By Matt McCallFeb 29, 2020
You’ve seen the headlines by now. You know this was the worst week for the market since the financial crisis more than 10 years ago.
I sent you a Special Market Update on Wednesday with my detailed thoughts on the action and what investors should do and not do. Today, let’s look at some of the important takeaways from this historic week and what they tell us about what’s ahead.
We’ll start with a technical indicator. On Thursday, only 7% of stocks in the S&P 500 closed above their 50-day moving average. This is rare territory, lower than 98% of the historical data going back to December 2001, which means we could be close to a turn. Compound Capital Advisors looked back through the data and found this has occurred nine times. Looking out one month, the market was up 2.6% on average. One year later – up 23.7%. Two years later – the S&P 500 was up 38.8%.
The most widely watched measure of fear in the market is the CBOE Volatility Index (VIX). On Friday, the VIX hit a high of 49.48, up 190% from 17.08 last Friday. The reading shows extreme fear in the stock market, which is usually a contrarian indicator. It suggests that stocks are severely oversold, meaning the selling is closer to ending.
The VIX is also historically high. Below is a chart of the last 30 years, and you can see below how rare it is for the VIX to spike to the 50 level. The only time in the last three decades that fear was higher than today was during the 2008 financial crisis. This is just one more data point showing the extreme fear level sweeping the markets today.
With the market now in correction territory – a pullback of 10% to 20% – let’s see what history tells us there.
Going back to 1974, there have been 22 corrections in the S&P 500. Only four of those corrections turned into a bear market, which is a decline of 20% or more. More than 80% of the time, it never got to that point.
It’s also worth remembering how lopsided those numbers are when it comes to bull markets and bear markets. Going back to 1966, the average bull market lasted 2,300 days – 4.5X longer than the average bear market at 512 days. Bull market gains average 220%, versus a loss of just 39% in bear markets.
Let me be honest with you… I am not sure if Friday was the bottom or if it will come next week, or even a month from now.
But what I do know is that there is a large and growing list of quality stocks that have come down to prices that are extremely attractive.
I’ve been busy lining up potential buys, which I have to admit is a lot of fun when there are good deals out there. On Thursday, we added a new stock to our Investment Opportunities portfolio. I had already been researching it and liked the opportunity before the market slide, but when the stock pulled back 20% this week from a very recent all-time high, it was a no-brainer to send my subscribers a buy alert and make sure we got in at a great price.
If you’ve been waiting for a market pullback to put money to work, now is the time to make your move. Most investors prefer to buy a stock on a pullback rather than near a high. That makes good sense, but the key is to actually do it. A lot of investors become like a like a deer in the headlights when they finally get a pullback. They become frozen and too scared to buy.
This is one of the biggest mistakes that average investors make. I’ve seen it too many times to count through the years, and I couldn’t even begin to total up the profits they missed out on. Successful investors use volatility to their advantage and buy into the fear.
On Friday morning when I was taping this week’s Moneyline podcast, the Dow was down over 1,000 points again. It was very difficult to find any stock in the green, let alone up by a decent amount. But there was one very niche sector I follow in which stocks were not only up… but up double digits.
Two of those stocks are some of my top recommendations for making money in the future of healthcare. More specifically, they combine artificial intelligence (AI) with healthcare. Both stocks are in my new Microcap Millionaire Portfolio, and both are big winners for us. One is up 74% since I recommended it a little over three weeks ago, and the other is up 104% since my initial recommendation three months ago.
One of them was a stock idea I gave away in a joint video I did with Stansberry Research’s Steve Sjuggerud. I can share it with you here today.
The company is BioXcel Therapeutics (BTAI), and it uses AI in the drug discovery process. It can take over seven years on average to develop a new drug and get it through FDA approval. The majority of drug candidates never make it to Phase 3 and approval. BioXcel may be able to change that as AI will help it zero in on potential new drugs with a higher likelihood of success. The company is a disruptor in a sector that is ripe for disruption. (It is currently above my recommended buy price, which you can learn more about here.)
Another stock that I shared in an October appearance with Steve is also on fire. Teladoc (TDOC) is the world leader in telehealth, and it received a boost early in the week after the Centers for Disease Control and Prevention mentioned using telehealth when you’re sick. Later in the week, the company reported blockbuster fourth-quarter earnings that sent the stock to yet another all-time high. It closed the week up 10% – that’s right… in the green in an overwhelming negative week! – and is up an impressive 49% in just the first two months of the year. We’re now up more than 200% in Investment Opportunities.
There are stocks out there doing well, even in the volatility. And there are stocks out there that are down way more than they should be as investors sell first and ask questions later. Those are the buying opportunities smart investors are lining up right now. They often turn out to be among your biggest winners.
P.S. Most people don’t realize yet how impactful AI will be in the global healthcare industry. It’s going to be absolutely massive and transformative.
I especially like the chance to get in early in small stocks set to grow large… and make investors a lot of money in the process.
I have a whole system designed to do that, which I explain in the recent Microcap Millionaire Project event. More than 10,000 people tuned in to see how buying microcaps can “boost” the gains they’re seeing from blue chip stocks and index funds. You can watch the full presentation here.
I also released my 10 favorite microcap stocks at this point. We already locked in big profits on one, but the remaining nine are also in high-growth industries that could soar 1,000% or more. Click here to learn how you can get started today.
Click here to listen to Matt McCall’s MoneyLine podcast! This week, Matt discusses the recent market volatility. Stocks endured one of their worst weeks since the 1930s as a result of fear surrounding the coronavirus. But this isn’t the first correction the market has experienced – and it certainly won’t be the last. In this podcast, Matt dives into the history of stock market corrections. What it tells us can help us create a strategy. The current weakness is providing buying opportunities, and Matt names a few stocks with potential. Plus, he interviews famous value investor Dan Ferris of Stansberry research.
You can subscribe to this podcast on iTunes, Stitcher, Spotify, or wherever you listen to podcasts.
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