How to Go Bottom-Fishing Like a Pro
A numbers guy's take on the markets... Why Greg Diamond ignores the headlines... A perfect example in real time... How to go bottom-fishing like a pro... Inside the brain of a bitcoin 'maximalist'...
We've often written about how to make money by 'ignoring the headlines'...
Here's another example...
When the news of the COVID Delta variant spreading in the U.S. gripped the markets last week, our Ten Stock Trader editor Greg Diamond said that the resulting sell-off actually marked a short-term bottom in U.S. stocks...
And that they will ultimately continue to rally...
It might sound counterintuitive – and it certainly wasn't the consensus of the financial media – but that's the point I (Corey McLaughlin) want to get across today... and what Greg's reasoning is and how you can apply it to your general trading strategy.
Regular Digest readers should know that Greg is a Chartered Market Technician and a technical analyst, meaning he studies price action and history of the markets (in turn, human behavior) to recommend trades... (Check out our two-part interview with Greg here and here to learn more.)
He's not focused on fundamentals of a particular company... or whatever is going on in the financial media that particular day... He's a numbers guy.
Greg is a short-term trader, and all he cares about is price...
As I wrote in the December 10, 2020, Digest...
Technical analysis is a brand of stock analysis that doesn't care about the headlines. It doesn't even really care about companies, in a sense... and certainly not anywhere close to the way fundamental analysis grades worthy investments.
The sole focus of technical analysis is price, which sounded refreshing to me the first time I heard it – given the barrage of headlines we're inundated with every day.
This approach might not be for everybody, but if it sounds like something you might be interested in, check out Greg's work. As he wrote in Ten Stock Trader yesterday...
The variants of the coronavirus aren't anything new, but last week, headlines wreaked havoc among investors as infection and hospitalization rates ticked higher.
The spike in volatility and the big decline in stocks were all driven by headlines and fear.
I completely ignored the headlines.
Why? Greg had been prepared for a sell-off, no matter what the trigger might be. In fact, before Monday's big drop, he laid out the game plan for what he'd do, should the market drop...
As Greg said...
Over the years, I've learned to take all the financial media's headlines with a grain of salt. Sometimes, I like to use these headlines as a contrarian indicator when I apply them to the price action. Last week was a perfect example of this in real time.
Greg recommended a pair of bullish options trades last Monday... One is already up 100% and the other is up 81%... and he's looking for more opportunities to add positions on any pullbacks that he thinks will be short-lived.
Here are just some of the tools Greg uses in his technical analysis...
Used correctly, they can provide a playbook for what could happen... and what has happened in similar situations in the past... which is better than simply guessing based on a "hunch"...
Here's what we mean, and two big reasons why (Greg predicts) last week's Delta dip marks a bottom... and not the beginning of a further decline.
The first is the "relative strength" of the biggest blue-chip stocks from around the world. Specifically, Greg uses an indicator called the relative strength index ("RSI").
RSI measures the number and size of positive or negative closing prices for a particular stock or index, on a scale from 0 to 100... you can apply this indicator to basically everything.
The higher the number, the more "overbought" the asset is thought to be... The lower the number, the more "oversold" it is. As Greg wrote...
If you are just paying attention to the U.S. markets, or just following your favorite few stocks, you might think that calling last week a "bottom" while stocks were near all-time highs is crazy. But if you look elsewhere, a bottom made sense.
This is a chart of the Global Dow, which tracks 150 blue-chip stocks from around the world...
Look at how the relative strength index at the bottom of the chart hit a low that we hadn't seen since November 2020. This was a huge signal to me that a low was being put in.
He continued...
When a market is in a strong uptrend (like this one is) and you see a correction take place, look for the RSI or any other momentum indicator to hit a level that previously marked a low (like November 2020 last year). Almost always, the market will respect this as support and, at a minimum, put in a low that you can trade on a short-term basis.
This isn't advanced technical analysis... it's simply applying a basic tool to a market, like the Global Dow, to give you big-time insight into the strength or weakness of stocks on a global scale.
Then he 'zoomed in' on U.S. stocks...
Greg then looked at the benchmark S&P 500 Index and saw a consistent pattern since the start of the year... Every time it has dropped to near its 55-day moving average (55-DMA) it turned higher shortly after...
A moving average is exactly what it sounds like... an average of a previous amount of time's prices. In this case, 55 days or 11 trading weeks... Greg shared this chart and said...
Once again, this is very simple, but very effective. The 55-day moving average (55-DMA) in blue has marked significant lows in the S&P 500 this entire year. It marked another low last Monday.
