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How Much Tesla Will Move the Market?

Tesla – the electric-car maker and one of the most polarizing stocks in decades – is stepping into the big leagues. So today, we’re going to answer a simple question: “Just how much sway will Tesla have over the market?”

By Vic Lederman, analyst, True Wealth

Tesla – the electric-car maker and one of the most polarizing stocks in decades – is stepping into the big leagues.

Standard and Poor’s is adding Tesla to the S&P 500 Index. And the media’s take on it can be summed up with one word… “finally.”

But it only takes a passing knowledge of the company to know that this assessment is a little dubious. The company is the poster child for eccentric leadership. And its share price is highly volatile.

Despite that, the company will be the largest to ever join the S&P 500. In fact, it looks like it will be a top 10 holding.

That means that if you own anything that tracks the S&P 500, you’ll soon be a Tesla shareholder. But don’t overreact.

You might find Tesla’s leadership as distasteful as I do. But that doesn’t mean you should alter your portfolio to avoid it.

Remember, the S&P 500 is weighted by market capitalization. Simply put, the bigger the company, the more influence it has over the index.

So today, we’re going to answer a simple question: “Just how much sway will Tesla have over the market?”

Let’s get right into it…


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Tesla’s market capitalization is more than $460 billion as I write.

That puts Tesla in the top 10 S&P 500 companies. But how much sway will that give Tesla over the index?

Well, health giant Johnson & Johnson (JNJ) and financial-services firm JPMorgan Chase (JPM) are near Tesla in the top 10, each with market caps around $400 billion. Each company accounts for about 1.3% and 1.2% of the S&P 500, respectively. So, we can expect Tesla to end up with a weighting of over 1% based on this.

Consumer-electronics giant Apple (AAPL), for comparison, is at the top of the pile. It makes up nearly 6.5% of the S&P 500… Or about five times more than where Tesla will likely end up.

Still, when you stop to think about it… it becomes obvious that the top companies really do account for the majority of the market.

In fact, the top 15 companies make up 32% of the S&P 500. And the top 50 account for more than half. The bottom 50 account for just 1% of the S&P 500.

So clearly, the larger companies are much more important to the performance of the market. But if you’re not a Tesla fan, how much should you worry about it joining the index? And to our greater question… how much will Tesla move the market?


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The answer is: not much.

All it takes to see this is a little bit of math.

Even on a 25%-day for Tesla (in either direction), it would only move the market about 0.25%. Tesla is volatile, unusually so. So those 25%-days do happen. But once you put it into the broader context of the index, that volatility gets watered down.

So, is it possible that this poster child for eccentricity will move the market? Sure. On its biggest days, Tesla will contribute to the volatility of the S&P 500.

But on most days… it won’t matter at all.

Recent Pullback Is a Bullish Sign for Stocks

Right now, a lot of folks are worried that stocks are about to start another big decline. That’s a possibility, of course. But as we’ll show you today, it’s not the most likely outcome. In the weeks and months following our 50-DMA breakdown signal, stocks were higher across all time frames, on average. And stocks performed better more often than in all market conditions. Our study shows that rather than this being the time to sell, stocks are likely a good buy today.

Right now, a lot of folks are worried that stocks are about to start another big decline. That’s a possibility, of course. But as we’ll show you today, it’s not the most likely outcome. In the weeks and months following our 50-DMA breakdown signal, stocks were higher across all time frames, on average. And stocks performed better more often than in all market conditions. Our study shows that rather than this being the time to sell, stocks are likely a good buy today.

By Ben Morris and Drew McConnell, editors, DailyWealth Trader


On Friday, the benchmark S&P 500 Index broke down…

It dropped below its intermediate-term trend line – its 50-day moving average (50-DMA) – for the first time in four months.

The trend is still up. But a lot of investors and traders start to worry when stocks fall below this widely followed level.

Last week, though, we told that this pullback could actually be a great buying opportunity…

Timing your trades isn’t always about nailing the exact right moment to get in… If you can simply identify higher- and lower-risk entry points – and take action when your risk is reduced – you’ll give yourself a major advantage in your trading.

With that in mind, the question we’re asking today is, “Is right now a higher- or lower-risk moment to buy stocks?”

