When I woke up Wednesday morning, the Street was painted red.
Our office here in Baltimore was on high alert — DEFCON 1, if you will, in preparation for more carnage.
Wednesday’s trading opened with the tech-heavy Nasdaq down 1.7%, and the S&P 500 was down nearly another 0.5%.
At the same time, more volatility roiled the cryptomarket as China banned cryptocurrencies and related businesses in its territory, wiping out billions in recent gains in a few hours.
At one point, Bitcoin, the lead dog in the crypto space, was trading nearly 30% down from its close on Tuesday.
Ouch!
Even oil — one of your best investments for the first half of this year — took one on the chin, dropping over 5% from its Tuesday high through Wednesday’s close.
Meanwhile, the longtime No. 1 market hedge, gold futures, failed to crest $1,900 and smacked up against its ceiling of resistance for the third time this year. This happened despite a perfect setup for a gold futures spike, with rising inflation, higher Treasury rates, downward pressure of the U.S. dollar, and a sell-off in speculative assets.
I believe that the current rise in inflation is directly tied to an increase in the M1 and, more importantly, M2 money supply, which continues to grow at an incredible rate.
According to the Federal Reserve, the M2 money supply increased to $1.99 billion in March from $1.969 billion in February 2021. That’s an increase of over $22 million in liquid and semi-liquid capital in one month!
Stretching the timeline back a bit, we see this isn’t a new trend either. A CNBC report notes the U.S. money supply increased 20% from the end of July 2019 to the end of July 2020.
Gimme that stimi!
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What a Difference a Day Makes
Despite the early selling Wednesday, stocks showed resilience in many sectors. By Thursday’s open, the major indexes had pared the earlier losses and were back in the green.
This action tells us some very important things as we enter the seasonal summer slowdown for markets.
After nearly a decade of fast-paced speculative investing where fundamentals like profitability and reserve capital on hand don’t matter, our best investments (long term) this year will be in stocks that not only have a growth plan for the future but are also companies with good earnings and strong balance sheets right now.
To better determine if a company you’re considering as an investment has sound fundamentals, you’ll want to examine the company’s management structure, competition, growth rate, income, revenue, earnings per share, and price-to-earnings ratio. You can find this information on most companies on the Securities and Exchange Commission website by searching for a company’s 10-Q and 10-K forms (annual and quarterly earnings reports).
Once you have this information, you can do a comprehensive fundamental analysis on any publicly traded company out there. Screening stocks this way for your investments will save you a lot of pain as markets ebb and flow.
For our short-term trades, fundamentals matter just as much, but we also need to turn to technical factors derived from in-depth chart analysis to capture flash gains in the near term.
Investor, market analyst, and author Humphrey B. Neill once said, “Never mind telling me what stocks to buy, tell me when to buy them.”
With this quote, Neill sums up in a single sentence why technical patterns matter. If you don’t time your entry and exit points well, your investment returns will assuredly fall short of your expectations.
That’s why identifying things like levels of support and resistance, being able to draw accurate trend lines, understanding what the moving averages are telling you, and finding pockets of sector strength and weakness are integral to successful trading (not investing — that’s different).
Another Thing to Consider
Many of these shorter-term opportunities are driven by unique catalysts — catalysts that are often independent of the greater market forces. That’s why on a day like Wednesday, the best traders — like the analysts here at Energy and Capital — saw many of their portfolio positions rise while the rest of the market sold off.
That’s because there’s one sector that puts up to 144 new catalyst-driven opportunities in front of us each year.
Imagine this summer you bank a flash 43% win one week, and then a week later you book a 60% win, and then two weeks after that you lock in a 73% windfall.
Let’s do the math.
Five-hundred dollars invested and sold for a return of 43% gives you a profit of $215. Your new cash balance is $715. You invest that and in a few weeks you book a 60% return, or a profit of $429. This gives you a new cash balance of $1,144. You then take that cash and invest it, earning a 73% return this time, giving you a profit of $836 and new total cash balance of $1,980.
Not bad for a few trades. Your portfolio would have grown from $500 in value to $1,980 in just a few weeks. That’s a 296% cumulative return on your original investment in just one month!
Now imagine you did that 10 times a year (assuming two months just don’t go as planned and we’re not compounding gains month to month) — that’s a whopping extra $19,800 in your pocket.
And just think about how much money you might have earned if you had also compounded your monthly gains over those 10 months. We’re talking an incredible sum of money.
I kid you not, these catalyst-driven opportunities are all around us. Click here now to learn even more.
To your wealth,
Sean McCloskey
Editor, Energy and Capital
@TheRL_McCloskey on TwitterAfter spending 10 years in the consumer tech reporting and educational publishing industries, Sean has since redevoted himself to one of his original passions: identifying and cashing in on the most lucrative opportunities the market has to offer. As the former managing editor of multiple investment newsletters, he's covered virtually every sector of the market, ranging from energy and tech to gold and cannabis. Over the years, Sean has offered his followers the chance to score numerous triple-digit gains, and today he continues his mission to deliver followers the best chance to score big wins on Wall Street and beyond as an editor for Energy and Capital.
