Best stocks to invest in
The New Year came in with a vengeance as investment banks and hedge funds decided they wanted out of the stock market in a big way. One big bank even yelled fire with “Sell Everything!” as they saw 2008 unfolding all over again due to the twin implosions of crude oil and junk bonds.
“Brace for another 20% free-fall from S&P 1900,” was the call. And they weren’t the first, nor will they be the last screaming “The bear market is coming!”
But are they right? Is this the end of the bull market and should you be selling everything and going to cash?
I say “NO WAY! It is NOT the end of the bull.” But even if I’m wrong, I can still come out way ahead of those who hide in cash. Let me share the 3 market puzzles you must solve right now and how you can use them to not only beat the volatility, but to profit from it.
1) The Fundamental Puzzle
Earnings are in a recession. That is a fact due to the Energy bear market. With earnings estimates for 2016 continuing to tumble to roughly $120 in EPS for the S&P 500, the index is still trading at nearly 16 times forward projections at 1900.
That’s expensive. And that’s why we are deep in what I call a “valuation re-set.” Stocks need to re-set when profit margins have peaked and estimates are coming down.
MORE . . .
Market Correction: Disaster or Opportunity?
There’s an all-out rush to get aboard Zacks’ brand-new approach to quick, substantial profits – especially after Friday’s violent downturn. We can’t let too many investors in so the deadline for access is Sunday, January 17.
Click below to see 3 overlooked Hidden Bull sectors that global markets expert Kevin Cook predicts will crush the volatile 2016 market. Discover how to trade stocks, ETFs, and options long or short to make the most of these and other profit opportunities no matter where the market heads.
See 3 Hidden Bulls Before Midnight Sunday >>
But the economy is not even flirting with recession. Job growth is solid, housing and consumer markets are bustling, and bank balance sheets are strong, even with a ding from the oil patch. These trends can carry the softer manufacturing sector through its rough patch.
And history says that no economic recession means no bear market. The muddle-through “plow horse” economy of 2% GDP growth will still produce sales and earnings growth in several sectors, especially with very low interest rates still in our future.
Could a collapse in stocks push the economy into a contraction as hiring and purchasing decisions get delayed? Sure, but my bet is that what we are witnessing is simply the first big “re-set” in a mature bull market as it washes out the excesses.
As the fear explodes and margin calls abound, what is evolving is a big over-shoot to the downside in price and pessimism. And it will become a terrific buying opportunity because then the bull market will make another big surge toward the highs. The next puzzle explains why.
2) The Behavioral Puzzle
What will drive the market higher again from what could become a 20% correction to S&P 1700? The same force that drove it to all-time highs in the last six years: institutional investors with trillions of dollars to deploy and only one place to look when the economy is growing and bargains abound.
That place is the US equity market, especially if it gets down to trading at only 14X forward earnings projections. Why won’t these big money managers stay in cash? Because that is tantamount to career suicide. Believe me, they will be climbing over the top of each other to buy good stocks long before the S&P prints a 1700 handle.
And many fund managers who were wisely selling at S&P 2050, or even 1950, have that cash burning a hole in their pockets right this very moment. They are not afraid of $20 crude oil, China’s stock meltdown and yuan devaluation, or the strong dollar.
They are “heads down, picking stocks” with deep research and an eye on the consumer and sales trends of the next 2-3 years that will make their companies and their investors wealthy. And their collective mandate to invest will overwhelm the bears this year.
3) The Technical Puzzle
As the fear and economic pessimism heat up, where will the S&P stop and reverse higher? My analysis and projections tell me to expect a bottom before 1750 on the index. The Energy bear is taking no prisoners, and many institutions are still in capital preservation mode.
What this fear will create, as it always does, is an over-shoot. Some technical analysts believe that this will finally bring about the long-awaited test of the bull market breakout near S&P 1600. As I noted in the first two puzzles, there is no sound economic or valuation argument for a 25% plunge and fund managers will be buying long before then.
But if this correction does become that dramatic, it will provide even more fantastic trading opportunities for agile investors who can use multiple vehicles – stocks, ETFs, options – to capture alpha. That kind of volatility is where big money is made in a mature bull market that is threatening to become a bear.
And if it does become a bear market – I assign about a 20% probability to that outcome right now – then agile investors will profit from playing not only the downside, but the huge bear market rallies that occur on the way down.
Bottom line: The old bull market is pausing and giving way to a much bigger trading range. My projected extreme high-low for the S&P this year is 1700 to 2300. What that spells is huge opportunity to capture big profitable swings in the expanding range.
And my job is to buy the extreme pessimism and sell the extreme optimism at dozens of points within that giant range. 2016 will indeed be a trader’s market!
How Can You Get Started?
Friday’s free-fall may soon lead to an exceptional buying opportunity. A good way to take advantage of it is through the brand-new portfolio service I’ll be directing, the Zacks Tactical Trader.
The key to this approach is flexibility. I’ll fire off every weapon in the Zacks arsenal to take advantage of market swings up and down. We’ll ride the bull if it continues, but if the bear emerges we can short stocks, buy put options, and buy inverse ETFs to profit from market declines as well.
Right now, I’ll be glad to share 3 little-noticed “Hidden Bulls” with you that have great potential to substantially outperform the overall market this year.
Also, you have the chance to move to the head of the line to see our first trades when I post them after the market opens Tuesday morning. But I must emphasize that we can’t allow too many investors to share these trades, so we are closing access to the service Sunday, January 17 at midnight.
Learn more about the new Tactical Trader now >>
Kevin, a Global Market Expert at Zacks, is well noted for predicting and tracking the movement of smart money and calling market swings with remarkable accuracy. He provides commentary and recommendations for the new Zacks Tactical Trader.
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