The S&P 500 continues to do battle with the weekly 200 simple moving average, a critical level that will determine if we see a repeat of 2000 and 2008 or a revival of a bull market.
In which direction the price will go is anyone’s guess. My bias is always with a repeat of historical patterns and a resumption of a bull trend. However, I am equally prepared to short the market if we do see further weakness.
In my previous article, I went into detail on how the weekly 200 simple moving average has acted as support in 2011, 2016 and 2018 and what we could see through 2022.
With the stock market showing signs of a potential bottom, let’s have a look at potential future price action of some of the bigger stocks. I have accompanied each stock with its monthly timeframe.
I’d like to premise this by saying that none of these stocks look attractive from an investment point of view. A classic approach (mistake?) is for budding investors to look for under-valued stocks hoping to see them skyrocket once purchased.
The outcome, however, is very often the saying of catching a falling knife when the stock continues to plummet further.
This can be easily avoided by aligning yourself with the market and applying patience for a trend direction to be confirmed.
This is why I prefer first to wait for the market to determine a direction, bullish or bearish, and then invest in stocks that are moving faster than the average which is what the indices are.
- I buy stocks in a bull market performing better than the average.
- I short stocks in a bear market weakening quicker than the average.
- In between, I stand aside and protect capital or move to another market such as forex. I am currently long on the USD across a number of pairs with several more on the watchlist.
This way I have a portfolio loaded with only high-probability stocks and not pin my hopes on stocks reversing in my favor.
Apple Inc (NASDAQ:AAPL)
Performed well compared to other tech stocks during this year’s decline with a fall of 30%. The price is trading inside a consolidation and currently trading at $140. A move above $183 will make this a consideration for my portfolio.
Microsoft Corporation (NASDAQ:MSFT)
A decline of 37% since the high of last year. A stock with a very attractive performance history which is likely to repeat once the market confirms a bottom. I will consider this for the portfolio above $400.
PayPal Holdings (NASDAQ:PYPL)
A massive drop of 80% since July of last year from $310 to $68. Paypal is still a giant of a company. However, this is a good example of how a stock is simply a piece of paper and is only worth what someone is willing to pay for it no matter how ‘undervalued’ you may think it is. These stocks could keep on tanking and why I never buy into falling knives. It will be a very long time before I consider this for the portfolio.
McKesson Corporation (NYSE:MCK)
This is a stock you are likely to have not considered but has outperformed all three tech giants. I have mentioned it numerous times in my previous articles. While the S&P 500 and these stocks above have tanked, MCK has rallied by 50% since the start of the year. This has been in my portfolio since last year.
Main Take-Aways
Consistent profit in the stock market is always made by:
- Staying neutral to ticker symbols - the goal is to make money and not to be right.
- Establishing market conditions - bull, bear or consolidation.
- Scanning and investing in the best-performing stocks in the established market conditions.
By repeating the above, you avoid the classic falling knife scenario and instead invest in only the best-performing stocks in the right direction of the market.
Featured image sourced from Shutterstock
