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Today, we’re diving into a strategy that turns market discards into potential treasures. Ever wondered what happens to stocks after they’re dropped from major indexes? It turns out, they might just be the hidden gems you’ve been looking for. Our main focus today is on this intriguing “Trash to Cash” trade that has flown under the radar for most investors.
But that’s not all we have in store. In the Chart of the Day, we’ll be taking a closer look at ServiceNow, a tech stock that’s quietly defying the broader market pullback. Could this be a sign of things to come? We’ll explore whether this under-the-radar mover is poised for a breakout.
As always, we’ll also cover the latest Market Moving News and sprinkle in some random musings and fun trivia along the way. Whether you're here for the insights, the strategy, or just to stay ahead of the curve, we've got you covered. Let’s dig in and uncover where the real opportunities lie today. |
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Top AI Stocks to Watch in 2024
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AI is the hot topic these days and for good reason! It's blowing up and set to hit a whopping $407 billion by 2027, up from $86.9 billion in 2022.
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Markets Hold Breath as Key Data Approaches |
Monday's market action was muted, with stocks largely drifting as investors awaited crucial economic reports later this week. The S&P 500 and Dow Jones Industrial Average barely budged, while the Nasdaq Composite eked out a modest gain, thanks to a rebound in semiconductor stocks. Small caps didn’t fare as well, as caution seemed to be the order of the day.
Geopolitical concerns, particularly fears of potential conflict in Israel, drove crude oil prices higher, which in turn put some pressure on equities late in the session. Energy stocks were one of the few sectors to show strength, benefiting from the spike in oil prices.
As we look ahead, all eyes are on the July Producer Price Index (PPI) and Consumer Price Index (CPI) reports, set to be released on Tuesday and Wednesday, respectively. These inflation readings will be pivotal in shaping expectations for the Federal Reserve's next move on interest rates. With consumer spending making up nearly 70% of the U.S. economy, the data will also provide insight into the broader economic outlook.
Meanwhile, earnings reports from Home Depot and Walmart will offer additional clues on the strength of consumer demand. Given the mixed signals in recent economic data, these reports could tip the scales on market sentiment.
In the bond market, Treasury yields slipped, and the dollar edged lower following the New York Fed's inflation expectations report, which showed a decline in three-year inflation expectations to their lowest level since 2013. Volatility remains below last week’s peaks, but with major data on the horizon, markets could be in for more movement soon.
Strategy Note: With the market in a holding pattern, investors may want to keep a close watch on inflation data and retail earnings, which could trigger the next significant move. Positioning for potential volatility with a balanced approach could be prudent as we head into a data-heavy week. |
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I drove across the country to place this ONE trade |
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The "Ex-Index Blues": When Stocks Get the Boot |
So, you know how some stocks get kicked out of major indexes? It's kind of like being uninvited to the cool kids' party. Suddenly, all those index funds that were once your biggest fans are forced to dump you, no matter the price. Talk about a harsh breakup!
But here's the funny part: research suggests that these "dumped" stocks often end up outperforming the market in the years after their unceremonious exit. It's like they're saying, "Oh, you don't want me anymore? Fine, watch me shine on my own!"
Maybe it's the classic underdog story, or perhaps it's just the market being its usual unpredictable self. Either way, it's a reminder that sometimes the most interesting opportunities lie in the places others have overlooked. So, next time you see a stock getting the boot from an index, don't be too quick to dismiss it. It might just be the start of a beautiful rebound story! |
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ServiceNow - Stealthily Scaling the Wall of Worry |
While the tech sector might be feeling a bit bruised lately, ServiceNow (NOW) seems to be quietly staging a breakout. It's like that underdog athlete who trains in secret, then suddenly surprises everyone by winning the race. Let's break down the clues: -
Breaking the Fall: NOW has smashed through a downtrend line that had been holding it back. That's a classic sign of a shift in momentum.
- Above the Crowd: It's also cruising above its 50- and 100-day SMAs, while the Nasdaq is struggling to stay afloat. That's relative strength, folks.
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Déjà Vu?: The tight squeeze between those moving averages looks awfully familiar... it reminds us of late October, right before NOW took off on a major rally.
- Bullish Momentum: The short-term trend is looking mighty fine, with the 8-day EMA crossing above the 21-day EMA.
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Conquering the Peak: NOW has been flirting with the $707.60 resistance level all year. Could this be the moment it finally breaks free and reaches new heights?
The stars seem to be aligning for ServiceNow. But remember, in the market, nothing is guaranteed. We'll keep a close watch to see if NOW can maintain this upward trajectory and truly break out from the pack. |
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This obscure formula holds the key to 64 wins in a row |
Over the past 5 years, Roger Scott has uncovered hundreds of winning opportunities. But his best-kept secret? A unique stock market pattern.
Since 2020, this pattern has averaged an 85% return per year, winning over 72% of the time. Join Roger’s free class to learn this powerful strategy.
See how this pattern can guide your stock picks. Follow this link and enter your email to sign up!