The answer might surprise you…


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To help us answer this question, we looked at similar occurrences in the S&P 500 over the past 50 years. Specifically, we looked at the S&P 500’s returns following its first break below its intermediate-term trend line in at least three months.

In the chart below, you can see when this happened on Friday…

A lot of traders consider a break below the 50-DMA to be a bad sign. But let’s draw our conclusions from the numbers…

Over the past 50 years, the S&P 500 has held above its 50-DMA for at least three months 39 other times. (Friday was the 40th time.) The table below shows how the index performed following the first day that it closed below its 50-DMA…

On average, stocks climbed across all time frames. In the following two weeks, stocks were higher about 60% of the time. One and two months later, that percentage jumped to about 70%. And three months later, stocks were higher more than 80% of the time.

Those are good odds, especially when we compare them with the S&P 500’s “normal” performance…

The table below shows the same metrics for the S&P 500 for the past 50 years with no limiting criteria. In other words, the first number in the first row is the average two-week return for the S&P 500 over the past 50 years.

You might be surprised to see that the S&P 500’s average and median returns were better than normal after it broke below its 50-DMA across all time frames. The percentage of the time that stocks were up was better after the breakdown, too.

How can we explain this?

Well, if the S&P 500 has held above its 50-DMA for at least three months, it typically means the stock market is in a strong uptrend. And when the market is in a strong uptrend, you want to own stocks.

These results suggest that one of the best times to buy stocks in a strong market is after a pullback, like when the S&P 500 drops below its 50-DMA… as it did on Friday.

Here’s our takeaway…


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Right now, a lot of folks are worried that stocks are about to start another big decline. That’s a possibility, of course. But as we showed you today, it’s not the most likely outcome.

In the weeks and months following our 50-DMA breakdown signal, stocks were higher across all time frames, on average. And stocks performed better more often than in all market conditions.

Our study shows that rather than this being the time to sell, stocks are likely a good buy today.

It probably doesn’t feel like the right thing to do right now, but if you have some cash on the sidelines, you may want to consider putting it to work. At the very least, don’t exit your bullish positions right now unless they’ve triggered your stop losses.

We can’t promise you that today is the perfect day to buy stocks. But we can tell you – with 50 years of history backing us up – that your risk in the stock market is reduced. And generally, that’s the time to buy, not sell.

Our advice for stocks traders and investors right now is to stick to your stop losses and to stay long.

The Real Reason Stocks Go Up or Down

Jason Bodner spent decades of his life building a system – Palm Beach Trader – that tracks the flow of big money. He designed it to tip us off on which moves the big money is making behind the scenes, so we can profit along with them. And below, Jason is sharing what it’s telling us right now…

By Jason Bodner, editor, Palm Beach Insider

Whenever I tell people what I do for a living, one question pops up more than any other:

“Why did ABC stock go up or down this week?”

When a stock makes a big move up or down, people need a reason why. They want to hear things like, “The company just announced it’s developing a national communications network!” or, “The CEO just said she’s stepping down at the end of the month.”

What they don’t want to hear is the truth. And the truth is that a stock rises because someone is buying, and it falls because someone is selling.

And that “someone” is the big money.

This is hard for people to accept because the big money – meaning pension funds, hedge funds, and asset managers – are not as visible as the other reasons. And it’s against human nature to immediately accept that there may not be an observable reason for prices to do what they do.

But these big-money investors are the true movers of stocks.

Now, that doesn’t mean retail investors should forget about stocks. In fact, if you know how to tap into these strategies, you have much better odds of outperforming the market.

That’s why I spent decades of my life building a system that tracks the flow of big money. I designed it to tip us off on which moves the big money is making behind the scenes, so we can profit along with them.

And below, I’ll share what it’s telling us right now…


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The Big Money’s Strategy

The first thing you have to understand about the big money is that they don’t buy and sell a few shares at a time, like you or me. They like to buy or sell massive amounts of shares.

That can drive the price to extremes in a short period of time. So with this setup, the big money has two options:

  • Option 1: Go full steam ahead like a bull in a china shop. The big money can immediately buy as many shares as are available, which will make a huge impact on the stock’s price.
  • Option 2: The big money can quietly buy smaller amounts of shares under the radar for as long as possible without tipping their hand.

