How to Make Money by Ignoring the Headlines
Editor's note: The numbers don't lie...
When looking for great investments, it can be easy to get bogged down in the hunches, headlines, and Wall Street analyst reports. But by using a "technical analysis" approach, you can remove the emotion from your investing – and rely on the data instead.
Said another way, when it comes to technical analysis... price and time are all that matter. And while this investing concept can't choose high-quality companies for you, it can show you what the picture looks like now... and what possibilities you may want to prepare for.
In today's Masters Series, originally from the December 10, 2020 Digest, editor Corey McLaughlin reveals why understanding technical analysis can be a breakthrough for many investors... details several key technical metrics some of our editors and analysts look for... and explains how this approach fits into both short- and long-term investing strategies...
How to Make Money by Ignoring the Headlines
It was just another ho-hum day in 2020...
That morning's headlines...
U.S. sees single-day record of COVID-19 deaths.
All states certify election results.
Facebook facing a breakup?
Congress still negotiating more stimulus.
FDA panel to meet to discuss Pfizer COVID-19 vaccine.
And that was all before 9 a.m.
In any case, it was the type of day that makes me thankful...
No, not for my relative health, or for having a job and plenty of things to write about. I'm thankful for those details as well... but I'll delve into them another day.
Today, I simply want to say I'm thankful... for technical analysis. You probably won't hear many others say that. So allow us to explain briefly...
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.
As I explained yesterday, the main 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 is an approach we've shared frequently here in the Digest, particularly during the most volatile times.
As Greg wrote in a Masters Series essay in December, while explaining how he got his start trading on Wall Street before joining Stansberry Research a few years ago...
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 this weekend. 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...
You might think of technical analysis as "chart reading"... But as Greg wrote in another Masters Series essay, that's too simple of a description. It's really an exercise in understanding human nature...
If enough people do things over and over again, patterns emerge over time.
This concept isn't necessarily the easiest to grasp or believe, and it might not be for everyone. Until you really practice it and understand it, a lot of this can sound vague or mystical... And frankly, it might feel that way in today's essay, too.
But once you understand the details – by following experts like Greg or our DailyWealth Trader editors Ben Morris and Drew McConnell, who also use technical analysis extensively – it can be a breakthrough for a lot of investors...
They walk you through everything they do, step by step. And as I hope you'll see, following their instructions is the best guidance I can give you about the topic.
Technical analysis can't pick great, high-quality companies...
Good fundamental research, understanding balance sheets, and realizing what makes a great company do that. Technical analysis isn't about things like free cash flow ("FCF"), for instance... And it doesn't pretend to be, as Greg alluded to previously.
Technical analysis also won't tell you, at least directly, about the warts of the financial system... though it will reveal just how distorted things have gotten by showing how much influence the Federal Reserve has.
Rather, it's about things like "oversold" and "overbought" metrics, "moving averages," and "support" and "resistance" lines that mark key points of supply and demand. It's about what the picture looks like now. And trust me, that's just the start...
Greg has written about "price divergence" as another example...
I look for price divergence across major indexes. This is a common focus in my weekly updates and in my live feed. When one index makes a new cycle low (or high) while another doesn't, this creates divergence.
That's usually a sign of a reversal on the horizon. It can be tricky to spot this pattern, but it's a valuable analysis to understand. A massive divergence occurred just before the crash in February 2020. Take a look...
Notice the divergence between the Dow Jones Transportation Average in black and the Dow Jones Industrial Average in blue. The green circles marked a lower high in the Transports' price, while the black circles marked a higher high in the Industrials' price... setting up the divergence.
Obviously, this is an extreme example considering the massive crash that happened in the markets because of COVID-19. But such a big divergence provided a key warning that something was wrong – the two indexes were not in sync.
Indicators like these can't predict with certainty what's going to happen on any given day – nothing can predict the future, after all – but they can certainly narrow the range of possibilities you may want to prepare for.
And it works particularly well at big turning points, too... When everyone else is going crazy, the numbers don't lie.
Technical analysis, which is really a school of thought, helped guide us through March 2020's crash and ultimate bottom... and then through the market rebound afterward. Certain indicators told us the broader U.S. indexes were likely heading up, up, up again...
As I wrote yesterday...
