3 Ways to Play a Resurgent Bull Market

Stocks are roaring back to life.

We haven’t witnessed a trading environment this constructive in more than a year. The major averages are consolidating near their highs. Breakouts are holding. Beaten-down sectors are catching a bid. After months of tough trading, the market’s handing us the perfect opportunity to ring the cash register.

You can throw darts at stocks during a roaring bull market and you probably won’t lose money. But if you want to book repeatable short-term gains, you have to know what stocks to go after when the tide turns in your favor.

Every trader worth his salt knows what stocks to avoid when the market’s vulnerable. When the major averages were tanking last summer, it was the most speculative names that were hit the hardest. Unless you wanted to end up in the poor house, you were forced to cut these stocks loose while the market threw its temper tantrum.

How quickly things change…

Today, you’re going to learn about three ways to cash in on the market’s resurgent speculative plays. These trades are your best opportunity to book double-digit gains as the major averages power to new highs.

1. “Story stocks”

When it comes to the stock market, there’s never a shortage of compelling stories. We have the speculative biotechs with new and exciting drugs nearing potential approval. Then there are the innovative technology firms that are cranking out futuristic developments we couldn’t have dreamed of just a decade ago…

Investors toss these story stocks out the window during a bear market. These higher-risk investments take the most punishment as folks run for the exit. When the going gets tough, investors flee to safety by scooping up utility stocks and consumer staples plays.

Now it’s time for the speculative story stocks to shine once again. Just look at the biotech sector:

BiotechBreaksOut-DR

After a disastrous start to the year, biotechs are finally busting loose—and these story stocks aren’t even close to attacking their highs. If you’re searching for a trade with plenty of room to run, look no further…

2.  Recent IPOs

If you were tempted by a red-hot initial public offering last year as the market corrected, you probably got burned.

Most IPOs are just cash grabs for up-and-coming companies and underwriters—especially in trendy sectors and industries. And when the market starts to crack, investors tend to dump these speculative stocks first. They can fall fast— and hard.

Earlier this year, the number of IPOs coming on the market slowed to a trickle. With practically no new stocks to choose from, the few IPOs that are making it to the market are attracting  ton of attention.

Check out Twilio Inc. (NYSE:TWLO):

Twilio-DR

This software company debuted on the NYSE just days before the Brexit meltdown. In just a few short weeks, shares have jumped more that 170%.

3. Small stocks

We alerted you last week to the fact that small-caps are sneaking back to the front of the pack. The Russell 2000 small-cap index trounced the major averages in July, gaining nearly 6% compared to a gain of about 3.5% for the S&P 500.

The Russell 2000 still has to post nearly an 8% rally before it can top its June 2015 highs. In fact, the index just cleared its early December highs a couple of weeks ago. This move should help slingshot small-caps higher while the major averages start to blow off some steam.

The bull is back. Stick to our three surging plays and the gains will flow…

Sincerely,

Greg Guenthner
for The Daily Reckoning

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