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Time to Buy

By Matt McCallMay 21, 2017


I have to address the elephant in the room (no pun intended toward the Republicans): Wednesday’s sell-off was one of the worst market sessions of the last few years. While you can’t ignore the action because short-term support levels were breached on above-average volume, keep in mind that one day does not make a market.

That’s why we need to stay focused on the bigger picture, which is one of our core areas of research in NexGen investing for both the broader market and individual stocks. Remember, the S&P 500 hit a new all-time intraday high the day before the sell-off, and its bounce on Thursday and Friday put it back within 1% of those levels. If you thought that stocks would never again pull back a few percentage points, you have been drinking some funny Kool-Aid.

Of course, I realize it’s never easy to swallow when those losses come all in one session, and bigger down days have become a rarity over the last year of this bull market. But even the strongest bulls will stumble now and then. The market was overdue for a pullback, and Wednesday’s action gave it a healthy rest.

Now if you had listened to the financial media, you would have thought the drop was caused by an investigation surrounding President Trump and some of his possible dealings with Russia. However, I believe the news wasn’t the actual catalyst, but rather just a trigger of two deeper fears.

First, the recent rally led to the overall market moving into an overbought area on the short-term chart. This typically causes a small pullback as stocks dip down to their respective support areas. We’ve seen this happen a few times over the last year, but the major difference Wednesday was that it happened all at once. That tends to spook investors, which in turns lead to panic selling.

The other fear that contributed to the downturn is that the business-friendly policies Wall Street has been waiting for may be delayed or possibly never see the light of day. But this is when it’s important to understand the big picture. The post-election upswing hasn’t just been based on political incentives like potential tax reform, lower regulations and infrastructure spending. Just look at first-quarter earnings results. It’s impossible to ignore that U.S. corporations are in a sweet spot of the business cycle. That’s not to mention the global factors that are boosting stocks around the world. This rally is more than just the election or what may come out of Washington – there’s real underlying growth helping to fuel it.

A lot of Wednesday’s selling was driven by emotions, just like nearly every big daily move in the history of the market. I never ignore the action, but I also will never give in to mass panic selling. We couldn’t begin to count how much money has been lost by doing that. It’s a double whammy that first takes investors out of a strong bull market and then makes it difficult for them to get back in. The typical result is buying in at a higher price for a net loss. That’s why I’m here to help you deal with those larger fears and focus on the real story of the market.

This is the time to get your cash ready to take advantage of the opportunities that emerge from the weakness. My screens were lighting up on Wednesday with budding buy signals, and I know some attractive entry points will come up soon. The big picture mega-trends that I’m following remain intact, fundamentals and earnings are still strong and the bulls have plenty of more room to run.

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