The bad news comes at a steady drip.
Inflation hits a 40-year high... A recession looms... The Federal Reserve is raising rates, ending the era of "easy money"... And an energy crisis is choking out global growth expectations.
In short, the market is in turmoil. The bull market is in danger, and investors are taking notice. But even though this investing environment might seem as bad as you can imagine, relief may be coming.
Right now, one of our favorite market signals is flashing...
It's a tough one to measure. And acting on it can feel uncomfortable. But if you let it help guide your buying, it can lead to massive upside potential.
Things are looking up... because for the first time in years, stocks are once again "hated."
Whether it was buying gold in 2015, Florida real estate in 2011, or stocks back in 2008... my boss Steve Sjuggerud knocks it out of the park when it comes to timing the market.
That's because he knows what a "fat pitch" looks like. It's all thanks to his three-pronged strategy...
Steve buys assets that are cheap, hated, and in an uptrend.
Now, the first and last principles ("cheap" and "in an uptrend") are simple and appealing... You want to buy assets at a reasonable value that are trending higher. That way, you avoid catching a falling knife.
But buying "hated" assets is another key part of Steve's recipe. Buying what's hated lets you own what everyone is ignoring... so that when folks finally catch on to the opportunity, you profit all the way up.
Right now, we can see the hate settling in for stocks.
Robinhood is a great case study. The commission-free brokerage app symbolizes a certain type of retail trader...
Robinhood traders were a major story during the investment boom of the past two years. They pioneered "meme investing." And they traded like crazy when times were good.
In the process, they grew Robinhood's revenue by 245% from 2019 to 2020. But now, it seems they've had enough.
The rocky first quarter we've seen in 2022 has driven Robinhood investors from the market. The company lost 17% of trade revenue versus the fourth quarter of 2021.
Its competitors fared much better... Charles Schwab slid only 6% on revenues over the same time frame, and Interactive Brokers gained 7%. These are older, more established competitors. And their clients don't view them as gambling apps tied to the stock market. No wonder their businesses are able to weather these tough times.
Robinhood's user growth is stalling, too. It added only 100,000 new users in the last three months, compared with 1.2 million for Schwab and 132,000 for Interactive Brokers.
But there's more... Across the market, retail stock traders are 39% less active than they were at their peak in January 2021. And bullish call-option trades from retail investors have hit their lowest levels since April 2020 – right after the initial market panic from COVID-19.
This data paints a strong picture: Retail investors are giving up.
They're throwing their hands up and abandoning the market. Stocks are losing their allure.
That's good news for us as contrarians. As stocks become more hated, more of these traders will sell and jump ship...
And once there's no one left to sell, we will have found the bottom. That's the windup for the next fat pitch.
Stocks will be cheap. They'll certainly be hated. And as soon as the trend changes, it'll be time to jump in with both feet.
We're not there yet. But investors are starting to hate stocks. And that means we're getting closer and closer each day.
Good investing,
Sean Michael Cummings
Further Reading
After last year's steady gains, the recent correction has investors fleeing the market in droves. History tells us that once the trend turns back in our favor, we could see major gains... Read more here: Two Positives of a Painful Market.
"Simply put, investors are scared today," C. Scott Garliss writes. Volatility is gripping the market right now, and investors are hesitant to put their money to work. And even though we're not there yet, we could see massive returns in the long term... Get the full story here: Stocks Are Becoming a Contrarian's Dream.
Retail investors are fleeing the market lately. But they could have avoided major losses by taking this advice...
HIGHS AND LOWS
NEW HIGHS OF NOTE LAST WEEK
Merck (MRK)... pharmaceuticals
ExxonMobil (XOM)... oil and gas
Suncor Energy (SU)... oil and gas
NRG Energy (NRG)... utilities
NEW LOWS OF NOTE LAST WEEK
Bank of America (BAC)... financial giant
Alphabet (GOOGL)... tech "World Dominator"
Intel (INTC)... chipmaker
Workday (WDAY)... cloud-based software
NetApp (NTAP)... cloud storage
eBay (EBAY)... online marketplace
Dell Technologies (DELL)... laptops and computers
Best Buy (BBY)... electronics retailer
Walmart (WMT)... "World Dominator" of discount retail
Target (TGT)... big-box retailer
Burlington Stores (BURL)... "bargain" retailer
Disney (DIS)... entertainment
Planet Fitness (PLNT)... low-cost gyms
Trane Technologies (TT)... HVAC manufacturer
Brunswick (BC)... boats
United Rentals (URI)... equipment rentals
Simon Property (SPG)... real estate investment trust
