Author: Andrew Packer

Stock market strategies

Tastylive: Predict Market Volatility With 74% Accuracy Using this Key Metric

Posted on by Andrew Packer

Traders rely on statistics for making short-term decisions. While markets can sometimes deviate from those statistics, it creates a reliable and repeatable base from which to enter and exit trades.

Most options pricing is based around the Black-Scholes model. This model relies on a normal distribution, otherwise known as a bell curve. Returns tend to be centered around a mean, and market extremes are rare. However, during periods of volatility, what’s rare becomes common.

To offset the normal distribution model that works during calm conditions, other data is needed. One tool that can be used is the Quantile-quantile (Q-Q) plots. These tools compare two probability distributions.

The result? It can help visualize whether the market is in a normal situation or a stressed one. In the latter case, using the Black-Scholes model may not be appropriate. It could mean getting into trades that have a much poorer risk-reward ratio than during calm times.

This metric can be used to better predict overall market volatility, with a 74% track record. Avoiding normal trading patterns when the market is starting to behave abnormally is huge.

It can mean avoiding investments that appear safe but are risky. And it can mean a better time to employ trades suited for more market volatility and chaos.

 

For more details on Q-Q plots and adjusting your trading during market volatility, click here.

Stock market strategies

A Wealth of Common Sense: The 4 Types of Investment Mistakes

Posted on by Andrew Packer

Investors hope to buy an asset such as a stock or option, and see it increase in value. That’s the fundamental building block of investing. Over time, more tools can be employed to increase the complexity and smooth out returns.

Along the way, there are just four mistakes that investors can make. Knowing what they are can help identify a potential weakness. Or point to a strategy change for better returns.

For instance, most investors know that it’s a mistake to hold onto a losing position for too long. Most investors see a loss, then decide to sell once a position goes back to its breakeven price. That likely means holding a position for further losses. And not freeing up capital to put into a winning trade instead.

Another mistake investors can make is to not rebalance their portfolio. Having a runaway winner in a single stock can create a concentration risk in a portfolio. Taking some profits along the way still leaves some on the table for further gains. But it also frees up capital for the next big potential winner.

Likewise, investors may sell a winning position too early. One ideal strategy is to wait until a position has doubled, then sell half of that position. That avoids selling too soon, while also ensuring a rebalancing occurs.

 

To see the last mistake that can impact your portfolio’s returns, click here.

Stock market strategies

The Compound: Why Every CEO is Secretly Pumped For Trump

Posted on by Andrew Packer

Markets have been on a tear since the election. Part of that is the end of economic uncertainty and the lack of a contested election. But the real story is that President-elect Donald Trump is focused on the economy and deregulation.

One of Trump’s first term policy wins was eliminating thousands of government regulations. Those came back with a vengeance during President Biden’s term. But fewer regulations make it easier for businesses to thrive.

During Trump’s first term, the goals was remove two regulations for every new one created.

Instead, he ended up removing seven regulations for every new one created. Trump plans on bigger regulatory cuts in his second term.

On economic issues, Trump is best known for talking about tariffs. The President has broad authority in tariff matters. Trump can use tariffs to increase government revenues without raising taxes. Or he can use them as a negotiating tool to strike better deals for Americans.

Meanwhile, Trump’s tax cut plan from his first term is set to expire at the end of 2025. By being back in office, Trump can work to extend those low tax rates. And Trump is looking for ways to further lower the tax burden, including lowering the corporate income tax rate to 15%.

With these measures in mind, there may be a rocky start, but the U.S. economy could be set for further structural growth, and smaller-cap companies could be poised for big wins.

 

To watch the full interview, click here.

Economy

The Intellectual Investor: The Impact of Higher Interest Rates on the Economy

Posted on by Andrew Packer

From late 2008 to late 2015, the Federal Reserve set its interest rates at zero percent. This long period of low rates has been called financial repression.

One impact that this had was to help ease the banks following the 2008 meltdown. For savers and investors, however, it meant that savings earned no interest. Given that inflation was still positive over this period, investors who wanted real returns had to take on risk.