The profits and performance shown are not typical, we make no future earnings claims, and you may lose money. From 2/25/20 through 7/15/24, the average win rate on published trade alerts is 72%. The average weighted rate of return on options trades was 7.82% over a 13 day average hold time. |
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Turning Market Rejects into Winners: The NIXT Strategy |
In investing, getting dumped is often seen as the end of the road, but for certain stocks, it might just be the beginning of something profitable. Rob Arnott and Forrest Henslee of Research Affiliates have developed an intriguing strategy around stocks that have been kicked out of major indexes. Their newly unveiled index, NIXT, would have turned $1 into $74 since 1991 by focusing on these discarded names. The concept is simple yet counterintuitive. Hedge funds often profit by buying stocks set to enter an index and shorting those about to exit. NIXT flips this script, scooping up the castoffs after they’ve been removed, then holding them for five years. The results have been surprisingly robust, with these stocks outperforming the broader market by about 5% annually over a five-year period. What’s driving this performance? Stocks removed from indexes often experience heavy selling pressure from funds forced to unload them. This creates a buying opportunity for those willing to look past the initial drop. Over time, these stocks tend to recover and even outpace the market. Arnott’s strategy isn’t without its limits. NIXT can handle up to $1 billion in capital before its effectiveness might wane. Additionally, while this approach has proven successful, it doesn’t match the returns of indexes like the Nasdaq-100, which has tripled the performance of the S&P 500 since 1991.
Still, for those looking to venture off the beaten path, betting on these “unloved” stocks could be a rewarding strategy. As the market continues to evolve, opportunities like these might offer a unique edge for the contrarian investor. |
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Key Moves and Big Questions |
Monday saw some notable shifts in the market, with several companies making headlines. KeyCorp (KEY) jumped 9.10% after the Bank of Nova Scotia made a minority investment, giving the stock a much-needed boost. Meanwhile, Nvidia (NVDA) climbed 4.06%, despite little news to justify the rise. It seems like traders might be betting on a rebound, especially with the PHLX Semiconductor Index (SOX) down 20% since July.
Starbucks (SBUX) rose 2.58% on reports that hedge fund Starboard Value has taken a stake, aiming to shake things up and push the stock price higher. On the flip side, JetBlue Airways (JBLU) plunged 20.66% after S&P and Moody’s downgraded the airline following its announcement of plans to raise over $3 billion in debt. As the week progresses, all eyes will be on retail earnings, with Home Depot and Walmart set to report. Home Depot's results could provide insights into the housing market, while Walmart's guidance will be scrutinized for signs of consumer strength or weakness.
Retailers are facing pressure as pricing power diminishes, potentially leading to increased discounting and tighter margins. Watch for reports from JD.com and Alibaba later this week, as these Chinese giants offer a read on consumer demand in China.
Technically, the S&P 500 appears stuck in a range, with resistance around 5,400 and support near 5,000. Investors are closely monitoring inflation data—with PPI and CPI releases due—potentially setting the stage for the next big market move. The outcome could tilt the odds of a Fed rate cut, with markets currently pricing in a 51.5% chance of a 50-basis-point reduction next month. |
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MARKET MUSINGS & TIME CAPSULE |
Random Musings
The "Dumpster Diving" Strategy: It's funny how the market can be like a high school cafeteria. The popular kids (stocks) get all the attention, while the ones sitting alone at the "losers' table" might actually be the hidden gems. Maybe it's time to start rummaging through Wall Street's metaphorical dumpster!
The Art of the Rebound: Just like in life, sometimes a little setback can lead to a major comeback. Those "dumped" stocks might just be gearing up for their revenge tour, proving that being underestimated can be a powerful motivator.
Patience is a Virtue: In a world of instant gratification, long-term investing can feel like a test of endurance. But remember, Rome wasn't built in a day, and neither are successful portfolios.
The Inflation Puzzle: Inflation is like that riddle you can't quite solve. Is it cooling down, or is it just lurking around the corner, ready to surprise us? Stay tuned for the upcoming CPI report - it might just hold the missing piece.
The Global Game: From China's consumer spending to geopolitical tensions in the Middle East, the market is a complex web of interconnected events. Keeping an eye on the global landscape is key to staying ahead of the curve. On this day in history, August 13 August 13, 1961: The Berlin Wall begins to be constructed, dividing East and West Berlin. Much like a stock being removed from an index, the Berlin Wall created a separation, but also a unique opportunity for those on the "other side" to thrive. August 13, 1704: The Battle of Blenheim, a major turning point in the War of the Spanish Succession. Even in the midst of conflict, opportunities for change and growth can emerge, just as "dumped" stocks can find new strength.
August 13, 1889: William Gray patented the coin-operated telephone. Innovation and disruption can create unexpected winners and losers, much like the shifting tides of the stock market.
August 13, 1913: Harry Brearley of England announces the invention of stainless steel. Sometimes the most valuable discoveries come from unexpected sources, just as overlooked stocks can hold hidden potential.
August 13, 1960: The Central African Republic gains independence from France. New beginnings and independence can lead to unforeseen growth and prosperity, a lesson that resonates with the "dumped" stocks finding their own path to success. |
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In the Market, as in Life, One Man's Trash is Another Man's Treasure |
"The market can be a strange beast. It often rewards the popular and punishes the outcasts. But remember, the market is not always rational. Sometimes, the greatest opportunities lie in the stocks that have been left for dead." - Howard Marks
As we wrap up today's newsletter, let's keep Marks' words in mind. The market is full of surprises, and today's focus on "dumped" stocks is a testament to that. While the broader market waits with bated breath for inflation data and the Fed's next move, there are always opportunities to be found for those willing to look beyond the obvious.
Whether it's a contrarian play on unloved stocks or a tech company defying the odds, the market is a dynamic beast. So, keep your eyes open, your mind sharp, and remember that sometimes the greatest treasures are found in the most unexpected places. |
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Disclaimer:
Trading foreign exchange, stocks, options, or futures on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to trade, you should carefully consider your objectives, financial situation, needs and level of experience.
This newsletter provides general information that does not take into account your objectives, financial situation or needs. The content of this newsletter or our website must not be construed as personal advice. COE Media is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation.
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