How To Trade The Current Bear, And Plan For The Coming Bull

[Zacks | Our Research. Your Success.] Weekday Wisdom [Kevin Matras - Editor] How To Trade The Current Bear, And Plan For The Coming Bull By: Kevin Matras July 13, 2022 --------------------------------------------------------------- It's been a rough year so far. In fact, we just ended the worst first half in more than 50 years, with the S&P falling by nearly -21%, making it the worst start since 1970. That time was also a period of high inflation like we're experiencing now. Interestingly, the second half of that year saw the S&P up 27%. Of course, that does not mean that's how it will go for the back half of 2022. But it doesn't mean it won't either. True, since 1957, negative first half performances had just as much of a chance for a negative back half performance as it did a positive one. But that being said, it's important to look at where we are and what could be coming down the pike. The S&P officially entered bear market territory last month when it closed below the -20% threshold from its all-time high close made earlier this year. They joined the Nasdaq, which entered bear market territory in March. The Dow, so far, has technically avoided a bear market, but only by a couple of percentage points when the markets were at their lows. In spite of having the strongest labor market in decades (unemployment is near a 50-year low, while there's literally millions more jobs available than there are unemployed people to fill them), inflation, and what that means for interest rates and the economy, has been weighing on the market. With inflation currently at 41-year highs, the fear is that the Fed will raise rates too high and too fast and send us into a hard recession. In fact, when stocks were hitting their lows last month, it appeared the market was indeed pricing in a worst-case scenario (hard recession vs. a soft or shallow one). Or at least that's what it looked like, until the market rallied off its lows, and has held ever since. So, that begs the question, what if the worst-case scenario doesn't unfold? In that case, the economy and stocks could soar. And the pullback we've seen could be presenting an enormous opportunity. Especially with valuations now at the lowest levels in more than two years. Moreover, the Fed is forecasting full-year GDP to come in at 1.7% this year, and 1.7% again next year. And St. Louis Fed President, James Bullard, in a recent interview, said he sees a "pretty good second half," driven by "strong consumption this year." So, the Fed is looking for growth. A far cry from the worst-case scenario that the market has been pricing in. More . . . [Get Your Free Copy of Finding #1 Stocks – A $49.95 Value]( One single idea changed Kevin Matras' life as an investor, enabling him to tap into the greatest force driving stock prices. In Finding #1 Stocks, Kevin reveals his top stock-picking secrets and strategies based on this powerful idea. Now you can claim a free copy of the 300-page hardcover book. In 2021 - while the market climbed +28.8% - these strategies actually produced gains up to +48.2%, +67.6%, and even +95.3%.¹ You can take full advantage of them without attending a single class or seminar, in a lot less time than you think. Opportunity ends Saturday, July 16. [Get your free book now »]( For Perspective The average bear market decline for the S&P (going back 100+ years), is about -38%. With the S&P down by -23.6% at its worst, we got more than 61% there. Then again, over the last 13 bear markets during that time, there's been a fair share (5 of them) that were down 'only' in the mid-25ish percent range (-21.5% to -29.7%). It should also be known that the faster a bear market begins, the shallower it tends to be. Regardless, no bear market is fun while it's happening. But it's worth noting (going back to the 1950s), that the median returns for the market once a bear market has begun is nearly 3% one month later, more than 5% three months later, and more than 23% a year later. And the rallies that follow after a bear market has ended are even bigger. And given the strength of the economy going into this, it's all the more likely that we'll bounce back big and in record time. Trading The Bear Just like stocks need to fall by -20% for a bull market to end and a bear market to begin, they also need to go up by 20% for a bear market to end and a bull market to begin. For the S&P, it needs to close at or above 4,400.12 for a new bull market to begin. And for the Nasdaq, it's 12,775.32. Set yourself an alert. When we close above those levels, the bear market will officially be over and a new bull market will have begun. But that doesn't mean you have to wait to start nibbling at your favorite stocks and their discount bargain prices. Some may go lower. And some may not. But they are likely much lower now than where they were just a few months ago, or even years ago. And much closer to the bottom (if they haven't already hit it). That's true for your favorite stocks. As well as plenty of new stocks that you probably haven't even heard of yet. This pullback will usher in lots of new and exciting opportunities in the inevitable bull market that follows. It always does. So now is the time to start putting your list of dream stocks together. And staying engaged so you can discover what new stocks will lead the market when it goes back up. Riding The Bull The big gains that follow a bear market can be quite spectacular. But since a large part of any bull market recovery typically comes at the very beginning, it's imperative that you stay in the market. The trick is to get into the right stocks. There's nothing wrong with raising cash by getting out of your laggards and poorest performers - stocks you know you should have gotten out of long before this pullback even happened. Or getting rid of those stocks that will have an uphill battle recovering even when this is over. But then make sure to replace them with the strongest stocks that will be the new market leaders. The point is, you want to be building your dream portfolio now, near the bottom. And by the time the new bull market is underway, you'll be all in with the