Why momentum trumps fear … bullishness in biotech and crypto … a backdoor play on AI … Louis Navellier’s new presentation about where he’s finding winners
One week ago, MarketWatch ran an article with the following headline:
The bear market is coming – and it’s going to pay painful.
I agree…but don’t sell your stocks.
To begin unpacking this, let’s rewind.
As 2022 turned into 2023, it was difficult to find an economist who wasn’t predicting a recession
At that time, most of Wall Street was still in risk-off mode in the wake of 2022’s bear market. And the financial media was filled with bearish headlines, similar to the one we just read from MarketWatch.
Here are three to jog your memory:
- “Morgan Stanley’s Mike Wilson warns U.S. stocks could slump another 22% if recession arrives in 2023” – MarketWatch, January 2023
- “Tech Stocks and Layoffs Signal Trouble Ahead in 2023″ – Fortune, January 2023
- “Investors Brace for Stock Market Turmoil as Earnings Season Kicks Off” – Reuters, January 2023
Despite these gloomy sentiments, stocks erupted and haven’t looked back.
Now, a cautious investor might respond…
“But Jeff, that doesn’t mean those market gains were warranted – the market can be irrational. And it also doesn’t mean that we’ll sidestep that 22% crash that Morgan Stanley warned about above.”
True on both accounts.
But here’s some perspective…
If the market collapsed 22% tomorrow, how much would you still be up had you bought the S&P on January 2, 2023?
22%.
That’s not a typo.
As you can see below, on January 2, 2023, the S&P traded at roughly 3,824. A 22% gain from there took the S&P to 4,665…which is where the S&P would find itself if it cratered 22% tomorrow.
This brings to mind the wise words of legendary investor Peter Lynch:
Far more money has been lost by investors in preparing for corrections, or anticipating corrections, than has been lost in the corrections themselves.
This does not mean that bearishness in January of 2023 – or today – is misplaced
Bearish analysis can be 100% logical and justified by the data, but bullish investor sentiment can still push the market higher.
This is why we don’t fight bullish market momentum. We allow bearish analysis to influence our position sizes, stop-losses, and return expectations, but we don’t say “no, thanks” when the market wants to charge higher.
This is where we find ourselves today.
So, with this in mind, let’s do a quick tour through some of the plays our experts are capitalizing on today as they capture surging momentum.
Let’s begin with Luke Lango.
In his trading service Breakout Trader, Luke uses a market approach called “stage analysis.” The idea is that “price is truth,” meaning that Luke doesn’t care why a stock is surging; all that matters is that the stock is charging higher in what’s called a “Stage-2 breakout.”
When various indicators line up, Luke hops aboard bullish momentum for however long it lasts, exiting when a stock transitions into Stage 3 or 4 (“sideways” or “down” price action).
So, where is the bullish momentum today?
Luke is seeing tremendous strength in select biotechs and crypto-related trades.
In Tuesday’s issue, he highlighted five different trades that had jumped more than 20% over the prior week.
Out of respect for Breakout Trader subscribers, I won’t share them all. But here’s one of the biotechs and cryptos from the issue (These are not official recommendations. Please do not place any of these trades in your own account):
- Design Therapeutics: +24%
- VanEck Vectors Digital Transformation ETF: +49%
First, a big congratulations to Breakout Trader subscribers. This is impressive, even in a bull market. However, despite these gains, the real fireworks may remain in front of us. With Trump headed back to the White House, the crypto sector is on fire, and the greatest FOMO hasn’t even kicked in yet.
As to biotechs, falling interest rates will be a huge tailwind for the sector over the coming months. Top-tier small-cap biotechs have the potential to soar triple digits, possibly higher.
That said, if you’re in pharmaceuticals, be careful. Here’s our macro expert Eric Fry to explain:
In the upcoming Trump administration, RFK, Jr. is being considered as the next head of the Department of Health and Human Services. As such, he presents a new, yet non-quantifiable, risk to the pharmaceutical industry.
My recommendation is not political; it is clinical.
