How to Spot Opportunities in the Stock Market Simpliefied Investing Volume: 2 Q2, 2020
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After closing a more than ten year rally, the S&P lost over 30% in less than a month.This took years for this index to reach those heights. Bringing light to the old adage that Rome was not build overnight but did fall in one. For the long-term investor looking foa stable long term investment, at these levels we are looking at a 30% ROI in about two years hwen levels return.
In the past month we have seen many ‘firsts’’. This month we saw the third worst single day selloff EVER! Which is great to capitalize on. This is because one thing that we always have seen over histoy is after a major sell-off, the markets always go up.
For the first time ever on April 20th, we saw oil go negative. This means oil companies are paying you to take their oil. Now if I was someone with a lot of storage space you could bet I’d be snatching up barrells left and right. For the long-term investor this would be a good time to capitalize on the price and build up your positions in this sector before the price moves up, when oil companies and OPEC slash their output.
To combat against dramatic sell-offs’ the NYSE uses automated ‘limit-down’ features to temporarly block buying and selling to stabalize the markets. These features are entirely electronic and have been around since May 31, 2012. Since we have seen threse events in the past followed by a massive swing in upward momentum, jumping on these movements would be a good idea for a short-term investor who wants to makeup some of rheir recent losses in the market.
This selloff is due to the outbreak of COVID-19, which originated in China. Experts predict that once the spread of the virus stabilizes the market will rally back to its’ highs. A cure for the virus will calm investors fears. As a long-term tinvestor, you will most likely want to ‘average’ into this market and get some deals while they last.
In a desperate attempt to increase the amount of borrowing from corporations, the Federal Reserve lowered their interest rates to zero. Which is a very attractive offer. This hasn’t been done in well over 12 years. Foreseeing another up in the market a long-term investor would block out the bad news and look for what is happening. An increase in corporate borrowing for the immenient future will spur the economy and drive up the economy when these debts are paid back in full.
Resulting from the low interest rate and closure of business operations, the Federal Reserve and its’ constitutents need more money to help ‘bail-out’ businesses. This is a crucial step in recovery and in the long term may have negative implications for the economy. Some companies will default on these loans. As a value investor, I wouild look for companies such as Apple and Amazon who have a good track record.
Additional efforts have been taken to help those suffering from furloughs and lay-offs get by and pay for their expenses. Qualified receipients received a tax-free and non-repayable cash payment. $1,200 to individuals earning under $74,500 and $150,000 for married couples. An additional $500/child.
Looking for the lows in the market will be better seen after the events avove have taken place. Given the massive amount of government intervention we most likely have seen those lows. There is a high chance that we will still see corrections along the way. Buying and holding should be your strategy in this volatile market.
Despite all of the fear comapnies have adapted to the current situation by using their existing infistructure. As pictures Starbucks is doing a drive-through only model.
Once busteling Chad’s Pizza has taken the current situation into consideration and they are allowing carry-out only since bars and restraunts have been barred from their normal operational activities.
Fitness centers are one of the most impacted since they are not able to offer alternative options for their clients. Many companies such as Peloton Fitness have benefited greatly from this pandemic.
Consumers have acted in very dramatic ways by clearing toilet paper completely from store shelves.
Walmart has responded by limiting the amount of essential items that customers can buy. This is a direct recommendation from the Trump administration to avoid hording.
Once full shelfs of roughly $10,000 worth of 9 mm ammo are completly empty. Only practice ammo remains. As people prepare for the worst.
Consumers in larger cities have had to turn to companies such as Butcher Box to get their supply of meats. Buying stocks such as Blue Apron saw massive gains in their stock price as a result.
Given the sharp drops in technology ETF’s I am throwing 1/4 of my account into each TQQQ and SOXL. My reasoning is aided by corporate bailouts and tax incentives that will be given to those companies in the coming months. Technology is also one sector that does not need to have customers in their door. All of these companies in these ETF’s are based in the USA. Reshoring of corporations will be a stipulation from bailout and governemnet assistance.
As a value investor, I look for great companies. DFEN and FAS have amazing US based companies in their compostion. As the Federal Reserve continues to pump banks with money to in-turn loan, we should see a spike in share price. Defense companies have taken a massive slump as well and government assisstance should also boost share price as long as the terms of accepting said assistance are not unfair.
Below is the last ETF that I will be putting some of my gains from options trading into. TNA will be a long term holding postion. I chose this ETF due to its’ historical performance and the small and medium size business package that will be passed in the coming weeks. We should see a large jump back to the previous peak of +$100. Currently the ETF is trading just shy of $19.
In the coming months we should see a lot of companies back up and running. Below are my estimates based on the price that I have bought shares for. In five years I predict off of historical performance I will have a 650% ROI. *These estimates do not include my options trading postions and are subject to change +/- .