If Monday’s market bloodbath – and yesterday’s huge rally – has you scratching your head, you’re not alone.
I lost count of all the reasons – many of them half-baked – that the cable TV “experts” tossed out.
Yes, they rightly pointed out plenty of “triggers” out there that could indicate a return to the kind of volatility we saw back in 2015 and 2016.
But I firmly believe the one big reason for Monday’s historic 1,100-point drop in the Dow Jones Industrial Average was computerized trading.
The software that hedge funds and Wall Street houses use are filled with algorithms designed to protect even meager profits for these high-frequency traders. And on Monday, as I’ll show you in a minute, those machines struck back.
Here’s what I think that means: After a couple of complacent years on the Street, it looks like we are headed for choppy markets once again. I’m calling this bout of turbulence “The Fat Finger Market” (that “title” will soon make sense).
But that’s fine. We can deal with some choppiness.
You see, I’m still pumped up about Silicon Valley tech investing… about finding ways to play the cryptocurrency craze… and about the unstoppable legal cannabis industry.
And I know you are, too.
“All Hell Broke Loose”
Let’s review the action on Monday…
There was some weakness early in the day after Friday’s losses.
But suddenly, while I was talking about some upcoming Strategic Tech Investor reports with one of the editors, all hell broke loose.
It was almost like someone hit the wrong key on the market’s “computer” and sent shares across the board sharply lower.
The Wall Street Journal quoted one harried trader as saying, “Did someone just fat finger this?”
Well, in a sense, yes…
As I see it, as the market marched higher into the record books over the past few weeks, those software algorithms we talked about earlier just kept tightening the pros’ stop-losses. And as some anxious traders took profits early on Monday, it triggered a wave of algorithm-driven “Sell” orders that in turn set up even more “Sell” orders.
It was a mess. But temporary carnage.
Please don’t think I’m glossing over any problems areas. In fact, let’s list them, just so we all know what we’re facing here.
- The markets are concerned that we could see another government shutdown over budget talks tomorrow.
- Janet Yellen just retired as chair of the U.S. Federal Reserve.
- At the same time, the Fed’s interest rates are on the rise.
- Lower unemployment and rising wages could lead to inflation.
That all sounds bad. And it could be.
But I’ve been analyzing and investing in the markets for most of my life, so I tend to take these things in stride – and look at the bigger picture. And as I survey the economic landscape, I still see plenty of reasons to be optimistic, especially about making big money in tech.
New tax cuts for business will mean that companies will have more cash on hand and higher profit margins. That’s especially true for big tech firms that can now bring back several hundred billion dollars in offshore profits.
That’s money they can use for researching and developing the next round of innovative consumer and business technology. Plus, they’ll be rewarding tech investors like you with rising dividends and boosted share buybacks.
We also have a very low unemployment rate hovering around 4%. Economists now forecast first-quarter GDP growth of 5%, the highest since 2009.
In other works, the choppiness that we may see more of in the weeks ahead has little to do with economic or financial fundamentals.
But that doesn’t mean we can simply throw caution to the wind. With that in mind, I want to share the three tools you need for this volatile “Fat Finger Market.”
Take a look…
Fat Finger Market Tool No. 1: The Cowboy Split
I’m shocked more professional investors don’t know about this powerful moneymaking tool. But it’s one my paid-up Nova-X Report and Radical Technology Profits members have been using to rack up triple-digit gains like clockwork.
Simply stated, the Cowboy Split is a staggered-entry system. You take a position in a stock at market – and then enter a “lowball limit” order to buy more if a discount comes your way.
In general, I recommend employing a 15% to 20% discount from your entry price as a second buy point. Here’s how it works…
You acquire 50% of your intended stake in XYZ Tech Corp. at a price of $50. In this case, should the market trigger your “lowball limit” order, you would automatically buy a second 50% stake at $40 a share, for an average price of $45.
Now assume XYZ rallies all the way to $60. You would then have 16.6% appreciation on your original shares. But it’s that second stake that really juices your profits.
See, that second half’s gains are double those of your first buy. This way, you end up with overall gains of 25%. That’s roughly 50% better than if you just bought your full stake at $50.
Fat Finger Market Tool No. 2: Play “Moneyball”
Momentum traders can sometimes rule today’s market. These are aggressive types who pile into stocks that are on the move.
While their moves can add to your short-term gains, they greatly increase the odds that you’ll see a big mover reverse quickly on profit-taking.
That’s why the Fat Finger Market Tool that I call “Moneyball” is so effective. I named it after the book and movie Moneyball, about how my hometown baseball team, the Oakland A’s, won 20 straight games in 2002 on a shoestring budget.
The A’s weren’t looking for home runs. Their idea was to get as many runners on base as possible. In other words, they looked for singles and doubles.
Rather than looking to double your money, take some gains off the table when a stock advances, say, 25%, which is still a market-crushing return.
Remember: The faster a stock moves, the more you’ll want to protect some of those “windfall gains” before those momentum traders reverse it on profit-taking.
And no matter what, always take a “free trade” – sell half – when you book 100% gains. That way you get your original capital back… and are playing with the house money from then on.
Fat Finger Market Tool No. 3: The Autopilot System
Whenever possible, set yourself up so that you exit a position with specific gains no matter what happens.
That’s where a Fat Finger Market Tool that I call the “Autopilot System” comes in handy. It’s a unique way of protecting profits with a combination of taking gains and using trailing stops.
It works like this…
Let’s say you sold half of XYZ Tech when it was up 30%. Now, you can afford to see if the stock sill has more upside while at the same time protecting your profits against any reversal.
In this case, you could set your stop at your original entry point and walk away with combined gains of 15%. Or you can set the trailing stop above your entry price to lock in more money.
The beauty of the system is that you set up your minimum profit figure in advance. After that, there’s no need to worry about what happens, because the Autopilot System is protecting your portfolio.
Now take these Fat Finger Market Tools and stick them somewhere you can go back to them regularly. With them at your side, you can keep on investing in winning tech stocks and – even in a turbulent market featuring both bloodbaths and huge rallies – keep piling up profits.
Because you’ll be prepared for anything the world throws at you.
I’ll be back later with what to buy – and when to buy it.
See you then.