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My glasses almost fell off my face Monday night when I read this headline from Bloomberg...
"ETF Investors Are All-In on Stimulus with $17 Billion Stock Bet"...
That's right. Investors have pumped more than $16.5 billion into stock exchange-traded funds in just seven trading days in April.
The article stated that the "torrid" pace put inflows on track to exceed December's monthly inflow total of $42.5 billion.
Talk about a crowded trade...
What's happening right now is a toxic combination of analysts saying, "The bottom's been put in!" and also, "Buy the dips!"
Yes, you can start to buy in. Slowly. Use dollar-cost averaging and buy in increments.
But going all in... well, there's a reason the great Wayne Gretzky said to skate to where the puck is going, not where it has been...
That's exactly why the last time I saw this happening, in December, I bought puts. And they paid off heavily in January and February, such as my 47.87% January gain on FedEx Corp. (NYSE: FDX) and my 108.57% February gain on Tilray Inc. (NASDAQ: TLRY).
The truth of this market is that there's still too much uncertainty, fundamentals are questionable, and technicals are pointing to the downside.
This type of long bet - with people throwing money into the market with coal shovels because it's been climbing for a few weeks- tells me one thing: We're still in the first stage of the market pullback.
So instead of going all in, you trade. Just like I did before. And when you follow these trading rules, you can profit...
About the Author
Chris Johnson is a highly regarded equity and options analyst who has spent much of his nearly 30-year market career designing and interpreting complex models to help investment firms transform millions of data points into impressive gains for clients.
At heart Chris is a quant - like the "rocket scientists" of investing - with a specialty in applying advanced mathematics like stochastic calculus, linear algebra, differential equations, and statistics to Wall Street's data-rich environment.
He began building his proprietary models in 1998, analyzing about 2,000 records per day. Today, that database, which Chris designed and coded from scratch, analyzes a staggering 700,000 records per day. It's the secret behind his track record.
Chris holds degrees in finance, statistics, and accounting. He worked as a licensed broker for 11 years before taking on the role of Director of Quantitative Analysis at a big-name equity and options research firm for eight years. He recently served as Director of Research of a Cleveland-based investment firm responsible for hundreds of millions in AUM. He is also the Founder/CIO of ETF Advisory Research Partners since 2007, noted for its groundbreaking work in Behavioral Valuation systems. Their research is widely read by leaders in the RIA business.
Chris is ranked in the top 99.3% of financial bloggers and top 98.6% of overall experts by TipRanks, the track record registry of financial analysts dating back to January 2009.
He is a frequent commentator on financial markets for CNBC, Fox, Bloomberg TV, and CBS Radio and has been featured in Barron's, USA Today, Newsweek, and The Wall Street Journal, and numerous books.
Today, Chris is the editor of Night Trader and Penny Hawk. He also contributes to Money Morning as the Quant Analysis Specialist.