Today's Pain Trade

A confidence-builder... What's coming next... Greg Diamond has never seen this before... Obsessing over data... What hurts the most... 'Good' data isn't always good news for stocks...

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Sometimes, it's better to let others tell the story...

Our Ten Stock Trader editor Greg Diamond has written to you a few times in the Digest recently, sharing everything from his background and details of his technical-analysis approach for trading to his outlook for where stocks are headed next.

And I (Corey McLaughlin) have mentioned the kinds of feedback we've seen Greg receive over the years from happy subscribers, given that he correctly called the top and bottom for stocks in 2022, for example, and recommended 40 winning trades last year, averaging 25% gains...

The other day, we saw a perfect example worth sharing. Ten Stock Trader subscriber Mark B. wrote in...

Hi Greg, I'm a subscriber. I think I've probably done every one of your trades including the trial period. I love your trading style and risk management.

What a comeback you've made to recover all losses in the last 3 weeks or so! Very impressive. You keep proving your strategy works. The last month has really increased my confidence in the strategy.

Thanks for your discipline and hard work.

Happy holidays to you and your family.

What Mark is referring to is the set of seven winning trades that Greg recently closed over the past eight trading days, averaging a gain of around 20%. As U.S. stocks generally screamed higher, Greg executed a game plan of "selling strength" when others were buying.

These positions weren't faring as well just a few weeks ago, as the monthslong sell-off in stocks continued into late October. But as we wrote here recently, Greg was steadfast in his outlook about a rally likely ahead, based on his "price and time" analysis...

He stuck to his plan and closed more than half a dozen trades for gains in less than two weeks when other, less-experienced traders may have thrown in the towel at precisely the wrong time and turned unrealized losses into real ones.

Now, Greg is looking ahead to what's next...

As we've mentioned lately, Greg sees a big turning point coming for the markets in early 2024. He is warning anyone who is willing to listen to be prepared for a "rare, historic" move in February.

Again, it's a call rooted in his unique brand of market analysis... which he used to foresee the biggest market moves in 2022... and warn of a turning point in the markets coming in March 2020, three months before a global pandemic triggered it.

Today, Greg has a message about early next year that he wants all readers to understand, and he has a trading plan for this exact time period. But in the meantime, he's going to be recommending other trades, too, just like he has been doing for Stansberry Research for years after leaving his Wall Street career behind...

To show you what I mean and give you a sense of what subscribers like Mark appreciate about Greg's work, I want to share a recent "Weekly Market Outlook," a regular feature of his Ten Stock Trader advisory.

This piece originally ran on November 13 and is slightly edited. In it, Greg shares more about his very short-term outlook and view on trading in general.

It also reminds me of a well-used saying among experienced traders: "The stock market tends to do what hurts the most people the most." Many refer to this idea as the "pain trade," which goes against whatever the popular positioning of the moment might be.

Give it a read and then be sure to check out Greg's brand-new presentation if you haven't already. It'll only be online for a few more days.

Greg takes today from here...

As the great economist Milton Friedman once said...

"Inflation is always and everywhere a monetary phenomenon."

He meant that there's often too much money floating around due to bad government (fiscal) and central bank (monetary) policies.

We've seen this phenomenon play out in the economy – in real time – over the past few years.

I also discussed this topic at the Stansberry Conference & Alliance Meeting back in October...

(I always enjoy this conference. It has great speakers, a lot of good investment ideas, and unique insights. But most of all, I enjoy talking with subscribers in person.)

In my special "breakout" session, we discussed hot topics like inflation and economic data. I love that we can review various charts and forecasts and also pull up price action in real time.

I also opined that I've never – in my entire 20-year career – seen capital markets (stocks and bonds especially) react to every single data point released the way they do now.

In previous years, analysts mostly focused on employment numbers to gauge the health of the economy. It wasn't until early 2022, and certainly into 2023, that the focus switched to inflation.

Of course, not every data point is an inflation number. But it's an important part of the overall economic data set.

This data will continue fluctuating in different directions while the Federal Reserve pursues its monetary policy. (Ultimately, the price action will determine how the market interprets the Fed's actions and the reported data.)

It's a tricky economic situation that will likely last for the foreseeable future.

That's because inflation is still "sticky," meaning it isn't falling as fast as the Fed would like.

Inflation data will surely continue to matter going forward... The central bank has told us as much.

But in this Weekly Market Outlook, I want to focus on other data points that will impact where stocks and bonds go from here...

What hurts investors the most...

As seasoned investors know, economic data tends to generate "noise"... whether it involves the Fed's next move or the latest consumer price index ("CPI") report.

We saw an example of this two weeks ago...

After a big rally in stocks, most major indexes took a breather on November 9 when Fed Chairman Jerome Powell said the central bank would raise rates if the data warranted it.

Some folks were shocked by this statement, but I had to laugh. This has been the stance for almost two years, so I'm not sure why they thought it would change now. (I always try to cancel out this type of noise by focusing on time and price.)

During my conference breakout session in October, I mentioned that the interest-rate lows back in March 2020 were "generational lows" and that we wouldn't see rates return to those levels in my lifetime.

