Profit from Stock Crashes – August 31, 2022

As the saying goes, “from the ashes will rise a phoenix”. And the same can be said for our current market.

The Fed will remain “forceful” in its fight against inflation, and that has caused many investors to “deviate” from previous plans around a change in Fed policy. Such a pivot required the Fed to start cutting rates for the foreseeable future.

There is no way to time the market or predict unfavorable economic events. That’s why investors need to pay attention to what the Fed is saying, so they can be in a better position to weather impending market volatility.

Because investor sentiment, at the moment, is more bearish, there is an opportunity to buy stocks that have burned but still have the potential to skyrocket, which is the secret to making money.

This article will help you find more of those actions.

There’s a somewhat new phenomenon called “V” recovery, which is basically a quick move to a lower position than it was, followed by an equally quick move back to a higher position. With an understanding of this phenomenon, people who watch every tick of almost every stock will have an advantage over most investors because they will know the best time to re-enter.

This leaves most investors out in the open unless they have the gut toughness to withstand big dips. But who among us did not panic even a little during the Coronavirus correction?

Markets come back, some stocks don’t

Reeling from the effects of the pandemic, it seemed almost every stock took some pain in the market-wide sell-off. But most have made up lost ground, and then some! Glamor shares, the ones with a lot of media coverage, are among the first to recoup those losses.

The speed at which glamor actions regain ground can be mind-boggling. Stocks that don’t pay you back all at once should be the ones you focus on. The problem is that there are too many of these stocks and some of them will never get the media attention on them.

Fortunately, there are stocks that get hit, stop at or near the bottom, and then start rising again. These actions generally have something in common in the mix of updates and revisions to higher earnings estimates.

Plus . . .

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measure the fear

Often, market-wide selloffs are based on macro events. It sometimes occurs when a major economy appears to be on the verge of slipping into recession (Germany). Other times it could come from a turbulent business climate and slower-than-projected economic growth (China). These macro events tend to cause sudden and severe changes in prices in all markets.

However, there are signs that tell us when traders expect a big change in the direction of the markets. It is not a foolproof signal, but it has given traders a heads up many times in the past. The indicator I am referring to is the VIX, a measure of volatility in the markets.

Without going into too much detail, suffice it to say that as the VIX goes up, so does the amount of fear in the market. Professional traders who have the dry powder often hold their noses and dive into the market clutter when the VIX is making highs. As the index begins to return to more acceptable levels, regular investors tend to follow suit.

Analysts calling the bottom

While day traders and market watchers have to follow the VIX, those who focus on a day job most of the time are left with a different barometer. One of the biggest sources of market-moving information (not coming directly from the company itself) is analyst reports from brokerage and research firms.

Most analysts will simply ride out the volatility in their respective trenches and keep their heads down. There are some, however, who will take a chance when they think the time is right; And I’m not talking about the analyst who glorifies stocks. Instead, it is stocks that few have heard of that have dipped into the single digits.

Those big corrections give analysts the opportunity to take a chance and start hedging or upgrading one of those unloved stocks that has seen its price drop drastically. These events don’t happen as often, but soon after things start to pick up, updates will push these actions back into the double digits.

The best part of the update

When analysts upgrade a stock, they tend to say that the story has changed and the outlook is improving. After a big macro-driven correction, some stocks are trading below the double-digit threshold, which may be just the thing to make some analysts salivate.

It is not a surprise to most when I say that some upgrades are better than others. The full reversal from sell to buy is great, but the update that carries the most weight is the one that comes along with a strong move higher in earnings estimates.

The analyst not only says that the share price is undervalued (thanks to the macro-driven correction), but that the outlook has vastly improved and earnings estimates are being revised higher as a result. Other analysts see that update and, after a bit of preparation, might come to the same conclusion. The best result is a series of updates with an equally strong series of revisions to higher earnings estimates.

While there are plenty of market sources reporting daily updates and downgrades, few are watching estimated reviews as closely as Zacks Rank. And you can use Zacks Rank in conjunction with sell-offs to find stocks that analysts like and expect results to improve.

riding the rebounds

If you’re looking for one of the potentially most profitable ways to profit from rallying stocks, I invite you to join the investors who follow live trading on our Stocks under $10 briefcase.

We focus on companies that are poised to make big moves up. We entered as Zacks’ rank and other proven indicators point to future success and lead to serious growth. For example, we have recently closed positions with profits of +221.2%, +393.8%and a remarkable +995.2%

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Brian Bolan is our expert on aggressive growth and the editor of Zacks stock below $10 briefcase.

¹ The results listed above are not (or may not be) representative of the performance of all selections made by the editors of the Zacks Investment Research newsletter and may represent the partial closing of a position.

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