Understanding "what the chart looks like" can help you decide whether now or later would be a good time to buy or sell any number of assets that you already love... or that Wall Street hates.
For instance, think of arriving at Porter's recommendation to buy high-quality, capital-efficient stocks at the March 2020 lows, but with another – or, better yet, a supporting – method.
And as I wrote in the November 23 Digest, a peak in "breadth" – which is what we're seeing now – has traditionally been a big bullish technical indicator for stocks over the next year or two.
During the dot-com boom, breadth peaked in early 1998... The stock market peaked in 2000.
More recently, breadth surged in 2013... then the benchmark S&P 500 Index rallied 45% before peaking in 2015. And in 2016, breadth surged again... and stocks went up another 35% into 2018.
And of course, human nature applies to all asset classes...
That's how Greg, Ben, and Drew can write about it every trading day. Here's just one example... Ben and Drew sent this analysis to their DailyWealth Trader subscribers last December as part of their updated instructions for an open trade...
An asset often builds up energy by trading sideways for an extended period of time. Then, it breaks out of its trading range and releases that pent-up energy.
When this happens, the asset tends to continue moving in the same direction of the breakout (higher) or breakdown (lower). And if you get on board, you can earn fantastic profits.
And second, when an asset's shorter- and longer-term moving averages start to move in the same direction – with the shorter-term moving average on top of the longer-term moving average – it's a good sign that the asset is ready to move in that direction.
Our point is... if you're interested in short-term trading, technical analysis – think the trading equivalent of the sports analytics described in Michael Lewis' bestselling book Moneyball – is a must-know, as far as we're concerned.
And even if you're a long-term investor, it's worth considering how you can use technical analysis in your approach. It can help you figure out what big moves might be coming.
As Greg often describes so well, technical analysis can help you do this in advance. The biggest point is that these tools allow you to prepare and bet with defined risk and reward targets.
We'd rather do this than buy or sell the "news"...
Heck, we'd rather do this than even read the news on most days. (No disrespect to our Stansberry NewsWire team, of course... But you know what I mean.)
But don't take our word for it...
Over the past year, I've seen many heartfelt e-mails from Ten Stock Trader subscribers...
Everyone wants to thank Greg for his work, which he does around the clock. It's not out of the ordinary to see an 11 p.m. or a 5 a.m. post from Greg as he does the same type of work he used to do on Wall Street.
Here's what one of our Stansberry Alliance members, Juan A., said last year...
I like how passionate you are about trading and the fact you pay attention to the details. I like the detailed, timely and valuable reports you send us thru the app. I like how you share and keep us informed about your thought process and way of thinking. I like how personal you take your commitment to your job and your subscribers.
I notice in your writing that you translated your sports competitiveness to trading and want to win. I like the fact you encourage your readers to learn and provide tools for us to prepare to win. I like the fact you are enjoying working at Stansberry Research this motivates you to provide us with the knowledge you would like to have if the roles were reversed...
I have been addicted to the service you provide to your subscribers, which I believe is top of the line... I consider this is one of the best, high-quality services Stansberry Research currently has. I am making good money with your recommendations.
We've also seen Greg respond personally to notes like these... and other folks with questions. That was the case here, which included some personal details I won't share today. But the point is, here's how the conversation ended. More from Alliance member Juan A...
Thank you for your reply. It means a lot knowing that you are [super] busy. I am certain your subscribers appreciate and value the effort you put into your daily hard work and dedication. You have been a great addition to the Stansberry family. Hope you stay with us for the long run.
Greg embodies the guiding wisdom of our founder Porter Stansberry... He always strives to give subscribers "what we'd want if our roles were reversed." To Greg, that means technical analysis – and a lot of it.
Good investing,
Corey McLaughlin
Editor's note: In his Ten Stock Trader advisory, editor Greg Diamond relies on 16 years of trading and portfolio management experience to search for stocks and trades all based on his technical strategy. In fact, with this approach, you could have doubled your money three different times on one company last year... without touching a single share.
Now, using this same strategy, Greg is sharing his latest prediction...
He believes that something big is coming to the market on or around May 10. According to Greg, what happens then is setting up to be a great opportunity for investors in 2021... and could potentially make you more money than you've made all year. Click here to learn more.