strongest stocks, and beating the market. Do What Works So how do you take advantage of the market right now? By implementing tried and true methods that work to find the best stocks. For example, did you know that stocks with a Zacks Rank #1 Strong Buy have beaten the market in 28 of the last 34 years (an 82% win ratio) with an average annual return of 25% per year? That's more than 2 x the S&P. And consistently beating the market year after year can add up to a lot more than just two times the returns. That includes 3 bear markets and 4 recessions. And did you also know that stocks in the top 50% of Zacks Ranked Industries outperform those in the bottom 50% by a factor of 2 to 1? There's a reason why they say that half of a stock's price movement can be attributed to the group that it's in. Because it's true! Those two things will give any investor a huge probability of success and put you well on your way to beating the market. But you're not there yet, as those two items alone will only narrow down a field of 10,000 stocks to the top 100 or so. Way too many to trade at once. So the next step is to get that list down to the best 5-10 stocks that you can buy. Proven Profitable Strategies Picking the best stocks is a lot easier when there's a proven, profitable method to do it. And by concentrating on what has proven to work in the past, you'll have a better idea as to what your probability of success will be now and in the future. For example, if your strategy did nothing but lose money year after year, trade after trade, over and over again, there's no way you'd want to use that strategy to pick stocks with. Why? Because it's proven to pick bad stocks. On the other hand, if your strategy did great year after year, trade after trade, over and over again, you'd of course want to use that strategy to pick stocks with. Why? Because it's proven to pick winning stocks. Of course, this won't preclude you from ever having another losing trade. But if your stock picking strategy picks winners more often than losers, you can feel confident that your next trade will have a high probability of success. Here are a few of my favorite strategies that have regularly crushed the market year after year. New Highs: As mentioned earlier, studies have shown that stocks making new highs have a tendency of making even higher highs. And this strategy proves it. The alignment of positive price action and strong fundamentals creates all the necessary conditions to see these stocks soar to even greater heights. Over the last 22 years (2000 through 2021), using a 1-week rebalance, the average annual return has been 43.2% vs. the S&P's 7.5%, which is 5.7 x the market. Small-Cap Growth: Small-caps have historically outperformed the market time and time again. Often these are newer companies in the early part of their growth cycle, which is when they grow the fastest. This strategy combines the aggressive growth of small-caps with our special blend of growth and valuation metrics for explosive returns. Over the last 22 years (2000 through 2021), using a 1-week rebalance, the average annual return has been 50.4%, beating the market by 6.7 x the returns. Filtered Zacks Rank 5: This strategy leverages the Zacks Rank #1 Strong Buys, and adds two time-tested filters to narrow the list of stocks down to five high probability picks each week. Over the last 22 years (2000 through 2021), using a 1-week rebalance, the average annual return has been 51.2%, which is 6.8 x the market. The best part about these strategies (aside from the returns) is that all of the testing and hard work has already been done. There's no guesswork involved. Just point and click and start getting into better stocks on your very next trade. Where To Start There's a simple way to add a big performance advantage for your stock-picking success. It's called the [Zacks Method for Trading: Home Study Course.]( With this fun, interactive online program, you can master the Zacks Rank in your own home and at your own pace. You don't have to attend a single class or seminar. Zacks Method for Trading covers the investment ideas I just shared and guides you to better trading step by step, plus so much more. You'll quickly see how to get the most out of the proven system that has more than doubled the market for over three decades. Discover what kind of trader you are, how to find stocks with the highest probability of success, and how to trade them so you can consistently beat the market no matter where stock prices are headed. You'll get the formulas behind our top-performing strategies suited for a variety of different trading styles. The best of these strategies produced gains up to +48.2%, +67.6% and even +95.3% in 2021.¹ The course will also help you create and test your own stock-picking strategies. Today is the perfect time to get in. I'm giving participants free hardbound copies of my book, Finding #1 Stocks, a $49.95 value. Its 300 pages unfold virtually every trading secret I've learned over the last 25 years to beat the market. Please note: Copies of the book are limited and your opportunity to get one free ends Saturday, July 16, unless we run out of books first. If you're interested, I encourage you to check this out now. [Find out more about Zacks Method for Trading: Home Study Course »]( Thanks and good trading, [Kevin Matras - signature] Kevin Zacks Executive VP Kevin Matras is responsible for all of our trading and investing services. He developed many of our most powerful market-beating strategies and directs the [Zacks Method for Trading: Home Study Course](. ¹ The results listed above are not (or may not be) representative of the performance of all strategies developed by Zacks Investment Research. This free resource is being sent by [Zacks.com](). We look for investment resources and inform you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms of Service". Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research is not a licensed securities dealer, broker or US investment adviser or investment bank. The Zacks #1 Rank Performance covers the period beginning on January 1, 1988 through May 2, 2022. 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