For much of this year, I've been writing that the uptrend continues until that ends – and in the S&P 500's case, until that 55-DMA is broken. You have to stay with it.
As we said, Greg is focused on short-term trades in Ten Stock Trader. If that's what you're interested in and you've allocated a portion (or most) of your portfolio to stone-cold short-term moneymaking, you should definitely give his work a try.
But we've found that paying attention to these technical indicators – particularly on big indexes like the Global Dow and the S&P 500 – can help long-term investors, too...
Even when you see signs of trouble ahead, looking at what's been happening with price patterns over time can provide context to what might seem like wild swings and panic... and maybe give you pause before making trades that end up leaving gains on the table.
For another example, today Greg is still seeing the tech-heavy Nasdaq taking a similar path that technology stocks did from 1998 through 2000 – meaning they have much more room to run higher... But that's a story for another day.
Kudos to Greg on this call and to subscribers who are enjoying it, too...
Moving on, our editor-at-large Daniela Cambone recorded yet another great interview recently...
It's with Robert Breedlove, host of the What Is Money show. He's a bitcoin "maximalist." I don't think you'll hear a better explanation on the bullish case for bitcoin or cryptocurrencies anywhere else...
Not only that, Breedlove told Daniela he is also not backing away from his bold call for new all-time highs for bitcoin. He says that despite the recent hurdles that crypto has experienced, it is still on track for a $300,000 price by next year...
Click here to watch this video right now. There's a lot of great nuggets that we want to share with this one.
Breedlove shared what he thinks 99.9% of people invested in bitcoin should be doing with their positions. If you're a bitcoin bull, he said...
Accumulate steadily over time and don't sell. You're accumulating a position in an insurance policy on central banking. The more dollars they print, the more valuable this policy becomes.
To even think about selling that policy into dollars is self-defeating in a way. You're insuring yourself against depreciation of the dollar.
Daniela then asked what, if any, potential there is for bitcoin to be exchanged for goods and services as a currency. Breedlove believes there is, and will be, from early adopters who make big, unrealized gains and are "incentivized to spend" it...
Check out the video for all the details.
Along the same lines of 'accumulating steadily'...
That's the whole idea behind our colleague Eric Wade's Crypto Cash Summit...
During the event, which went live last week (you can watch the replay here), he talked about how to generate income from cryptos (in the form of more cryptos)... an idea that most people don't even know exists.
But it does. We referred to this last week as a change to "Be the Bank You Used to Know" and make yields that banks used to offer (and then some), but in the decentralized world of cryptos.
As Eric, the editor of our very popular Crypto Capital newsletter, said during the summit, most people don't understand that bitcoin – the world's first and most popular cryptocurrency – is just the start of what could be decades of financial revolution...
Yet there's opportunity to be had right now...
In short, Eric is sharing the chance to act like a bank in the crypto world and earn anywhere from 8% up to 30% on your money... while still enjoying the chance for 1,000% capital gains in cryptos that could see massive price increases.
This can also be a way to accumulate bitcoin steadily, like reinvesting dividends, except in a scarce digital asset that Eric believes is just at the start of fueling a "complete disruption happening in the financial markets."
Don't miss his urgent message. You can watch Eric's Crypto Cash Summit for free right here to learn much more.
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New 52-week highs (as of 7/26/21): ABB (ABB), Asana (ASAN), Brown & Brown (BRO), Comcast (CMCSA), Commvault Systems (CVLT), Dollar General (DG), Facebook (FB), Alphabet (GOOGL), ICICI Bank (IBN), Intuit (INTU), Johnson & Johnson (JNJ), Coca-Cola (KO), McDonald's (MCD), Invesco S&P 500 BuyWrite Fund (PBP), ProShares Ultra Technology Fund (ROM), Starbucks (SBUX), ProShares Ultra S&P 500 Fund (SSO), TFI International (TFII), Visa (V), Vanguard S&P 500 Fund (VOO), Vanguard Short-Term Inflation-Protected Securities Index Fund (VTIP), and Waste Management (WM).
In today's mailbag, feedback on yesterday's Digest about the "formal mudslinging contest" between the U.S. and China... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"In regards to the above-mentioned fray... this may seem off topic... but in all honesty... I think that it's exactly what is needed... or else." – Paid-up subscriber Greg J.
Corey McLaughlin comment: Not off topic at all... Things ultimately get worse between countries or people when the "talking" stops, or doesn't happen at all.
All the best,
Corey McLaughlin
Baltimore, Maryland
July 27, 2021