The end result? Investors were pushed into riskier assets.

Today, the reverse has been the case. Interest rates rose at their fastest pace in 40 years in 2022 and 2023. And rates are still closer to that high, even with rates coming down.

This has caused a number of effects. First, for savers, it means they’re earning a real positive return on their money. Inflation is under 3% annually now, but savings rates are closer to the 4-4.5% range.

However, this rising cost has resulted in soaring government borrowing costs. That’s because most government funding has been made through sort-term bills and notes. When a 2-year bond from 2021 rolled over from 0% to nearly 5%, the costs soared.

These higher rates can clearly have an impact on economic growth. And we may see those costs hit the economy and the stock market in 2025.

 

To view the full analysis, click here.

Stock market

Swordfish: There’s So Much Leverage

Posted on by Andrew Packer

Markets are set for a banner year. Wall Street analysts see further gains for stocks in 2025, with one estimate putting the S&P 500 at 7,100. That price target implies a 17% rally in 2025.

Naturally, with markets strongly rallying, investors are looking to catch up. And one way to do that is with the use of leveraged ETFs. These funds are designed to capture double the market’s move. Today, there are now triple and even a few quadruple ETFs.

This amount of leverage could be great for investors, provided their timing is perfect. However, this kind of leverage involves holding futures and other derivative contracts.

So over time, those contracts will lose their time premium. And investors on the wrong side of the trade will be worse off. This “tracking error,” as it’s known, has long been a feature of leveraged ETFs.

Today’ rise of 3X and 4X leveraged funds have a more significant tracking error than the 2X ETFs. In a bull market, the investor with the most leverage tends to win.

However, the trend can’t last forever. The rise of retail investors into leveraged funds could be a sign of a market close to topping out. That’s because investors are now looking to chase markets after they’ve been rallying strongly for two years.

For now, investors should look to avoid leveraged ETFs. Buying into them after a bear market could be a stronger strategy.

 

To view the full video, click here.

Cryptocurrencies

Bitcoin Magazine: Fidelity Investments Director Shares Bitcoin’s Adoption and Valuation Models

Posted on by Andrew Packer

Valuing an asset is a key step to determine if it is worth investing in or not. Most assets are valued based on the cash flows they provide. That includes bonds and stocks, with an eye towards additional specific risks involved.

Other assets are more challenging to measure. Gold offers no cash flow for investors. Neither does bitcoin. Yet both are worth thousands of dollars. Figuring out how to value these assets can be key for future returns.

For bitcoin, looking at the adoption curve signals that it still has room to run. The number of bitcoin wallets continue to increase, although the rate of new wallet growth has slowed.

The rise of bitcoin ETFs also contributed to this trend. Now, investors can simply buy an ETF rather than obtain a bitcoin wallet.

Valuing bitcoin in the future requires looking at models such as increased adoption and money supply growth.

Since bitcoin is finite in nature, this combination works well as a monetary and tech trend. Most tech trends grow along an S-curve adoption model. Bitcoin is still in its earlier stages. On the monetary side, increased government spending, debt, or outright money creation should continue to benefit bitcoin’s price.

Looking at these trends overall, bitcoin may consolidate for a few months. Then, it should make a new cycle high in mid-2025.

 

To read the full methodology behind bitcoin’s future price rise, click here.

 

Commodities

Kitco: What I Told Investors at the 50th Anniversary New Orleans Investment Conference

Posted on by Andrew Packer

Elliott Wave theory uses technical analysis within the broader perspective of a five-part wave. Such waves can be seen within any number of markets, from the overall index to individual stocks, and even to commodities.

Under the Elliott Wave, there are five distinct patterns. Waves 1, 3, and 5 are uptrends, with the fifth wave being the strongest. Waves 2 and 4 are pullbacks that partially unwind the move higher in waves 1 and 3.

Right now, the gold market appears to be setting up for a fifth wave higher. If so, the metal could end up moving to over $3,000 per ounce in late 2025 or by 2026.

