I have a list. It's a list of commandments - trading commandments. I won't make or recommend for my readers a single move if it runs counter to what's on my list.
The commandments have helped me make a ton of money in my time as a trader. They've helped give my Night Trader readers the chance to close out a "perfect" October with total gains of 797% - and they've helped you make 155% from my Fast Profits trading recommendation last month.
And now this one commandment in particular is about to deliver a rich payday all over again...
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Commandment: Speculation - Not Fundamentals - Drives Stocks Higher
When investors and traders are willing to put money in riskier assets, the market rises. You may know this as the "risk-on trade," and it's pretty simple. We've seen it all year.
Back in the spring, when stocks were soaring, the small-cap-centric Russell 2000 was leading the way, outpacing its big-cap brethren.
That was then. This is now.
That outperformance is missing and presumed dead since the index set a 52-week high of 1,742 on Aug. 31. The drop has been precipitous since then, to say the least. To say more, the Russell 2000 is down nearly 12.5% since that high. And at its worst, barely two weeks ago, it was down more than 16%.
In short, there's no speculation in this market right now, and it's leading to a technical pattern that sounds as though it should only come out during Halloween.
Instead, it's now rearing its ugly head in November - for the first time ever...
Both the Russell 2000 and its ETF, the iShares Russell 2000 ETF (NYSEArca: IWM), are about to experience death crosses. This will be the IWM's 14th death cross since the ETF started trading in May of 2000.
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But none of those 13 previous death crosses have ever happened in November.
Currently, the IWM's 50-day moving average resides at 161.09 and its 200-day at 160.66. The difference is less than a point. Once the 50-day MA crosses below the longer-term technical, the death cross is in full swing.
You know me, folks. That's the kind of data I live for. When I find something no one else has discovered, I grab hold of it and don't let go until I have turned the data into actionable information.
So, I dug deeper to see what kind of performance historically follows this IWM death cross.
From this data, three noteworthy points stand out:
- Seasonality: August and September account for seven of the 13 death crosses. Throw in July, and that's 10/13. We can attribute this to the seasonally weak summer months leading to negative trends.
- Volatility: Average performance shows that most of these death crosses result in a market that sells off with volatility over the first few weeks followed by the markets making a move higher in the months following - very good to know.
- Opportunity: Although these sell-offs aren't long-term indicators of market weakness, they provide us with the opportunity to take serious bearish profits in the short- and intermediate- term. That means it's time for us to get back to work with short-term put options while feeling out long-term bullish plays.
And with the CBOE Volatility Index - the VIX - flirting with closing above 20 again, we have some confirmation from the market that traders aren't as confident as Wall Street seems to think.
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What's more, the S&P 500 has broken back below its 200-day moving average, a decidedly bearish move for the broader market.
So, it's not just small caps and tech stocks struggling right now. It's everything.
Speculation is gone - for now. It always comes back, but until it does, we'll have to grab profits on bearish moves, just like we did with my Fast Profits recommendation to buy puts on Tesla Inc. (NASDAQ: TSLA) when stocks were tanking left and right in February. We made more than 51% on that move in just two days.
And small-cap stocks certainly weren't setting the market on fire when my Night Trader readers got the chance to close a "perfect October." I just sent them instructions for how to cash in on this week's action.
My team and I are putting the finishing touches on a special Fast Profits "video trade" for this week. I'll be making a very specific recommendation for pulling in at least a 100% gain on some major-league bearish action in one of the market's favorite stocks. That should hit Fast Profits subscribers' inboxes a little later today.
Chris Johnson's New Trading System Unveiled
The stock market recently experienced its worst October since 2008.
But since late September, Chris Johnson has delivered a perfect 20-0 record in closed trades with the help of his brand-new Infrared Index.
And it's expected to continue to produce massive profit opportunities, like 157% in total returns in just 24 hours.
In fact, Chris has a new trade opportunity coming out tonight.
Click here to learn how you can take part...
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About the Author
Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.