Can’t Miss: The Market Gives Investors a "Do-Over"
Ever wish you got a “do-over” when it comes to your investment decisions?
I know a lot of people who remember the financial crisis and wish to god they could go back in time. Because if you invested in the market at the end of the 2008 crisis — and held through the 10-year bull market that followed — your returns would be tremendous!
Unfortunately, you can’t go back in time and invest at 2008 prices.
But on a shorter-term basis, investors often get a second chance at bargain prices.
This week, we’re getting one of those do-over opportunities and I want to make sure you don’t miss out!
The Market is Testing a Key Support Area
October has been a volatile month for stocks!
After selling stocks and sending the market sharply lower earlier this month, traders gathered their wits and put in some buy orders. It certainly helped that companies began to report strong third quarter earnings.
But this week, we ran into more turbulence thanks to renewed geopolitical fears and a few disappointing earnings announcements. (The strong U.S. dollar challenged overseas sales for some blue-chip international companies.)
Stocks pulled back to test the lows set on October 11th. And that’s just fine with me!
You see, this type of test is common when investors are digesting new information. And a key low that is tested a week or two later can lead to a very strong rebound, and hefty profits for savvy investors.
Here’s how it typically works…
When stocks trade lower for a second time, this causes investors with weaker stomachs to sell the last of their shares. It’s human nature to think, “Here we go again,” when the market trades lower like it did yesterday morning.
As these fearful investors sell, share prices temporarily fall. But think about who is left holding the remaining shares of stock.
In most cases, a test like this clears out the “weak holders” who have less conviction in their investments. The remaining shareholders are not only confident enough to hold on to their investments, but also likely to take advantage of the lower prices.
That’s a recipe for strength as the most determined investors are now the ones holding and buying shares of the best stocks. With the weak holders now gone, there’s no one left to sell shares which naturally leads to a market rally.
If Earnings are Still Strong, This is a Time to Buy
While I can’t tell you exactly where the market is heading from here, I can tell you that there’s a good chance this test will be successful.
The underlying themes in this market — strong corporate earnings, a healthy job market and robust consumer confidence — are all still intact. And ultimately these are the forces that will continue to drive this bull market higher.
On a short-term basis, brief selloffs may feel dangerous at the time, but they actually represent opportunities to pick up the best stocks at bargain prices.
The key here is to make sure that the companies you’re investing in are still very strong.
If sales are still coming in and earnings are still growing, a pullback in price simply lets you buy shares of a great stock at a cheaper price. On the other hand, if earnings are likely to fall then there’s a very good reason for lower stock prices.
For now, the stocks we’ve talked about here at The Daily Edge continue to look very strong. Which is why I would use this week’s test as an opportunity to buy, rather than a time to panic.
Make sure you’re approaching this market with the stone cold perspective of a professional rather than making the emotional missteps that most individual investors take.
Buying this week’s retest is a high-probability chance to boost your returns this year.
Here’s to growing and protecting your wealth!