Today, I want to update you on the recent market volatility we’re experiencing. I’ll outline the current “pain points”—but also show why they’re actually points of opportunity you’ll want to pay attention to.
You see, the market is getting narrower. It’s getting harder to pick stocks in this environment. But that’s where I’m going to help you…
Click below to watch the video (or scroll down to read the transcript).
Hi, everybody. It’s Jason Bodner here. By now, you may know that I worked for over a decade on Wall Street and handled some of the largest big-money order flows out there in stocks. And I built this really cool system to help us find the outlier stocks—the top 1% of winners. That’s what I do.
Now, what I want to do in this special edition of Palm Beach Insider is update you on the market volatility we experienced yesterday and are starting to experience today. I want to outline the “pain points” which are actually points of opportunity you’ll want to pay attention to. So let’s just dive right in…
Yesterday, the broader markets fell an average of over 1% across all the major indexes. And believe it or not, these days, that’s a sizable drop that people take notice of. They want to know what’s going on. So what is going on? Well, we saw some decent volumes in selling. It wasn’t huge, but it wasn’t anything abnormal, either.
At this point in time, we have a lot of headline risks; there are a lot of stories. We’ve got [Secretary of State Mike] Pompeo, who was on the call with Ukraine for the impeachment scandal. We have health care selling because of Elizabeth Warren possibly getting the Democratic presidential nomination. Internationally, the powder keg in Hong Kong is reaching its boiling point. The protests ended up with a shooting. So that’s some negative news out there, and it’s all putting a little bit of pressure on the market. It’s creating uncertainty.
What’s interesting about health care is, we saw the largest single day of selling yesterday in that sector since May 13. That’s something to take notice of. It’s where the pressure point in the market is. Now, I actually believe that’s a good entry at this point, but we’ll go over that in just a second.
You see, what tends to happen is, big macro funds that are managing billions of dollars see an opportunity in the market. Maybe health care was looking a little extended because it was near highs pretty recently. If you look at [the Health Care Select Sector SPDR Fund] XLV, all of a sudden, Warren’s potential nomination gives an opportunity to sell. And people need a reason to sell.
Let’s say big funds start coming in and unloading on health care. Well, this is a field day for the algorithm and the computer trainers because they start hopping on board and pushing things down to extremes. The last time we saw something like this is when Hillary Clinton was on her campaign trail in, I believe, 2015. She came out and made some negative comments on health care. At that point, XLV was at about $77. But after that, things slid quickly down to around $66.
So we had an immense sell-off then. But this is the kind of opportunity to go out and find the previous highflier stocks, the previous winners. These are the outliers, the top 1% of stocks with great sales and earnings growth that the big money is supporting. We just have to find those and buy them on sale. Because from Hillary’s comments, after XLV troughed, it eventually rallied back nearly 50% higher. There’s opportunity if you can find it, be patient, and withstand a little volatility.
Making Trades for Free
Now, back to the algorithms. Something interesting happened yesterday that you should know about. Charles Schwab came out and said, “We’re cutting stock commissions to zero. Zero dollars to trade stocks.”
What they do is, they turn around and sell that order flow to algo traders. I’ll get to that in a second. But when they made that announcement, coming out with zero commissions, you know what happened? Interactive Brokers, TD Ameritrade, E-Trade, and all the electronic brokerage stocks got sold hard.
We saw big selling in that group yesterday. And I think we’re going to continue to see selling there and potentially in other financials, too. There’s a real aggressive fee compression in the retail brokerage space where people trade their stocks. It’s a race to zero—and it’s already at zero. So this can potentially go lower where they might even pay you for making an order. Anything is possible.
And back to what they do with that… So Charles Schwab charges you zero dollars to trade your shares. Let’s say you give a buy order to them. Charles Schwab then takes that information when you put in an order and sell it to some of these computerized traders.
Now they know in advance who’s buying what and where the buying and selling pressure is. They can jump out in front of it legally and game that system to their advantage. That information from your order is very valuable—so much so, that they’re willing to charge you zero for it. So expect some continued selling in financials.
Carrying the Pot to the Stove
But meanwhile, let’s go looking for some jewels—some diamonds in the rough—in health care because I think the opportunity is there. Today, the market slid another 1.1% so far as I’m filming this. The ISM Manufacturing Index level came out yesterday at about 47.2. And any reading below 50 signals contraction.
So what do we have? We have that headline risk… impeachment potential… geopolitical stuff with Brexit and Hong Kong… and now America is potentially slowing down production, too.
Everybody just needs something to worry about. But this is just normal market action. The market ebbs, flows, and sloshes around like water in a pot that you’re carrying to the stove. And this is normal. This type of volatility is something we have to be used to and expect. The market is getting narrower; it’s getting harder to pick stocks in this environment. But that’s where I’m going to help you…
If you want to find out which stocks I like and that I think will be resilient to market pressure—and where you’re going to find the most potential to make outlier stock profits—I want you to click this link to reserve your spot and tune in to the special event tonight at 8 pm ET. It’s just two hours away. I’m really excited about it. And I hope to see you there. So until next time…
Editor, Palm Beach Insider