's a related, frightening tidbit: The $33 trillion overall deficit number that you'll frequently see reported doesn't account for future payments for things like Social Security or Medicare. As noted investor Stanley Druckenmiller pointed out this year, credible estimates put the total U.S. debt at $200 trillion if you include those big government programs.
As for the idea of history not mattering, surely those in government are behaving like that. But, of course, it does.
Assuming no significant cuts in government spending, the answer to all of this is likely more taxes for everyone... more and higher inflation... and consequences like more financial trouble for bad companies or institutions with weak balance sheets... plus other events we can't fully predict.
Best,
Greg Diamond, CMT
Baltimore, Maryland
November 8, 2023
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