Editor's note: You don't need to fear volatility... The markets have fluctuated throughout this year's bull run, tempting many investors to keep their money on the sidelines as this topsy-turvy market unfolds. But according to Ten Stock Trader editor Greg Diamond, letting this heightened volatility discourage you from investing will leave a lot of money on the table. In today's Masters Series, adapted from the June 17 Weekly Market Outlook issue, Greg explains why you must avoid getting too bearish today...
Don't Let Volatility Turn You Into a Bear By Greg Diamond, editor, Ten Stock Trader President Herbert Hoover stood his ground on "Black Thursday"... even after the Dow Jones Industrial Average plummeted 21%. Hoover dismissed the idea of economic weakness, telling members of the press that... The fundamental business of the country, that is [the] production and distribution of commodities, is on a sound and prosperous basis. Despite the growing panic in October 1929, Hoover focused on the "whole situation," as he called it. Ultimately, he believed the market was resilient. Of course, this wasn't a simple bout of volatility... The Crash of 1929 ushered in the Great Depression, which lasted a decade and completely changed life in America. Whether or not you're a fan of Hoover, there's an important lesson here... Markets don't move in a straight line... They can tank (even for long periods) and then recover. Markets can also soar and then self-correct due to various catalysts. Back in June, many stocks hit new highs, and bonds broke important "resistance" levels. This was all good news. Of course, we did see some profit-taking, which shouldn't be a surprise. After all, history has shown that markets fluctuate... both domestically and abroad. As I've mentioned before, we could see a burst of volatility over the next few weeks across the board. And if we do, I'll explain why you need to avoid getting too bearish. Successful trading requires a lot of patience... and that's especially true right now. Although we're currently in a bull market, some sectors are lagging behind. For example, the Dow Jones Transportation Average hasn't kept up with the semiconductor sector, which has exploded higher and reached new all-time highs. Some analysts believe that's a good reason to get bearish and short the current market, but I wouldn't do that. Before making any decisions, you should note that these dynamics apply to the U.S. stock market. To get the full picture, we should also look at global markets... Here's a chart of the Vanguard Total World Stock Index Fund (VT), which tracks a variety of large-cap and small-cap stocks in the U.S. and around the world...  The VT, with its diverse asset blend, is a great barometer for global stocks. The fund twice surpassed its previous all-time high from late 2021... In March, the VT made a slight new all-time high, but then corrected into the April low. Then, it hit new highs throughout this summer before correcting last month. As of last week, the fund has made new all-time highs. Also note the relative strength index ("RSI") and the Composite Index ("CI") on this weekly time frame (where each bar represents one week)... They're both showing negative divergence relative to the top. (See the blue lines at the bottom of the chart.) But is this the top in VT? I don't believe so. But even if the market flips, I wouldn't want to execute short trades. Let's dial into the daily VT chart to see why...  This chart, like the weekly VT chart, shows negative divergence in the RSI and CI relative to last week's price highs. And now, we're seeing those indicators drop. Let's assume for a moment that we get more volatility and a correction takes shape over the next few weeks. That probably sets up a chance to buy market weakness. It would also mirror the setup in the New York Stock Exchange chart I posted back in June, which strengthens my bullish argument. Take a look...  With both U.S. and global stocks hitting new all-time highs, patience is the name of the game right now... Markets constantly fluctuate, so we need to keep our eye on the "whole situation," to use Herbert Hoover's words. So even if we get another round of volatility, we're sticking to our trading strategy... and buying the most profitable setups out there. Best, Greg Diamond, CMT
Editor's note: Greg called the 2020 and 2022 market crashes. Now, he's stepping forward to predict another pivotal turning point... He believes a massive move will hit the markets around September 9 that could upend the U.S. presidential election... and double your money up to 10 times as it plays out. Click here to get the full details... | 
No comments:
Post a Comment