fbq('track', 'Subscribe', {value: '0.00', currency: 'USD', predicted_ltv: '0.00'});
top of page

Stock Trading - What Stocks to Trade: Maximizing Returns by Timing Cyclical Lows


Market Commentary/Forecast - May 21st, 2024

Buying great-performing ETFs or stocks at cyclical lows is the first key to earning big returns. But even more important is what comes next: waiting, waiting, and more waiting until each of our 2 to 3-layered stops gets triggered and finally closes out those positions. Those two steps are how we end up with the biggest and steadiest profits to grow retirement and generational wealth.

The Importance of Timing in Stock Trading

Timing is everything in stock trading. By identifying and purchasing at cyclical lows, traders can capitalize on price rebounds and maximize their returns. This strategy is not just about buying low and selling high; it involves patience and a systematic approach to ensure that gains are protected and losses are minimized.

Using ETFs for Simplified Trading

Regarding buying, I have always found it easiest to use ETFs (especially leveraged ETFs), which already trade the whole index of stocks, instead of trying to cherry-pick the best possible stock(s) from within an index. Leveraged ETFs, such as the TQQQ (Nasdaq) or the SPXL (SPX), can amplify gains by trading an entire index with added leverage.

Comparison of TQQQ Performance

For example, here is a comparison of how the TQQQ has performed against the Nasdaq's top 5 stocks since a long-term cycle low was reached last October. NVDA has been the only stock of the group to outperform the TQQQ so far this year. And no, we never want to hold triple-beta ETFs during a cyclical decline (we were stopped out after being alerted to the April decline when cycles topped out on 3/28). Even so, the TQQQ, including that decline, is up 78.52% this year and second only to NVDA's 118.94% gains.


timing cyclical lows

Identifying Cyclical Lows

Notice how nearly all stocks bottomed and turned up last October and again in April. Both declines became deep intermediate lows, confirmed by our forecast charts, Visualizer projections, and crossover averages. These deep buying opportunities happen about four times every year.

What to Do if You Miss a Cyclical Low

If you miss one of these deep buying opportunities, it's not hard to catch up. Simply wait for a short-term cycle low within the longer uptrend and buy there. Those minor lows will appear as momentum cycle pullbacks on our Forecast charts, at price dips to the midline of a 10-20 day price channel, rebound moves back above the 2/3 crossover average, and also as a spike on a volatility instrument, such as the VIX.


volatility spikes at cyclical lows

Recent Momentum Cycle Dip

The last momentum cycle dip occurred on 5/13 (Dow Forecast chart) and as a VIX spike on 5/14. I didn't personally buy there as I am already well positioned after the intermediate low on April 19th. For those still holding active long positions and waiting for deep stops to be triggered, keep raising those stops under the 2/3, 3/5, and 4/7 crossover averages (as discussed in yesterday's webinar) for protection.

Strategies for Trading Cyclical Lows

  1. Identify Key Cyclical Lows: Use tools like the Detrended Price Oscillator (DPO) and other technical indicators to spot potential cyclical lows. These are often marked by significant drops followed by stabilization and recovery.

  2. Use ETFs for Broader Exposure: Leveraged ETFs such as TQQQ and SPXL provide exposure to entire indices, reducing the need to pick individual stocks and increasing potential returns during market upswings.

  3. Set Layered Stop-Loss Orders: Protect your investments by setting multiple stop-loss orders at different levels. This strategy helps secure partial profits while allowing for potential gains if the market continues to rise.

  4. Monitor Market Indicators: Pay attention to market indicators such as the VIX, which can signal increased volatility and potential buying opportunities during dips.

The Power of Patience in Trading

Patience is a virtue, especially in trading. After buying at cyclical lows, the waiting game begins. This involves holding onto positions through market fluctuations until your stop-loss orders are triggered. This disciplined approach helps maximize profits and minimize losses over the long term.

Case Study: Leveraged ETFs vs. Individual Stocks

Let's delve deeper into the comparison between leveraged ETFs and individual stocks. Leveraged ETFs, like TQQQ, provide amplified exposure to market movements. This year, TQQQ has outperformed most individual stocks in the Nasdaq, with a 78.52% gain, second only to NVDA's 118.94%.

Advantages of Leveraged ETFs

  • Diversification: Leveraged ETFs offer diversification across an entire index, reducing the risk associated with individual stock performance.

  • Leverage: These ETFs amplify market movements, providing higher returns during bullish trends.

  • Simplicity: Trading leveraged ETFs is simpler than managing a portfolio of individual stocks.

Drawbacks of Leveraged ETFs

  • Increased Risk: The same leverage that amplifies gains also amplifies losses during market downturns.

  • Short-Term Focus: Leveraged ETFs are designed for short-term trading and may not be suitable for long-term holds.

Practical Tips for Trading Success

  1. Stay Informed: Keep up with market news and forecasts to make informed trading decisions.

  2. Use Technical Analysis: Employ tools like the DPO and crossover averages to identify trends and potential entry/exit points.

  3. Maintain Discipline: Stick to your trading plan and avoid emotional decisions, especially during volatile periods.

  4. Review and Adjust: Regularly review your portfolio and adjust stop-loss orders based on market conditions.

Conclusion

Successfully navigating the stock market requires a blend of timing, strategy, and patience. By buying at cyclical lows and employing layered stop-loss orders, traders can maximize returns and protect their investments during volatile periods. Leveraged ETFs like TQQQ and SPXL offer a simplified way to gain exposure to entire indices, making them a valuable tool in any trader's arsenal.

Stay updated with Market Turning Points for daily market commentary and forecasts to stay ahead of market trends. Visit Market Turning Points to learn more and refine your trading strategy.


46 views0 comments

Comments


bottom of page