Which would you rather do?

The drawback with option 1 is the big-money buyer is competing against itself. Once the market knows there’s a big buyer, everyone else leaps in to buy shares, too. By not being discrete, the big buyer has ruined their own setup.

Therefore, option 2 is much better. The big money can buy shares over a longer period of time and wait until the bulk of their order is complete before letting the cat out of the bag.

Once the news gets out, everyone else rushes in to buy the stock as well. This of course pushes prices in the big money’s favor, and since they already own plenty of shares, they reap the rewards.

So it’s crucial to buy right when the big money starts buying but while it’s still trying to keep it quiet. And that’s exactly what my system enables us to do.

Regular readers know it scans nearly 5,500 stocks every day and ranks them for strength using algorithms. But it also looks at the big-money buying and selling in the broad market, using the Big-Money Index (BMI).

Here’s what the data is saying right now:

image

Now, when the index level dips to 25% (the green line in the chart) or lower, sellers have taken the reins, leading the markets into oversold territory. And when it hits 80% (the red line) or more, it means buyers are in control and markets are overbought.

The BMI tells us that the market is 84% overbought. And it’s been overbought for a record 76 trading days. So while the market is overheated, big money is still piling into stocks.

But if we drill down into this data even more, we can get a clearer picture of where the big money is placing its bets…


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What the Big Money’s Buying Now

The big money also tends to move in herds. This is why I look at which sectors are attracting capital.

These rotations help us identify which sectors lead and lag, so we can zero in on the top stocks in the winning sectors.

Take a look at the breakdown of sectors in the table below:

image

Last week, the top sectors attracting big money were discretionary and staples, based on the percentage of big-money buying and selling.

Tech and health care were close. While they saw plenty of buying signals, they were nowhere near the frothy buying levels we saw in prior months. Plus, health care saw the only notable selling last week.

It’s all about putting the odds in your favor. By getting the inside scoop on what moves the big money is making, we can position ourselves ahead of time to profit alongside them.

If you’re looking to take advantage, consider the Consumer Discretionary Select Sector SPDR Fund (XLY). It’s an exchange-traded fund that has strong exposure to discretionary stocks, which means it will rise as big money rotates into that sector.

Just remember, never invest more than you can afford to lose.


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Don’t forget: My system can do more than just pick out the big money’s movements in broad sectors. It can identify the individual stocks that Wall Street is scooping up as well… before they begin to rocket higher.

It’s nabbed triple-digit winners for my Palm Beach Trader readers like The Trade Desk, Nvidia, and Veeva Systems. And it’s already sending us signals on the next batch of top stocks to own. You can find out more about how we tap into Wall Street’s strategies by going right here.

Dr. Steve Sjuggerud: How to Know When to Get Back In?

This is the most important question to answer today – after we just experienced the fastest bear market in our investing lifetimes.

By Dr. Steve Sjuggerud


When do you get back in after getting out?

This is the most important question to answer today – after we just experienced the fastest bear market in our investing lifetimes.

In 1996, my friend and colleague Porter Stansberry and I tried to figure it out…

We read everything we could on the topic… In particular, we focused on what the most successful traders and investors did with their money over the past 100 years.

After a lot of reading and research, we came up with a simple two-part system. I’ll share it with you today… including what it means for the markets right now.


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Long story short, we realized that getting back in had two components:

  1. A mathematical one, and
  2. An emotional one.

We learned a lot about what the best investors have done throughout history. And we wanted to devise incredibly “dumb” rules for getting back into an investment – rules so simple that it would be obvious if one of us was trying to break them.

It’s easy to get passionate about your ideas… And most of the time, it’s not a bad thing. But sometimes, the markets go against us. So when do we get out? And then, when do we allow ourselves to get back in?

We already had our “sell” rules in place for the first question. We were already using trailing stops to limit our downside risk – even back in 1996.

But we had to set “buy” guidelines to prevent us from emotionally jumping back into what ultimately might be a bad idea. So we settled on two foolproof rules back then:

  1. If the stock or investment hits a new high, then you are allowed to get back in. (That doesn’t mean you have to get back in – a new high might be too expensive for your taste.)
  1. If No. 1 doesn’t look like it’s going to happen, then you need a “cooling-off period” before you are allowed to buy again.

