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The best, most successful traders I know are always ready to turn "pain" into "gain."
Whether they're buying beaten-down quality stocks caught up in a sector-wide sell-off, or trading inverse exchange-traded funds, or trading puts - whatever the circumstances or strategy, they recognize profit opportunity when everyone else is losing their shirt.
The lost shirts are beginning to pile up on the Nasdaq. The tech-centric index actually took the worst of Wednesday's broader beat-down; it lost more than twice what the S&P 500 did on that day and did nine times worse than the Dow, which actually set intraday and closing records. Those two indexes were headed higher at lunchtime Thursday, but the Nasdaq is still off more than 3.5% for the month.
If that's not pain, I don't know what is. It's overwhelmingly hitting Big Tech right now.
On the other hand, the gain is going to go to investors who can spot value and the right levels to buy.
That's what's got me interested in Apple Inc. (NASDAQ: AAPL) right now...
Why Investors Are Worried and Why It Matters
It's the heat - investors are worried that the economy, which is now going strong and getting stronger, is starting to overheat. They're worried if it gets much hotter, the Fed will tighten up policy and start to turn off the flow of cheap money that's been such a huge factor in the bull run going back to March 23, 2020.
Officially, the inflation rate is running at 2.6% as of mid-April, which seems high compared to 2020's 1.4%. However, it isn't actually that far out of line with the 2.1% to 2.3% we saw during the pre-pandemic times we experienced between 2016 and 2019. I think it's overall pretty consistent with the economic growth we're experiencing right now.
Former Federal Reserve Chair and current Treasury Secretary Janet Yellen didn't exactly reassure the market when, at an unofficial meeting of U.S. CEOs, she said interest rates might have to come up to prevent prices from rising too fast. She later "clarified" her remarks and said they weren't predictions or recommendations... just remarks. Regional Fed Presidents in Boston, Chicago, and Cleveland have said, not in so many words, they'll want to see employment numbers improve before they'll consider tapping the brakes.
New Watch List on Sunday
Find out how to get Andrew Keene's weekly Watch List of stocks, plus all his trade recommendations.
New Watch List on Sunday
Find out how to get Andrew Keene's weekly Watch List of stocks, plus all his trade recommendations.
For what it's worth, Labor Department non-farm payroll numbers should be on the street later this morning. Most mainstream analysts are expecting bigger gains than April's 742,000, and that may very well shake Wall Street up all over again, especially if there are stronger job gains in sectors like leisure and hospitality; more jobs added there would seem to telegraph a stronger economy. If investors freak out again, that plays into our hand.
I'm not looking for actual inflation to throw a heavy damper on stocks - up to a certain point, it's healthy for the economy and healthy for the overall market. As I've said before, I think the millions of retail investors out there driving markets will aggressively sell if they're worried and aggressively buy if they're not. I think that fear of inflation is going to create short- and medium-term buying opportunities when we start to hear more and more about economic growth. We got a taste of that a few weeks ago, and it's really just the latest twist on the "bad news is good news/good news is bad news" story we've been watching play out since 2009 and 2010.
When investors worry, particularly when the market is at highs, and particularly in a seasonally weak time like May, they take profits on the kinds of growth stocks found all over the Nasdaq. Then they head into more defensive stocks - consumer staples, utilities, real estate, materials.
Big Tech stocks were up a little on Thursday at midday, but with a potentially big jobs report hanging over the market, I don't think the selling is over here.
Here Are the Apple Price Levels I Like
Companies like Amazon.com Inc. (NASDAQ: AMZN) and Alphabet Inc. (NASDAQ: GOOGL) had massive quarters, but these and a lot of other Big Tech tickers are still trading well below where they were when they reported those earnings. Besides, sub-1% gains in massive, typically market-moving stocks don't convince me that buyers are all in yet.
This is aggressive, I know, but I think Big Tech, particularly Apple Inc. (NASDAQ: AAPL), could wipe out five weeks' or more worth of gains before any kind of serious floor firms up and buyers start to pour back in. With that in mind, I've got a short-term target of $119 to $121 on AAPL shares, which would be below its 50- and 200-day moving averages. Like I said, it's "aggressive," but investors who hold their nerve until the dip really starts to hurt the stock are going to pull down much bigger profits in the long run - pain into gain.
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About the Author
Andrew Keene is a globally known trader and a renowned expert on all things options.