3 Keys to Make Sense of This Messy Market
I can’t tell you how many times a day this happens. I’ll try to get the attention of my youngest son, while he’s completely oblivious to anything occurring around him.
It always happens when his eyes are fixated on his iPad, watching YouTube videos. He refuses to see or hear anything else going on around him.
I get a sense that investors are going through the same thing … absolutely locked on to what the CNBC talking heads are saying about this bear market.
We seek comfort in hearing explanations behind every daily gyration in the stock market. But to know where this market is heading, you can’t rely on an analysis of what’s already happened.
That’s the equivalent of looking only in the rearview mirror as you speed down the highway … a disaster in the making!
Instead, let me show you how I tune out the noise and discover the stock market’s path forward…
Stop Hearing and Start Listening
Over the last several weeks, I’ve shown you how to use different quant factors to spot the best trading opportunities the market has to offer. As the name implies, these are different statistics that can be quantified to paint a picture of each investment’s alpha potential. Things like stock price momentum, profitability and balance sheet health have all proven themselves as valuable indicators through rigorous research and back testing.
But these factors can’t tell you when to finally pull the trigger. And they can’t tell you where the broader market is headed, either. That’s where my “Holy Trinity” of stock market factors come into play.
Subscribers to my own Flashpoint Fortunes already know all about them. This trio of driving forces are part of the reason why Flashpoint Fortunes pivoted to put options at the start of this year. Then they helped me spot a bear market rally that unfolded in late May.
And they’re a major factor in our outstanding 90% win rate so far in 2022 (winning 9 out of 10 trades as the market sank into bear territory).
Pointing the Way to Profits (in Any Market)
This market is moving fast, which is expected in a bear market.
After climbing 7% in two weeks to June 2, the stock market then dropped nearly 12% in 10 days through last Friday.
And while that might sound like an unpredictable roller-coaster ride, those kinds of moves create tremendous trading opportunities. You just need an approach that can quickly adapt to what’s coming around the corner.
That’s where my “Holy Trinity” of factors comes into play. This trinity accounts for the stock market’s trend and momentum, participation in that trend and the mood of investors.
And right now, it’s telling me to be on rally watch.
That’s because investor mood has become way too fearful, while stocks have reached the same oversold levels seen just before the last bear market rally took shape. Just look at the percent of stocks trading above their 20-day moving average … it has plunged to a historically low level:
(Click here to view larger image.)
That might sound surprising — especially after the market has tanked 12% in just 10 days — but the numbers don’t lie. And trusting these numbers has yielded a steady stream of rapid-fire winners.
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Research Analyst, The Bauman Letter