March 2020
Trend Trader: Success Comes To Those That Follow The Trend
Successful investing is based on taking the long-term view, and the best time to invest in stocks, if one adopts this view is when the markets are in turmoil. If one looks at our portfolios, one will see that from a historical basis, the most significant number of buys were triggered during moments of chaos. It’s when the masses are panicking that one can get into quality stocks at a considerable discount.
Even if one is stopped, the overall gains from taking such an approach are huge, which is easily verified by pulling up any long-term market chart. Long-term does not imply ten years. It generally falls in the 6 to 24-month category. Take the 2008 correction/crash; even if you were stopped out several times from the same play, you would have still walked away with huge gains, as long as you were not dumping money into some speculative or poorly run company.
Trend Trader: Panic-based selling equates to Opportunity
We have seen this panic selling at play many times in the past, and the theme is always the same; create whatever crisis you want to create, but once the panic subsides, the masses (always) regret their decision, vowing that it will be different the next time. When the next time approaches, they act precisely in the same manner as they did the last time, proving the mass mindset is programmed to panic at precisely the wrong time.
One could almost go as far as to say that the mass mindset has a secret desire to lose, for it does the same thing repeatedly, virtually guaranteeing a negative outcome. Doing the same thing repeatedly and hoping for a new result is the definition of insanity.
The most significant factor we see at play here is not the coronavirus but hysteria. The hysteria is building up, and everyone from the janitor to movie stars has suddenly become an expert on the topic. Like the flu, many individuals will not go to the doctor or seek medical attention unless the conditions worsen.
Hence, the individuals going to hospitals or visiting doctors are generally the ones feeling the worst, which means the current fatality rate could prove to be too high. What is true is that the current strain of coronavirus is more virulent, but its mortality rate is far from certain. For the record, the coronavirus has been around for a long time; the only difference is that this strain is different from the previous strains.
The masses are far from bullish, and they were far from bullish when this correction started; hence all pullbacks should be viewed through a bullish lens.
Let’s look at the situation from a rational point of view
To provide some perspective, consider the following: If cancer were a virus, it would be one of the most deadly viruses in history. Yet, it seems that the loss of 9.6 million lives each year to this devastating disease goes unnoticed. Until comprehensive testing is conducted on a large scale and the data is analyzed by factors like age group and pre-existing conditions, the alarming death projections issued by experts should be viewed with scepticism.
The only option being presented seems to succumb to panic and hastily retreat. However, this holds true only if you are part of the crowd. Such action may offer temporary relief but comes at the expense of substantial long-term gains for those who take a more strategic approach. Insiders within a company have unparalleled knowledge of its internal operations, and their unprecedented actions during this sell-off suggest that it represents an opportunity rather than a disaster.
Insiders are buying stocks hand over fist; the sell-to-buy ratio stands at 0.32, which suggests these guys are devouring these stocks. Hence a trend trader should not back down just because the masses are giving into fear; instead, the trend trader should view this massive correction as a once-in-a-lifetime buying opportunity.
Significant levels of liquidity have already been injected into the market, but brace yourself because the real surge is yet to come. Helicopter money is on the verge of becoming a tangible reality, and despite the repeated mantra that things will be different this time, the truth remains that no one can resist the Federal Reserve’s determination to unleash an unprecedented bailout package.
Conclusion
The real problem is the hysteria the media and medical experts are creating out of this issue. Once mass testing gets underway, which should happen much faster than most expect, the masses will discover that this virus, while more contagious, is not that deadly. When that realization finally sinks in, the masses will change their minds just as fast as they panicked, and the markets will mount a stunning rally that will catch 90% of the players off guard. Until that moment, expect wild bouts of volatility.
Once the panic subsides, we can expect an unprecedented feeding frenzy in the market. The combination of near-zero interest rates, massive injections of two trillion dollars by the Federal Reserve, and additional billion-dollar stimulus packages aimed at boosting the economy will result in a remarkable upward surge in the market. The market will reach heights that are unimaginable by today’s standards. Moreover, the zero interest rates will compel a significant portion of individuals with fixed incomes to engage in speculative investments, as they have substantial cash reserves waiting on the sidelines.
Despite all this doom and gloom, we see no reason to panic and are not even one inch closer to changing our stance. The trend as per our “trend indicator” and not from drawing trend lines, is positive, and the masses are far from bullish. Hence, individuals should stick to the original plan. The stronger the deviation, the better the opportunity
Articles of Interest
Stock Market Crash Myths and Realities (Jan 3)
Bull-Bear Markets & Arrogance (Jan 1)
Will The Stock Market Crash In 2018 (Dec 11)
Has US Dollar Finally Hit Bottom (Dec 6)
BitCoin Has Done What Precious Metals Never Could (Dec 4)
Experts Making Stock Market Crash Forecasts usually know nothing (Nov 17)
1987 stock market crash anniversary discussions- nothing but rubbish ( Oct 24)
Dow 22K Predicted In July 2017; Next Target Dow 30k? (Oct 15)
