- The enormously profitable investment strategy…
- … that many investors lack the discipline to use
- The market anomaly that delivers “vertical” gains every time it happens
- Discount price for a tech giant, thanks to investor impatience
- Look out below: China’s latest stealth devaluation underway
- The country where the dollar trades against itself… why we should be “deeply ashamed”… reader wonder what gives with Covel’s claims… and more!
“Buy high and sell higher.”
This advice flies in the face of all conventional wisdom. But it’s been Michael Covel’s touchstone across two decades of research and four books he’s written on “trend following.”
Its success is undeniable — most recently for readers of Trend Following With Michael Covel, launched here at Agora Financial last winter. It’s delivered average gains of 12.5% — and maximum gains of 43% — in a holding time of six months or less.
But not everyone has the discipline to pull down those gains.
Case in point: Apple in 2005. At that time, AAPL had leapt 446% in the previous two years. Conventional wisdom would say it was time to take gains for anyone who’d been lucky enough to buy; certainly it was a big fat “avoid” for anyone who’d not.
But Michael’s proprietary system said Apple was a buy. Over the following 10 years, it jumped 2,010%.
“Often, the most important time to buy will be exactly when you don’t naturally want to,” Michael elaborates this morning — “and the most important time to sell will also be when you don’t naturally want to.
“A perfect example is the market crash of 2008. The fact is it didn’t take a top-secret, state-of-the-art trend following system to tell you to get out of stocks back in 2008. Just about any simple trend following system would have told you to get out. The hard part was actually listening to the system and selling when stocks were still just a bit off their 2007 highs.”
Again, discipline. Conventional wisdom said there was no reason to bail at that time. “But the investors who listened to the system sells in 2008 avoided destruction,” says Michael — “and some made a lot of money on top of it.”
Which brings us to the present moment: “I can’t predict when the next crash will happen,” says Michael, “or what this election will mean for the stock market.”
Indeed, Michael won’t dismiss the possibility that the major U.S. indexes might blast higher and set records next year.
But Michael’s not about making those sorts of calls. He’s all about following the system and keeping his emotions out of it.
“Our process will always give us buy signals when we don’t naturally want to buy anymore. And we’ll get sell signals when we don’t want to naturally sell. However, staying disciplined and following our signals long term is the only way to actually make money through all of the ups and downs.”
Michael has spent much time this year refining his trend following system for readers of a monthly newsletter. And while doing so, he made a remarkable discovery…
“It’s not every day when you come across something and you tell yourself, ‘Holy s***, this could be BIG,’” Michael tells us.
But that’s the case with a little-known market anomaly that affects only 3% of stocks listed on the major exchanges. And it sends stocks on a vertical line 100% of the time.
Here’s an example from this year — Helios and Matheson Analytics. In a mere 12 days, it was possible to capture gains of 1,093%…
Nor was that the only one. Indeed, there’ve been 34 of these “vertical trades” during 2016.
Some move quickly — like 773% in three days. Others take more time to play out — but we suspect you wouldn’t turn down a 960% gain if it meant waiting three months.
“I’ve personally never seen this before in my 20-year career,” says Michael. “Which is why after I discovered it, I locked myself in my home office in Saigon, almost 9,000 miles away from Wall Street.”
Until this month, he’s kept it under wraps. He didn’t write about it. He didn’t talk about it on his podcast.
Now — after painstaking efforts to make sure there were no hidden traps in this market anomaly — it’s go time.
“If you’re looking for a way to grow your nest egg as fast as possible,” he says, “this could be what you’re looking for.” Click here to learn what it’s all about.
To the markets today, where it’s all about earnings. The Dow industrials are slightly in the green at 18,218. The other major U.S. indexes are slightly in the red.
Treasuries are selling off, the 10-year yield at 1.78%. Gold is also down a bit at $1,267.
Earnings, you ask? Comcast and Coca-Cola both pulled off the old trick Jack Welch did when he ran GE — results that beat the “analyst estimates” by precisely a penny per share.
But the big story in earnings news is the aforementioned Apple. It too delivered a penny-per-share “beat”… but that’s overshadowed by the company’s first annual revenue decline in 15 years.
AAPL is putting the best spin on it possible — forecasting renewed growth this quarter on the strength of the iPhone 7 — but Wall Street’s short-termism has pushed shares down more than 2.5% as we write.
Our income specialist Zach Scheidt finds the numbers consistent with his thesis expressed here late last year — Apple is now a mature company, its go-go growth days in the rearview. But that’s not a bad thing: “Since mature companies don’t need to invest their cash in growth opportunities, they are free to distribute that cash to investors.”
At today’s prices, AAPL sports a 1.94% yield, with room for that yield to grow over time. Lifetime Income Report readers can expect a full update from Zach on Apple tomorrow.
This year, China isn’t waiting until the Federal Reserve acts before carrying out a “stealth devaluation.”
“The Chinese have begun — in my opinion, which could be wrong — a stealth devaluation of their currency, to protest the coming rate hike in the U.S.,” writes our go-to currency maven Chuck Butler from EverBank Global markets.
Chinese leaders rarely allow the renminbi to move dramatically against the dollar in a single day or week. They did in August of last year, and set off a global market shock. Most of the time, you have to zoom out to longer time frames to notice big moves. The Chinese carried out a slow-motion “stealth” devaluation late last year after the Federal Reserve raised interest rates.
