U.S. unemployment is at record highs… Bankruptcies are on the rise… Airline travel is down 95%… Millions of students are out of school… Restaurants are reading their last rites…
I’ll be frank. The current economic landscape sucks right now. The coronavirus pandemic has smashed into it like a wrecking ball.
Yet there’s one bright spot: the market.
After the World Health Organization launched a joint mission to investigate the outbreak in February, the market plunged over 30% in about a month. It was the fastest crash in history.
Since those March lows, though, the S&P 500 is up over 32%. That’s an astounding rebound given all the economic carnage around us.
So why is the market still rallying when it seems like the world is going to hell in a handbasket?
It’s one of the most common questions I get now. And to be honest, I don’t know why the market is still going up.
That answer annoys most people. I understand. The truth is hard to accept: There isn’t always an immediate reason available.
But I can tell you from experience that “Why?” is the wrong question to ask anyway. It really doesn’t matter why the market is going up or down.
The question you need to ask instead is, “Where is the market headed next?” That’s how you make money in the markets.
And fortunately, I created a system to do just that…
Follow the Money, Not Your Emotions
I worked at the highest levels of Wall Street for nearly two decades, including at firms like Cantor Fitzgerald and Jefferies. And I’ve never seen the market more disconnected from the headlines as it is now.
I admit, it seems counterintuitive. The market is rising while everything around us is falling apart. It may seem unfair. But remember, the market is just numbers.
That’s why I created my “unbeatable” stock-picking system. I wanted my decisions to be driven by data – not emotion.
So I used my experience from nearly two decades at prestigious Wall Street firms – regularly trading more than $1 billion worth of stock for major clients – to make sure it’s highly accurate, comprehensive, and effective.
My system scans nearly 5,500 stocks every day, using algorithms to rank each one for strength. But it doesn’t just look at individual stocks. It also tracks big-money buying and selling in the broad market.
And here’s what the data is saying about the situation at hand…
As you know, when the Big-Money Index (BMI) dips to 25% (the green line in the chart) or lower, sellers have taken the reins, leading the markets into oversold territory. And when it hits 80% (the red line) or more, it means buyers are in control and markets are overbought.
Currently, the BMI still sits above 90%. Now, generally, this overbought level means the market is due for a pullback soon.
But it doesn’t necessarily mean lower prices are ahead in the long term…
Continue to Ride the Wave
You see, I combed through the numbers and looked for all overbought market instances (as indicated by the BMI) since 1990.
And the average forward returns for the S&P 500 following these overbought periods were all positive…
|Time Frame After Overbought Periods Ended||Average Forward Return|
You might be wondering what this all means…
Well, overbought market conditions don’t provide nearly the asymmetric payout potential as oversold market conditions do.
In other words, the risk is not worth the reward right now. And my data shows these overbought conditions can last up to three months in some cases. So until the BMI starts falling again, I don’t recommend establishing many new positions.
In the meantime, if you do own quality stocks, simply ride this wave until the market crests. When it does, take profits, raise cash, and be ready to add more winners on the next short-term pullback.
The bottom line: Don’t try to force your emotions on the market by asking “why” it’s doing what it’s doing.
Instead, as long as the trend is up, keep enjoying the ride. One day, it’ll stop. And when the market troughs again, we’ll be ready to profit from the next crest.
Patience and process!
Editor, Palm Beach Insider
P.S. As you can see, my system’s data can truly take the emotions out of investing – and lead to profits, no matter which direction the market’s headed in next.
It can help you target the best stocks out there, so you can add them to your shopping list. That’s why I’ve put together this special presentation to show you all the details of how my system works.