The first rule takes care of the math. The second rule takes care of the emotions…

For the first one, the principle is straightforward. A new high means that the investment has unequivocally erased its loss. And therefore, whatever caused that loss is likely behind us. That keeps it simple and sensible.

For the second one, think about it like buying a gun. There’s often a three-day “cooling-off period” involved. This way, a person can’t just get emotional, buy a gun, and immediately take the law into his own hands. The waiting period gives him time to come to his senses. It’s probably not scientific – it’s just a measure in place to control emotions.

We set our cooling-off period before buying back in at six months. So if a beaten-down investment doesn’t hit a new high to erase the past, you then have to wait past the cooling-off period. There’s no real science to it – it’s just to keep you from making a bad decision based on emotion.

So what does this all mean right now?


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Well, COVID-19 came out of nowhere and clobbered the stock market. Nobody saw it coming. And stocks fell into an official bear market faster than we have ever experienced in our investing lifetimes.

I recommended my readers follow their trailing stops. But today, based on our 1996 rules, it’s time to get back in…

You see, the Nasdaq recently blew past 10,000 for the first time in history – an all-time high. This new high is incredibly important…

Remember what I said earlier? “A new high means that the investment has unequivocally erased its loss. And therefore, whatever caused that loss is likely behind us.”

This is where we are, right now.

To me, this means that the market has moved beyond COVID-19. It means that the Melt Up can pick up where it left off. And it means that stocks can soar far higher than anyone can imagine.

Don’t get me wrong. I don’t mean that COVID-19 is behind us. I don’t mean that we can’t have a second wave or that there won’t be more struggles ahead. What I mean is that the stock market has already assessed these factors, and it’s not worried.

We’ve seen new highs in the Nasdaq. So according to our two simple rules, it’s safe to get back in. And I recommend you do just that.

Double-Digit Gains in the S&P 500 Index Over the Next Year?

The fall in the fear gauge is actually a sign of more gains ahead. In fact, you can expect double-digit gains in the S&P 500 Index over the next year, based on what’s happening right now.

By Chris Igou, analyst, True Wealth


In March, the market’s “fear gauge” hit its highest level since 2008.

That was during the height of the coronavirus pandemic. The market was crashing. And folks were terrified.

Today, fear in the market has subsided as stocks close in on new highs. It’s more than that, though…

This fall in the fear gauge is actually a sign of more gains ahead. In fact, you can expect double-digit gains in the S&P 500 Index over the next year, based on what’s happening right now.

Let me explain…


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Longtime readers know that when I refer to the market’s “fear gauge,” I’m talking about the CBOE Volatility Index (“VIX”).

When uncertainty shows up in the market, people get scared… and the VIX starts to move higher. It can be a great contrarian indicator, showing when folks are giving up on stocks.

Now, we know we want to buy after folks get scared. But remember, uncertainty can always drive the VIX higher than you can imagine.

So instead of just looking at when the VIX hits new highs, we want to see what happens when that fear starts to dissipate.

Again, the VIX spiked in March as pandemic fears took over. But it has fallen recently. While this measure peaked above 80, it’s now below 35 again.

To see what happens when fear subsides, you need to look at every time that the VIX rose above and fell back below a level of 35… like we saw recently. These spikes highlight fear extremes and let us know when things are getting back to normal.

Now that there’s less coronavirus uncertainty in the market, the VIX is back down. Take a look…

You can see the massive spike in the VIX in March. But levels have fallen dramatically since then.

Historically, when the VIX falls back from record highs, it’s a good sign for U.S. stocks. And that means now is actually a great time to buy.

Since 1990, we’ve seen 41 other times that the VIX has rallied above and fallen back below 35. And buying after these extremes often leads to outperformance…

Similar extremes have led to winning trades 82% of the time over the next year. And history shows you can expect solid outperformance compared with a buy-and-hold strategy…

Previous instances have led to 6% gains in six months and a solid 12% gain over the next year. That crushes the typical 7% annual return.

Simply put, the VIX falling back to more normal levels is an “all clear” sign to own stocks, based on history. And that’s happening right now.

It might seem crazy, but now is a fantastic time to buy. History says more gains are likely on the way.

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