That move comes in-line with the fundamentals for gold. New supplies remain tight, even with China’s recent announcement of a massive discovery. Demand remains strong, particularly from central banks, including those of China and Russia.

With strong price momentum underway, the metals price may first consolidate in the first few months of 2025. That will create a pause in time that can help push the metal higher.

Once that’s done, the final wave 5 in a commodity tends to be a massive move higher. If this wave theory plays out, gold could have another outstanding year in 2025.

 

To read the full theory and how it plays out, click here.

Stock market

FX Evolution: Wall Street Insiders Sell At The Fastest Rate Since 2021…

Posted on by Andrew Packer

There are many ways to determine the market’s valuation. Investors can look at factors like the market’s price to its overall earnings. Today, with a read of 24 times earnings, markets are overvalued historically. But they’re also not quite at extremes that point to an immediate pullback.

Non-financial factors also suggest that much of the big move over the past two years is nearly over. And that includes insider activity.

Simply put, insider sales are at their highest level since 2021, the last time stocks peaked before a bear market.

Corporate insiders have many reasons to sell. They may want to take some profits off the table.

Or pay for a big expense like a home or child’s college tuition.

But when insider selling as a whole is on the rise, it’s a sign that markets may be overbought. Insider sales tend to occur early, however. That suggests that today’s investors may still have a few more strong months ahead before some increased volatility.

Combined with the rise of retail investors pouring into the market, it’s a sign that traders should get cautious.

We’re likely still on track for a year-end rally. But 2025 could see more volatility, with some sizeable drops along the way. The rise of insider selling is just one hint at that future outcome.

 

To view the full details on insider selling, click here.

 

Income investing

Elliott Wave Investor: Bonds Change Direction … Cut or No Cut?

Posted on by Andrew Packer

The past few months have seen a disconnect between the stock and bond markets. Stocks have trended higher, even as bond yields have trended higher. Typically, that’s the opposite of what happens. Falling bond yields help push stocks higher.

Now, bond yields are starting to tick down. That could be a sign that the bond market is ready to follow the rate cut trend started by the Federal Reserve.

The move also comes as the Federal Reserve looks ready to slow its pace of interest rate cuts. Markets still expect a quarter-point cut later this month. If that happens, rates will be down a full 1% from their cycle high.

From there, the Fed looks ready to slow down. Inflation remains well above their target rate. And concerns over tariffs and a trade war could mean further inflationary pressures in 2025.

For now, with bond yields declining, the market looks less stressed going into the end of 2024. But if rate cuts slow significantly, it could put pressure on the stock market next year.

Stocks may see a slight selloff in the first half of December. But it’s likely that they’ll follow a Santa Claus rally into the end of the year. After that, 2025 could see a market pullback in the 10% range.

 

To view the full analysis, click here.

Economy

Bravos Research: Please Don’t Be Dumb Money

Posted on by Andrew Packer

Over the past three months, investors have moved $150 billion into stock ETFs and mutual funds. That’s a rapid increase, and is the highest pace since late 2021.

It’s also a shift from money leaving equity funds in 2022 and even early 2023. Overall, it’s a sign that investors are increasingly bullish on the stock market. Particularly, retail investors are driving this shift in capital into stock ETFs and mutual funds.

However, that’s not necessarily a healthy sign for the economy. It could be a sign that retail investors are going all-in. If that’s the case, the timing isn’t the best. The market has been in rally mode for over two years now.

With the S&P 500 up over 26% in 2024, it’s an above-average year for stocks. But market earnings haven’t been growing as fast. Today’s investors are paying an average of 24 times earnings for stocks.

Typically, a reading of 20 times earnings is considered more than fairly valued.

While not yet as expensive as in late 2019, it’s possible that markets are more likely closer to the end of a rally than the start. And that some large pullbacks could be in store along the way.

That means that today’s investors shouldn’t be shifting more capital to stocks. Instead, they should be taking some profits and thinking just a bit more defensively.

 

To see the full analysis, click here.