Markets stall before they fall. Planning is the key. Here’s how to play the likely stock market dump before the pump, states Lucas Downey of Mapsignals.com.
Consider this: The Red Car Theory, believed to have originated with Charles Cooley, suggests that opportunities are around us but only once we have a conscious awareness. A common example is noticing red cars. How many red cars did you spot the last time you went to the grocery store? Maybe one or two? Chances are there were more. How about the next time you go shopping, for each red car you notice, you’ll receive $250. Where there’s opportunity involved, you’re likely to recognize many more red cars at the store.
This is because when you are incentivized to spot red cars, suddenly they appear all over the place…Opportunity is everywhere when you’re focused. The stock market offers these easily missed red car moments too… where a healthy pullback is likely ahead. Most won’t notice it because the market appears to keep chugging higher week after week.
However, once you analyze the data, and focus on historical evidence, suddenly this assumed market challenge transforms into a buying opportunity yearend.
Stock Market Dump Before the Pump
You need to have a well-rounded approach to investing. That means, understanding macro drivers and market mechanics. Just two short weeks ago, Alec Young, laid out the fundamental case for stock market choppiness before a pop. It’s a great macro playbook on why you’ll want to buy the dip. Today we’re going to echo that message with our proprietary Big Money data. Last week, we noted how stocks sputter once the Big Money Index (BMI) falls out of overbought and sinks below 75%.
Here’s a recap of that revealing study. Since 2014, both small and large caps have offered lackluster returns in the two-months following a break below 75%:
At first glance, this could make the hairs on your neck stand up. Seeing potential market declines ahead isn’t usually a welcoming feeling. That is until you shift your focus. You see, there’s a red car driving by… you just need to be aware of it. There’s evidence that you’ll want to buy the stock market dump before the pump.
Let me show you what I mean. 2024 is off to a sizzling start for equities. The S&P 500 is about to end the month of February with a year-to-date gain of 6.29%. I went back in history and singled out all instances from 1979 where the S&P 500 gained 5%+ or more through the first two months of the year. There were 15 prior instances.
Here’s the red car situation. Whenever stocks are up 5% or more in January – February, the remainder of the year sports market-beating returns. Below is the average forward performance of the S&P 500 in March – December vs. years when the first two months are up 5%+. In average years, the remaining ten months show an average lift of 8.82%. But when the year starts with a bang, those average returns pump to 11.3%.
Our very own Maria Maple is laser-focused on the market red car zooming by:
Our bullish stance back in mid-October, when we yelled that a massive rally was coming soon, was grounded in this same data-driven approach. Back then we highlighted 10 single stocks for subscribers to own including NVIDIA Corp. (NVDA) and Super Micro Computer (SMCI).
Here’s how the latter performed afterward. The white line signifies when we outlined SMCI as an oversold stock to own in October:
If your portfolio is idling by, jumpstart it today. There are opportunities when you tune out the noise…big opportunities. Let’s wrap up.
Here’s the Bottom Line: A falling BMI spells near-term pain. A juicy start to the year spells longer-term gain. The S&P 500 should be up 5% or more through February. Based on history, that indicates a market-beating gain for the remainder of the year. Don’t miss the stock market dump before the pump.
There’s a red car zooming by…
To learn more about Lucas Downey, visit Mapsignals.com.
