Is It a Good Time to Buy Stocks?

Uncertainty remains one of the biggest challenges in today's market. And that includes knowing when it's a good time to buy stocks. I'll show you why this isn't a "buy the dip" situation right now and when you can expect to see that change, including the stock I'd jump into when it happens.

It's unclear if U.S. President Donald Trump will invoke the powers of the Defense Production Act, which Democrats pushed for this week. In addition, it remains unclear if we will flatten the infection curve in time to prevent a larger outbreak. The nature of pandemics is hyperbolic, and cases continue to rise in New York and are expanding in other places across the country.

Prices on certain stocks like REITs, small banks, and a number of growth stocks are trading at levels suggesting that they are going out of business.

I will be very blunt about this situation - these price signals indicate the possibility of the worst-case scenario, perhaps a 10% chance of collapse and an ensuing depression. The race to cash over the last two weeks has been unprecedented, and forced selling remains alive and well at ETFs and a number of funds across the country.

With that in mind, investors can look at history and see the rebound poised for the future. If you aren't willing to invest for three years or longer, you simply shouldn't put money into the markets right now.

I am a firm believer in momentum investing - and part of that investment thesis is based on measuring buying pressure compared to selling pressure. Right now, the markets are completely negative in terms of momentum. There are more sellers than buyers; capital flows suggest that we will see a further decline in stocks.

Must See: These Are the 3 Stocks to Sell Right Away

The markets have shown a pattern of big one-day wins, followed by a sharp sell-off, in what appears to be shorts covering bets and speculators playing this pattern. The market has not had a two-day winning streak since market momentum largely turned in late February. This means that speculators can tap into inverse funds on up days at the end of trading sessions.

All that leads to a grim scenario where there simply isn't a lot of opportunity right now. So when does that change?

I'll show you. Here's when to start buying stocks again, including the one to start bidding on right now...

When to Buy Stocks During the Coronavirus Crisis

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I believe that government efforts will help stimulate the market, but I do remind people there are too many companies papering over negative cash flow with every dollar they can find. I largely recommend that you remain on the sideline for a little unless there is a very special situation.

We are hearing news that companies like General Motors Co. (NYSE: GM) and General Electric Co. (NYSE: GE) are prioritizing production to increase the output of respirators. We know that firms like Walmart Inc. (NYSE: WMT) will gain long-term market share, in addition to e-commerce stocks that will benefit from deliver-to-home efforts of massive mobilization. Finally, even companies like Uber Technologies Inc. (NYSE: UBER) and Domino's Pizza Inc. (NYSE: DPZ) are moving higher due to short-term speculation around home food delivery. The one challenge with this type of approach is based on the assumption that everything goes as planned. Gaining an increasing market share in a time of economic contraction doesn't mean that prices will trade higher as concerns about valuations in the broader market are on display.

In a panic, it is easy to reach for lifeboats on the speculation that a stock will benefit from the shift. That said, I argue that it is important to wait for positive indicators to return to the market. In a prolonged battle of uncertainty, it's not always best to be the first person over the wall. You want to wait to see some confirmation of a trend before investing for the longer term.

But if you are of the mindset that we will recover quickly in the next 18 months - particularly with a wave of new money coming from the government - you will need to take a steady approach and think about companies that will continue to grow over the next five to 10 years.

One of the top stocks we love for long-term investors - Alibaba Group Holding Ltd. (NYSE: BABA) - has pulled back from 52-week highs and appears to show a bearish pattern in the near term. However, looking a year out, as China's economy recovers from the coronavirus and it looks to stabilize itself as a leading supply chain company, Alibaba is a stock to consider for the years ahead.

If you're thinking of buying stocks like BABA today, use a leg-in strategy that allows you to enter in at current price, a 15% decline, and another 30% decline. In addition, you might consider selling put options to lock in an entry point and collect a premium in the process.

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About the Author

Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.

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