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Every year, May tends to bring a higher level of uncertainty into the markets. Partly because the old adage, "Sell in May and go away" has people thinking they should sell, even when they're leaving money on the table.
They'll either avoid buying stocks entirely or will dump what they have to keep their profits, minimize risk, and avoid any losses – especially this year, as we slowly make our way out of a more than yearlong worldwide pandemic.
This is why most investors have one burning question on their minds right now: How long will the market remain in this state of uncertainty? (And, of course, part two of that question: What do I do to make money now?)
Let's break this down. As of now, the market's uncertainty is hinged on two factors: seasonality, and what I've been referring to as a "buyers' strike."
I'm going to show you how to profitably navigate both of these today. With the steps I show you, you can bypass all the uncertainty and easily find those profitable opportunities that are out there. You just have to know where to look for them.
Let's get started…
Here's What's Causing This Market Stalemate
May selling came from the idea that summer trading is lighter during vacation months, so there isn't as much buying and, in turn, not as much money to be made as there was in the winter and spring, so everyone should bail.
While the saying does not necessarily apply to the markets each year (and we know there's always money to be made), it has certainly influenced the market in 2021.
So far this year, the S&P 500 is following seasonality trends to a "T." After getting off to a rough start in January, the market rallied in February, March, and April, which is what we normally see. In mid-April, things started to change.
As earnings season provided some truly impressive results, investors decided it was time to start taking some profits off the table.
At the same time – and this is important – we saw buyers disappear as the FOMO, or "fear of missing out," was replaced quickly by the "fear of buying overvalued stocks at all-time highs."
In turn, this situation triggered the buyers' strike that has kept markets in a stalemate. A buyers' strike is essentially a group of buyers who stop buying a stock in an effort to reduce the price.
So, what now?
Looking back at the seasonality trends, we should expect the seasonal weakness to continue into June. Over the last 20 years, the S&P 500 has only closed the month of June with profits 58% of the time, making it the second-worst month of the year to be a bull.
Looking forward to July, investors and traders return to the market as earnings season begins to get rolling again. This is when I expect the uncertainty to give way to a more consistent trend as volume returns and volatility declines.
But we do not have to wait until then to make money. Remember what I said about the buyers' strike? Well, some buyers have actually been active in a few sectors that are providing ample opportunities for investors and traders.
Follow the Volume to Profits
First, the retail sector. Retail stocks are fighting their way out of the hole that the pandemic created more than a year ago. We're in the middle of the retail earnings season right now, and things have been great.
Volume among the retail sector is trading about 32% higher than it was two months ago as the real traders have found this to be a target-rich environment. My Night Trader system has been uncovering opportunities in names like American Eagle Outfitters Inc. (NYSE: AEO), Abercrombie & Fitch Co. (NYSE: ANF), Dicks Sporting Goods Inc. (NYSE: DKS), and Sally Beauty Holdings Inc. (NYSE: SBH). And there are many more to come.
Another sector that's seen an increase in volume is the financial sector.
Higher interest rates, economic growth, and an increase in banking activity have rallied the banking stocks into a leadership role in the market.
Last week, the Financial Select Sector SPDR Fund (NYSEArca: XLF) ETF (exchange-traded fund) accounted for more than 35% of the volume of major sector ETFs as volume was on the rise on this sector. No buyers' strike here.
Finally, the Energy Select Sector SPDR Fund (NYSEArca: XLE) is showing the same signs of active buying and selling. Oil prices continue to move higher, adding to the fundamental story for these companies.
One More Opportunity…
In addition to the two sectors I just told you about, there is another area in the market that's rampant with the kind of opportunities a lot of investors are missing. You see, there are around 72 million new players in the market since 2020 with pretty much no regard for risk – at all. These folks have been seen to throw up to $11 million around a second. That's around $970 billion a day.
My colleague and Profit Strategies Podcast co-host, Tom Gentile, watched this "Millennial Mania" unfold, same as we all did, but he had a hunch, an interesting idea to back-test the big volatility "surges" these new investors and traders can create. Know what he found?
Opportunity. Big-time profit potential. I'm talking an average return of 35% in just eight days, but some of the biggest wins include 1,000% in three days, 2,500% in 16 days, and even 3,800% in six days.
The dumb money is clearly out there running wild – you've got to check out Tom's research on how regular investors, with the right stakes and strategy, could see big profit potential because of it.
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 Straight-Up Profits. He also contributes to Money Morning as the Quant Analysis Specialist.