Is the Stock Market a Casino?
Since the onset of the Coronavirus, we are experiencing things never before seen in this lifetime. New norms socially, politically and economically. The stock market is no different.
Markets are completely disconnected from the economy. Stock movements are increasingly not correlating with fundamentals or even technical analysis. Insert wolf of Wall Street Mark Hanna quote: “Nobody knows if a stock is going to go up, down, sideways or in circles.”
Uncertainty is at an all-time high, but this hasn’t stopped people from entering into positions and predicting price bottoms, dead-cat bounces and rallies.
Markets have become a casino.
The gamblers who would normally head to the casino for a game of Black-Jack or are fixed to the TV, betting on professional sport games, are turning into traders/investors. Who doesn’t love the thrill of a stock that is on a tear to the upside?
For Robinhood, the modern trading platform, it has been reported that the company has seen “historic participation and activity” on its platform as more and more people enter the stock market that wouldn’t in normal times.
The “golden” stocks that have exploded during the pandemic such as Twilio Inc (NYSE:TWLO), Datadog Inc (NASDAQ:DDOG) or Beyond Meat Inc (NASDAQ:BYND) are backing off.
Retail and travel stocks are now flying even though earnings have been missed. TJ Maxx or TJX Companies Inc (NYSE:TJX) stores not physically and online have been closed for over 2 months and are still trading within 10% of their prior highs. Travel companies were biggest gainers on Tuesday and is set to keep rising – with Carnival Corp (NYSE:CCL), the British-Panamanian cruise operator, up more than 15% premarket.
With this in mind, we believe traders in today’s market condition should have a patient, selective and diversified mindset. The worst thing traders can do is bet into the recent hot stocks and try to buy small pullbacks.
Instead, maybe the better option, although maybe less exciting is look into the following sectors:
Regional banks such as Fifth Third Bancorp (NASDAQ:FITB) and Huntington Bancshares Incorporated (NASDAQ:HBAN) – the financial institutions that haunt rallied back from their lows like the above retail companies have. From a technical perspective, there is still lots of room for upside.
Industrials such as Honeywell International Inc. (NYSE:HON) and Caterpillar Inc. (NYSE:CAT)
Materials such as Materials Select Sector SPDR (NYSEARCA:XLB)
Utilities with high dividends such as Utilities SPDR (NYSEARCA:XLU) and Industrial Select Sector SPDR Fund (NYSEARCA:XLI)
Watch the full interview to see how you can get the odds back in your favour as you play against the biggest casino of them all: the stock market.
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Disclosure
Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.
Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.
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