How to Profit from Cyclical Swings in this Mad Market Environment
Euphoria and panic. Hope and despair. Greed and fear. Expansion and recession. Boom and bust. Everything moves in cycles when it comes to the capital markets and the economy.
You can see these forces at work over the longer term …
In the past quarter-century, for instance, we’ve had two massive bull markets fueled by bubbles in tech stocks and housing. Those were followed by two massive bear markets when those bubbles popped, with the S&P 500 collapsing 50% in the dot-com bust and 57% in the housing bust.
You can also see those cycles at work in the shorter term …
Consider: You could hardly give stocks away in December, much less sell them at a decent price. The S&P 500 collapsed 450 points in just a few weeks. Treasury Secretary Steve Mnuchin went so far as to publicly reveal that he called the heads of six major financial institutions from his Mexican vacation to make sure everything was OK.
But right after Christmas, that fear and panic started to evaporate. Investors tripped all over themselves to buy the very same stocks they were dumping just a few weeks earlier. The S&P 500 rocketed from around 2,340 at the low to 2,850 this week — a gain of more than 500 points.
It’s all a little maddening, isn’t it? But my colleague Sean Brodrick believes he’s identified the forces driving these wild swings ... that “the next five years are going to be a train ride through hell” ... and that the roller coaster ride is only going to get worse. Sean has created a special report to help get you through this with your wealth intact and growing — click here to access it now.
For my part, I pretty much agree. I’ve said that the credit cycle has turned, noted the bond and stock markets are in stark disagreement about the outlook, and recommended a much more cautious investing strategy starting in February 2018.
The averages are virtually unchanged since then. Plus, the conservative, defensive sectors and “Safe Money” stocks I’ve been advocating have trounced riskier, offensive ones over the same stretch. I trust and hope you’ve benefited.
So, how can investors like you navigate these wild market swings? How can you maximize your profits and minimize your losses from big cycle-driven moves?
Let me peel back the curtain and show you some of the things I’ve been doing in my Safe Money Report.
- I recommended an investment in the ProShares UltraShort Financials (SKF, Rated “D”) back in April, then added to the position in May 2018.
My rationale? Market turbulence was on the rise, credit quality was poised to deteriorate, and the financial sector was notably underperforming.
The trade didn’t work out at first. But as fear took hold and stocks swooned, SKF rose swiftly in value.
That said, I sensed the sell-off was getting extreme in late December and that a short-term cycle turn could be at hand. So, I fired off a Flash Alert recommending they grab profits on half the position. They had the opportunity to pocket 20.5% gains as a result.
- Not long thereafter, I recommended subscribers buy the utility company AES Corp. (AES, Rated “B”) as part of my “defense first” investing strategy.
The stock took off like a rocket along with the entire utilities sector within days.
But again, sensing that the swing from panic to euphoria was getting extreme, I recommended they bag gains on Monday. I estimate they pocketed around 19% in just over nine weeks. Make sure you're on board to go for the next round of gains — start here.
Have all my ideas and recommendations worked out that well? Of course not. I’ve had my share of misses, too. But I believe the basic ideas and strategies behind these moves are sound:
- Use cycles to your advantage. Buy (or sell hedges into) panic. Sell (or add hedges into) euphoria.
- Trade around core positions, while remaining generally defensive.
- Carry higher levels of cash overall given how far advanced the economic and credit cycles are. And do so regardless of what you hear about the Federal Reserve and its policies. (A lot of which is dead-wrong, by the way.)
Hopefully that helps provide you with a bit more clarity in a market that is sorely lacking it!
Until next time,