I have no idea if RFK, Jr. will do wondrous things or disastrous things for the nation’s healthcare system. That remains to be seen. But I do believe him when he makes comments like one from just before the election:
“If you work for the FDA and are part of this corrupt system, I have two messages for you: 1. Preserve your records, and 2. Pack your bags.”
Based on this analysis, Eric recommended his Investment Report subscribers close their positions in Pfizer and the iShares Biotechnology ETF, IBB.
But this is a defensive move – circling back to our topic of short-term trading momentum, where is Eric finding surging trades today?
Water.
Eric’s backdoor way to play the AI boom
Let’s rewind to our November 6 Digest in which we quote Eric:
“The internet,” as most of know it, sometimes seems like an ethereal, nebulous force that effortlessly zips data and images through the air. We call part of it “the cloud,” after all.
But this nebulous force cannot operate without millions of physical servers humming along 24 hours a day inside the world’s data centers. And these millions of servers cannot operate without consuming prodigious volumes of electricity and water.
The tech industry’s large and growing water consumption has not yet attracted the same level of attention – or concern – as the industry’s growing energy consumption. But as tech companies expand their data center footprints worldwide, water consumption will become an increasingly challenging issue for them – and an increasingly expensive one.
That analysis supported one of Eric’s most recent recommendations in Investment Report, Aris Water Solutions (ARIS).
A huge “congratulations” is in order. Since the buy alert on October 30, Eric’s subscribers are up 56% (Aris trades above Eric’s “buy up to” price of $21.25 today, so please don’t buy into this stock today).
What’s behind the fast returns?
Here’s Eric with some data that shines light on the answer:
On average, an Alphabet Inc. (GOOGL) data center consumes 450,000 gallons of water a day. But some of the newest centers consume ten times that volume, as do some of the newest semiconductor fabs.
Taiwan Semiconductor Manufacturing Co. Ltd. (TSM) is building a state-of-the-art chip-fab in Arizona that will guzzle 4.75 million gallons of water a day – enough to supply about 1.5 million average homes.
It looks like investors are beginning to wake up to this.
But here too, we’re at just the beginning. Given the demands that AI will place on electricity generation and, by extension, required cooling systems, water is now liquid gold.
Finally, how is Louis Navellier playing shorter-term bullish momentum?
For Louis, it’s less about targeting a specific sector and more about zeroing in on fundamental strength, wherever his computer systems find it.
If you’re new to the Digest, Louis is a legendary growth-stock investor, having built one of the most envied investment track records in our industry over four decades.
Louis is one of the early pioneers of using predictive algorithms to scour the markets for quantitatively strong stocks. Forbes even named him the “King of Quants.”
As a quantitative investor, Louis’ market approach is rooted in cold, impartial numbers. When his algorithms identify an attractive opportunity, Louis dives in, deciding whether it’s attractive enough to add to his portfolios.
Similarly, when his systems warn him of flagging fundamental weakness, he analyzes whether it’s time to get out in order to sidestep a potential pullback.
So, what’s Louis been buying recently?
He and his Accelerated Profits subscribers bought Electromed (ELMD) on September 17. They’re up 43.55% as I write.
One week later, they bought Revolve Group (RVLV). They’re currently up 28.47%.
But most impressive, Louis got his subscribers into Sezzle, Inc. (SEZL) on September 3.
They’re now up 188%.
If you haven’t been seeing this type of performance in your own portfolio, Louis believes we’re entering a market environment ripe for more of these short-term winners. He’s just released a short presentation explaining why, and how he’s finding the next Sezzle. You can access his research right here.
Wrapping up, I have been and remain cautious in today’s market due to valuation concerns…
At the same time, I have been and remain invested due to recognition of bullish momentum which rules today’s market.
Bottom line: Despite the need for a breather to digest recent gains, stocks are in money-making mode. Yes, be prepared for if/when conditions change, but in the meantime stick with what’s working – and that means stick with bullish momentum.
Have a good evening,
Jeff Remsburg
