Stocks have been in a trading range for the better part of the last two years. Yes, there have been violent moves down to 1810 and equally impressive rallies up to 2135, but overall, the bull market is stagnant. Investors should be concerned that the easy times are over and the current trading range could last for a couple more years.
The purpose of my article is to point out why a continuation of the trading range is the most likely scenario. Better yet, I will share with you the best strategies to profit in this environment.
Why Won't the Market Move?
Over the last twelve months the stock market has had plenty of violent moves, but when you look at the big picture, the market really hasn't gone anywhere. In fact, if you look where the S&P 500 was at this point last year, it was at the exact same spot as it is now…around 2110.
It is very likely that if stocks don't break out soon, we will continue in this multiple year trading range between 1800 and 2150. Slow global growth and an itchy Fed looking to raise rates at the first sign of economic improvement, will potentially hold stocks down for years. At the same time, global central bank support will push the markets up whenever the S&P heads back to 1800, or when investors start to panic.
Goldman Sachs has called this phenomenon "The Yellen Call" saying that risk rallies are self limiting, because they enable more aggressive rate hikes by the Fed.
If stocks are range bound, only an active portfolio can take advantage of moves when they come. Many strategies exist, but there are three important core strategies that investors should use, including:
• Buying high quality stocks at the bottom of the range.
• Shorting low quality stocks at the top of the range.
• Playing moments of volatility when in the middle.
Read on for more…
Ever owned a stock that gets pummeled for no good reason??? This could be the work of computer-based High Frequency Traders who scare investors into selling good stocks, then swoop in and buy before the prices bounce back.
Zacks has launched a "Counterstrike" approach, targeting only the best of these unfairly pushed-down tickers as they rebound for tremendous gain. Access to these recommendations must be limited. The doors close at midnight Sunday, June 12.
How to Trade the Range and How to Profit
It's not difficult to spot a trading range after the fact; everyone can see it on the chart. However, it is difficult to trade the range, because the right move to make might seem very wrong at that moment. Below are three important ways to approach trading choppy markets in the coming years.
1) Bottom of the range (1800-1850) – Many people thought the market was breaking down in early February and were shorting stocks, when they should have been buying. There was tons of opportunity when the S&P was under 1850 and if investors stuck with Zacks Ranked #1(Strong Buy) and #2(Buy) stocks, they would be showing huge profits for 2016. In times of panic, high frequency traders (HFT) can create irrational moves that can be taken advantage of by both short and long-term investors. When stocks are at the bottom of their range, these panicky moves lower should be bought.
2) Top of the range (2100-2150) – As clear as the panic was just a couple months ago, the exuberance is taking some stocks higher than they should rationally be going. If Zacks Rank #4(Sell) or #5(Strong Sell) stocks are shorted, investors can profit on a pullback from the top of the range.
At present we are currently testing the top of the range. If the S&P 500 pulls back from all-time highs, weaker stocks should be shorted in anticipation of a much larger pullback. If we fail to break out soon, right now is the time to short!
3) Moments of volatility – Stocks won't march higher forever and when a sell off happens you must be ready. Whether it's the Fed raising rates, a macro event like the Brexit, or earnings season; there will be plenty of opportunity to play the moves.
High Frequency traders love to take advantage of volatility and manipulate good stocks lower. When this happens normal investors panic and sell their stocks, creating a chance for others to buy at a cheap discount.
Don’t panic and be on the wrong side of the trade, profit from it instead!
How to Capitalize
You may not know how to trade ranges or spot high frequency trading manipulation…but I do. It comes from spending 12 years as a professional trader and watching how markets move and react to news. We might spend another couple years in this trading range; why not learn how to profit, while other portfolios are busy chopping around?
Zacks Counterstrike is designed to sniff out when the computers have made a short term mistake. We will target substantial profit opportunities at all points of the trading range, buying beaten-down quality stocks and shorting stocks that are not fundamentally sound. When these stocks have moved our way, we will lock in gains and look for the next opportunity.
At the moment, we’re holding 4 stocks that seem ready for breakout at any moment, and I plan to add 2 more high-potential tickers on Monday. Double-digit gains could be seen in 1-4 weeks.
Be sure to look into Counterstrike today. But don't delay. To maximize the profitability of our recommendations, we have to restrict the number of investors we share them with. Access will be closed to new investors at midnight Sunday, June 12.
Wishing you great financial success,
Jeremy Mullin has been a professional trader for the past 12 years with specific experience profiting from patterns set by High-Frequency Traders. He is the editor of the Counterstrike portfolio recommendation service.