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The Chicago Board Options Exchange Volatility Index, - that's the VIX to you and me - has been "elevated" lately, to put it mildly, since hitting a monthly high of 24.59 in early August. It opened yesterday morning at 20.18 and spent most of the trading day above 19. To put that in perspective, the VIX average close was 16.64 for all of 2018 and a placid 11.09 for all of 2017.
We're seeing big, powerful intraday swings in volatility, which tells you that the market's all-important "narrative" is in flux. It means we're in an extremely headline-driven time right now, where the tension and interplay between the Federal Reserve narrative and the Trump tariff tweets narrative has stocks gyrating wildly - as we saw so vividly illustrated on Friday.
So it's perfectly understandable if you just wanted to shut your eyes till it's all over. But if you do that, you run the real risk of missing out. Because these big, scary swings we're seeing lately - 300, 500, 600 points or more - are really powerful moneymaking opportunities.
In other words: If there's no volatility, there can be no profits. Volatility means swings up, too. Nimble, situationally aware traders and even long-term buy-and-hold investors can absolutely clean up at times like these.
I'll show you how...
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Volatility Could Stick Around for the Near Term
On this past Friday, we saw just how "headline-driven" markets can be. Two hours before the opening bell, China announced retaliatory tariffs on $75 billion worth of American exports; the Dow dropped 300 points.
Then calming news out of the Fed meeting at Jackson Hole, Wyo., where copies of Chair Jerome Powell's speech leaked in advance showed the Fed was willing to take a more accommodative stance.
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Markets rallied for the first hour of trading on this news... until an 11 a.m. presidential "tweetstorm" (ordering, among other things, U.S. companies to leave China) erased any and all Fed-driven optimism. We saw a 700-point peak-to-trough drop before stocks rallied a bit to close 600 points down.
And on Monday, of course, the president tweeted from the G-7 summit in Biarritz, France, that trade talks with China would resume shortly. So naturally, stocks rose to reclaim about a third of Friday's losses.
So, like earnings or interest rates, @realDonaldTrump has become a market force to be reckoned with, even if you can't exactly predict for it.
I mention all this not to take you for a stroll down memory lane, but to illustrate how volatile and reactive markets like these are, and to show you that some whipsaw headline movement is likely to recur for the foreseeable future.
At times like this, it's helpful to keep perspective centered on the "box." Even with the big, wild swings like we've been seeing, there still exists a range, or box, stocks are moving in at the moment, at least until they can break major support and resistance levels.
A winning tactic at a volatile, "neck-snapping" time like this is to buy quality stocks at or near the bottom of the three-week "box" we're in. And of course, you sell when nearing the top of the box. My paid subscribers just got the chance to close out a 100% profit on one of our model portfolio's oldest holdings last week.
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Let's look at some of the stocks and sectors I think are worth owning in a market like this. These are all particularly susceptible to news one way or another; many of them are set to report earnings this week and are therefore likely to experience extreme (read: profitable) price action.
Here's Where to Find the Profits
Workday Inc. (NASDAQ: WDAY) reports on Thursday after the close. Software as a Service (SaaS) stocks have done well this year. In an article almost a month ago, Barron's asked if cloud-based companies like Workday and Salesforce.com Inc. (NYSE: CRM) can keep up their blistering pace. The sector took a hit after that article, but the stocks still remain within spitting distance of all-time highs. Workday's numbers and its outlook will certainly move the stock and the whole SaaS sector.
After Home Depot Inc. (NYSE: HD), Lowe's Cos. Inc. (NYSE: LOW), and many other retailers have brought in much better than expected numbers, expectations for Dollar General Corp. (NYSE: DG) will no doubt be running high. Dollar General has benefited this year from investors' defensive sentiment of investors. Consumer spending has continued to be a bright spot - Dollar General could "kick that up a notch"... or throw cold water on the fire. A good outlook from the discounter could even lift the whole Consumer Staples sector.
And I like Johnson & Johnson (NYSE: JNJ) as a buy right now, despite this week's landmark judgement against them in the Oklahoma opioid case. The stock took off like a shot after the judge announced his finding and is still up today. That's a sign that Johnson & Johnson can weather the storm and absorb the $572 million judgement against it. The company will certainly appeal and maybe get the verdict overturned. I like buying JNJ shares even on the way up.
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About the Author
D.R. Barton, Jr., Technical Trading Specialist for Money Map Press, is a world-renowned authority on technical trading with 25 years of experience. He spent the first part of his career as a chemical engineer with DuPont. During this time, he researched and developed the trading secrets that led to his first successful research service. Thanks to the wealth he was able to create for himself and his followers, D.R. retired early to pursue his passion for investing and showing fellow investors how to build toward financial freedom.