Since then, we've seen inflation rise and fall.

Now, we need to remember that the stock market is a multidimensional entity...

Buyers, sellers, fundamental backdrops, technical catalysts, geopolitics, and an interconnected global economy all help determine whether the market goes up or down.

The stock market is also a discounting mechanism, meaning it takes into account all available information. And sometimes, it digests economic data in a way that surprises many people... In their minds, certain market events shouldn't have happened. (Of course, we can't control what the market does... only how we react to it.)

October 13, 2022 was a perfect example of that.

Inflation numbers came out higher than expected that day. But instead of tanking, the stock market rallied sharply.

And in many of the major indexes, the low is still intact.

The market – in its infinite "wisdom" – was pricing in this inflation high and the fact that it would "cool" going forward.

And that's exactly what happened.

Notably, these conditions also wind up hurting certain investors – in this case, stock market bears. That's because most of them were short-selling stocks due to the high-inflation environment. (They thought high inflation would persist, but it didn't.)

I mention this because I believe the current market environment is very similar to what we experienced back in October 2022.

We've seen a four-to-five-month back-and-forth move in the major indexes that has been difficult to navigate. But since late October, I've been bullish.

And I remain bullish. Let me explain why...

'Good' economic data isn't always good news...

There's no way around it... The Fed will continue to rely on inflation data going forward. (I won't speculate on what that data will show, though I know it'll be important.)

But as technical traders, we should consider other types of data as well, including positioning data...

Depending on the source you use, you'll find that a number of funds have record short positions in both stocks and bonds. (Note that I'm taking this information from various news, social media, and industry sources.)

What does this mean?

The positioning data tells me that any type of positive economic data will hurt certain investors. And that data may come in different forms. For example, lower inflation would be good news. If the holiday shopping season yields higher-than-expected sales amid lower inflation, that would also be good news.

Ultimately, this would mean that the consumer is stronger than many think and that lower inflation will support more spending.

But like the Fed indicated, we have to wait and see...

So if there's good news, I'm expecting the overall stock market and bond bears to suffer the most... just like they did in October 2022.

Now let's think about how positioning data and "good" economic data might impact the price action...

I've covered the Nasdaq Composite Index a lot recently. The "textbook" Elliott Wave setup I outlined in the October 30 Weekly Market Outlook is still intact. (Editor's note: Greg's subscribers and Stansberry Alliance members can read that issue here.)

Simply put, I expect a big rally to unfold.

As I mentioned, the short positioning in stocks is currently at a record high. So if we see data that will hurt these investors – like lower inflation or concerns around employment numbers – this will enable the Fed to be less aggressive on interest rates.

Combining these potential data points with the data on record short positions will likely confirm the price action I've been outlining lately.

And the best part is, I plan to make money from this setup.

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Editor's note: If you want to get full access to all of Greg's analysis and trade recommendations, now is a great time. Check out his latest free presentation for all the details about his trading approach and market outlook...

Plus, you'll hear details about how to get started with a Ten Stock Trader subscription if you don't have one already. The offer comes with research and bonuses valued at several thousands of dollars for a fraction of the price.

The video will go offline in just a few days, so take advantage now.

New 52-week highs (as of 11/17/23): Cameco (CCJ), Copart (CPRT), Crispr Therapeutics (CRSP), CyberArk Software (CYBR), Denison Mines (DNN), Expedia (EXPE), Fidelity National Financial (FNF), W.W. Grainger (GWW), ICON (ICLR), Intel (INTC), Ingersoll Rand (IR), Motorola Solutions (MSI), Micron Technology (MU), Parker-Hannifin (PH), PulteGroup (PHM), Qualys (QLYS), VanEck Semiconductor Fund (SMH), Sprott Physical Uranium Trust (U-U.TO), Global X Uranium Fund (URA), Sprott Uranium Miners Fund (URNM), and Visa (V).

In today's mailbag, feedback on last Wednesday's Digest... and Dan Ferris' latest Friday essay... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Corey, As you wrote: 'I was an exception... Mr. Carpenter, my middle-school social studies teacher, went rogue on the state curriculum and taught us about stocks. He piqued my interest in investing when I didn't even know the value of what he was doing.'

"This happened to me too at a young age. Eighth or ninth grade. A year or two before I retired, I got serious about it. Made a couple of tries before that. LOL, made a million and lost a million. These days it is my passion. I trade just about anything. Just started my move into oil leases. Just fun. Keeps me busy. Thanks for what you write. We see pretty much eye to eye." – Stansberry Alliance member Jeff S.

"Dan, Just another 'buy the dips' bull trap within the longer-term bear cycle. Though this 'rally' likely will last awhile into 2024, The Grizz will be even more frustrated when he returns to evisceratin' the hapless FOMO crowd. Agree with your longer-term projection of negative inflation-adjusted stock market returns. Appreciate the analysis." – Subscriber Dave E.

All the best,

Corey McLaughlin with Greg Diamond
Baltimore, Maryland
November 20, 2023