With that as background, check this out…
Key point: Both the December and August devaluations last year took place when the U.S. dollar index was in the high 90s — as it is now.
“So if that pattern holds true,” says Chuck, “the large move lower earlier this week will in fact turn out to be a small devaluation that could be the beginning of more devaluations.
“You see, the renminbi is supposed to be trading differently than in the past when it was so tied to the dollar, but in my opinion, nothing has really changed here, and as the dollar gets stronger, the renminbi should be getting stronger. But that’s not in the best interest of the Chinese right now, so they ‘act out’ and devalue the currency in protest to the dollar strength that’s being generated by the rate hike hype for December.”
As Jim Rickards has pointed out often here, even the stealth devaluation of last December put a chill into global markets — sending U.S. stocks into a 10% correction. We’ll be watching…
Staying with the currency markets, there’s been a remarkable new development from the country that once brought us this…
“Runaway inflation” got a whole new meaning in Zimbabwe back in 2008. The following year, the nation’s central bank gave up on the Zimbabwe dollar and adopted the U.S. dollar as its currency. Strictly speaking, it adopted several currencies in hopes of avoiding a black-market trade.
Fast-forward to the present and the government of aging dictator Robert Mugabe is running short on cash with which to pay civil servants and buy critical imports. So the government plans to introduce legal tender it calls “bond notes” pegged to the dollar.
Critics say a new black market currency is inevitable: “Zimbabwe is a net importer, and bond notes can’t be used to settle invoices abroad,” explains Kipson Gundani, chief economist with the country’s National Chamber of Commerce. “With no cash in the banks, importers will be forced to look for greenbacks on the black market.”
Indeed. In Zimbabwe, the U.S. dollar now has an exchange rate against itself. Samuel Chiweshe knows it all too well — he makes garden furniture from imported raw materials. “I just paid $1.07 per dollar for a $2,000 transaction, because my steel supplier is now accepting only hard cash and has already warned me that they won’t accept bond notes,” he tells Bloomberg. “So now I’ve raised my prices 7%, but will I be able to sell? I’m doubtful.”
“You ought to be deeply ashamed,” begins today’s mailbag.
[Ooh, this oughta be good!]
“Your statement, ‘To say nothing of the “intelligence community” asserting Russian involvement in the release of all those documents — while offering no new supporting evidence” may suit your article well, but is disturbingly dishonest.
“You know damn well that a dozen and a half intelligence and cyberdefense agencies agreeing that Russia is the culprit in hacking and furnishing info to WikiLeaks proves the point and would never be accompanied by confidential proof.
“Quit the disgusting support of the reprehensible Republican Party, or, if you can’t, at least try to be somewhat honest.
“Thanks in advance for any effort you might make.”
The 5: So if the “intelligence community” asserts something as fact, that makes it true and we just have to trust their secret evidence? That didn’t work out so well with Saddam Hussein’s weapons of mass destruction, did it?
But even if we take intelligence intelligentsia at their word, did you notice they’re hedging their bets? Their statement on Oct. 7 (not an official intelligence “estimate,” just a glorified press release — which itself is kinda interesting) said the hacks and leaks are “consistent with the methods and motivations of Russian-directed efforts.”
Those are a lot of weasel words in one sentence fragment. From this, they leaped to expressing “confidence” the Russian government was behind it, which gave space to the Clintonistas to scream, “Putin did it!” — which was almost surely the intention.
Oh, and thanks for demonstrating how some people are so invested in their tribal identity that they’re convinced anyone who disagrees with them on a specific point must be aligned with the only other tribe that exists…
“I followed the link yesterday and excitedly read the very long description of Michael Covel’s seemingly too-good-to-be-true “vertical trade” offer, ready to get out my credit card,” a reader writes.
“However, the very first company I checked out, First Majestic, that Michael claimed was a ‘vertical trade’ with a 1,986% profit in six months, was absolutely not. Worse, it was not even close to that claim in profits that he is making.
“I know because I am invested in that stock. Jan. 20 was the absolute low, at $2.40; Aug. 10 was the absolute high, at $19.15 — i.e., a maximum profit of 698% could have been captured if one had a crystal ball and bought at the exact low on the exact day of the low and sold at the exact high on the exact day of the high.
“Such fraudulent claims immediately put into question everything else that Agora Financial promotes in The 5. Please explain why Agora Financial allows false claims to be made by Michael and why you offer such claims to readers like me.”
The 5: “Fraudulent” is a strong word. Please wield it with care.
At no time did we say these gains were made in a straight-up stock trade.
“Our extensive back testing,” says Michael, “shows the most profitable trades occur in the options markets. When you combine the explosive moves of vertical trades with the leverage of options… that’s when you get the chance to make a fortune — fast.”
Options aren’t for everyone. The rewards are greater, but the risk is likewise higher. We have a daily limit on the number of new subscribers to Vertical Trade Alert, and we charge a premium price for the service — the better to shut out entry-level investors who might get burned.
But if you do have some experience and you’re ready to take the plunge… the rewards could be immense.
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. Another thought: The nature of trend following is such that you know going in that not every trade will be a winner. But the winners will be frequent enough and large enough to more than make up for the losers, and by a large margin.
That sounds great in theory. But when you see one or two trades going against you, emotions can take over — sabotaging your success.
As we said above, there’s a discipline to trend following that not everyone’s cut out for — especially when pursuing “vertical trades.”
Do you have what it takes? See here and decide for yourself.
