We held a "Market Vision 2020" event at EarningsBeats.com back on January 5th and were joined by several long-time StockCharts.com contributors, including John Murphy. I credit John for a lot of my intermarket relationship knowledge as his work over the years truly inspired me to learn more and more about exactly what makes the stock market tick. While nothing ever guarantees us of a certain market outcome, studying various relationships definitely gives us a leg up on the rest of the market and that's really all we can ask for.
One thing that none of us saw coming back on January 5th was the 100-year pandemic. You can plan for a lot of things in the stock market, but I can honestly tell you that I had never really thought much about a pandemic prior to 2020. I've studied a lot of market history, but none of it prepared me for March 2020. It was a "fly by the seat of your pants" period, but fortunately for me and our EarningsBeats.com members, we realized very quickly that we were not heading into another secular bear market. Instead, the sudden downturn was presenting generational-type opportunities on the long side, IF you knew where to look and what to look for. It most definitely was not a "one size fits all" kind of market.
It's been a true paradigm shift in so many ways. From an investing perspective, those companies with online products, or at least an online presence, had a huge built-in advantage as the virus spread and 2020 market performance confirms this. Where would Zoom Video Communications (ZM) be today if there had been no pandemic? The company has great products and I know that first hand as we use their products at EarningsBeats.com. We were using their products before the pandemic and loved them. But seriously, would ZM be a $132 billion company today without the pandemic? I don't think so.
So as we approach Q4, what should we expect? Will it be another quarter of investing in this paradigm shift? Should we look for the companies that will benefit most if we move back towards normal? Those are interesting questions and questions that are difficult to answer. I will simply say this:
FOLLOW THE CHARTS.
Things don't change overnight. Rotation takes place. Accumulation of some stocks and distribution of others takes time. Macro themes emerge over time, not over night. The best way to approach the Q4 is to watch the charts that matter most and follow them. Don't try to bet against things that are working simply because you think they've run too far. That's one of the biggest mistakes of my trading/investing life, if I'm being honest. I avoided Amazon.com (AMZN) for a very long time, mostly because of the CPA in me. After practicing as a CPA for two decades and being involved in company valuations, it was difficult for me to fathom what the stock market was telling me. How could a company that had never generated a profit be trading for such a ridiculous valuation? That's how I talked myself out of owning one of the best companies of my lifetime. The stock market was screaming at me to buy AMZN, but I couldn't pull the trigger.
I don't make that mistake any longer. Wall Street can see things that we cannot. Trust the charts.
I buy leaders in leading industries. It's how I've owned Tesla (TSLA). If you're a fundamentalist, you can't make a case for TSLA being worth nearly $400 billion. You just can't. It's priced unlike anything remotely close to it. But Wall Street is screaming that it's a leader that must be owned, at least by those with a high tolerance for risk. So long as TSLA remains a relative leader, I'll own it.
That's how I'm approaching Q4. I'm not trying to outsmart Wall Street. Rather, I'm simply listening. Here are three sectors that Wall Street loves as we enter Q4. By default, I love them too:
If you're looking for consistent leaders in 2020, look no further than the 3 sectors above - technology (XLK), consumer discretionary (XLY), and communication services (XLC). These are groups that are benefiting by a market environment heavily favoring growth stocks. Interest rates are near historic lows and, if you listen to the Fed, they'll remain that way for at least the next few years. I believe growth stocks will do well and these three sectors will continue to be favorites.
Later today at 4:30pm ET, I'll be hosting my "Q4 Market Outlook" webinar. I'll be explaining my secular bull market thesis. I'll tell you what I'm seeing with respect to bonds, the dollar, commodities, sector and industry rotation and relative strength, sentiment, etc. I'll discuss the key factors that have led our Model Portfolio to an incredible return of +148.21% in just over 22 months (the benchmark S&P 500 has risen 23.96% over the same period for comparison purposes). I'll provide a few stocks recently reporting incredibly strong numbers that should continue to shine. It all starts at 4:30pm ET for EarningsBeats.com members. If you'd like to join, CLICK HERE to start your fully refundable $7 30-day trial!
Happy trading!
Tom
