Times of uncertainty and volatility

The time has come again for us at DowExperts to share with you our most recent ETF correlation analysis and overall market observation, in order to help you to prepare for what’s coming in the month of November. The market movements in the past few months altogether have been nothing short of spectacular all across the board. After seeing substantial continued gains on all major US indices for 6 months in a row the US equity market found itself sitting at all-time highs in the beginning of this Fall. What followed then were some volatile price declines in the beginning of September, which were more than expected at the time as nothing could go up or down in a straight line forever. However, the generally positive summer narrative among traders and investors had started to fade and shift its focus to the series of actual political, economic and public health problems that the country and the world for that matter were facing. The continuous and progressive surge of new COVID-19 infections globally throughout September and October saw many countries including the likes of UK, Germany, Italy, Spain, USA etc. in talks of a potential 2nd full lock-down, which in turn significantly increased the uncertainty, volatility and the risks in the market. Investors decided to take some of their chips off the table in order to lock in some of the previously generated gains and this led to couple broad-based market declines in the last 6-8 weeks. The failure of Republicans and Democrats to reach a consensus on the 2nd round of stimulus has also proven to be a net negative for investors’ confidence, as everybody knows that without the new stimulus bill the US economy will basically fall apart in these difficult times. Another key development that didn’t help the stock market was President Trump’s positive COVID-19 test. Even though that he has seemingly recovered in a matter of just few days, it is still not clear what are the prolonged effects of the virus in asymptomatic people. Thus, we couldn’t be sure whether or not President Trump will be okay in the weeks and months ahead, as there have been many cases where people who have already recovered once from the virus, contract it again but with much worse symptoms than the first time. Last but not least, we should point out that the heated post-US election discussions, allegations and lawsuits on behalf of Donald Trump have also increased the risks for all investors out there, as we all remember the controversial outcome of the last Presidential Elections campaign back in 2016 and the huge international scandal that followed.

In the absence of many positive catalysts at the moment and a potential 2nd lock-down globally one could ask why is the market so far away from its March lows. The answer is embedded in the general optimism and positivism among retail traders regarding the future of the stock-market. It’s a fact that retail traders tend to spend more time looking at the reasons why stocks should continue to go higher, rather than actually realizing what is the current economic, political and Geo-political situation globally.

It is also important to note that due to the low to no commissions, the volatile price swings and people’s longstanding desire to make money quickly now retail traders account roughly for 25% of the stock market. Just as a reference, throughout the whole 2019 the retail traders in the US accounted for less than 10% of the overall trading in the stock market. This is as equally good for the markets and the economy, as it is a worrying signal for the reliability of the movements that we observe every day. While some retail traders are generating consistent returns from the market, a large percentage of the retail trading force out there is relying way too much on things like speculation, hype, fear of missing out etc., which in turn leads to wild swings in their performance. Furthermore, now when they represent such a large percentage of the trading done in the market that could lead to wild price swings on some of the assets out there as well. This is one of the main reasons why we want our followers to exercise extreme caution when deciding what to buy and sell in the market at the moment. Don’t let emotions and the crowd-like mentality to influence your investment behavior. Always trust the numbers, the ratios and the technical and fundamental signals that you get from the market.

Our performance so far this year

Today’s analysis will focus on the strong positive 10-year correlation between the SPDR S&P500 ETF Trust (SPY) and the Industrial Select Sector SPDR Fund (XLI), which currently stands at 93%. As you know, the Dow Experts have developed a modern-market approach, based on the Dow Theory, created by Charles Dow more than 100 years ago. Yet, while the basic Dow Theory was based purely on the correlation between the Dow Jones Industrial Average and the Dow Jones Transportation Average, our modern-market approach is based on more than 30 correlations, including all of the key sectors in the market, such as Technology, Services, Consumer discretionary and non-discretionary, Financials, Energy and others. Furthermore, our modern approach focuses on the usage of both fundamental and technical analysis because we believe that the combination of these two ways of analyzing the market into one rational analysis approach is vital for one’s success and profitability in the market nowadays. The correlation-confirmation model we have developed allows us to identify market reversals, as well as trend continuation patterns. Following the Dow Theory 2.0 we are able to issue specific high-probability trading setups, which in turn could help our followers to benefit from both bullish and bearish markets.

Throughout the last few months our analyses have helped hundreds of our followers to be better equipped for tackling the unprecedented market environment and volatility that we have experienced recently. Our innovative approach delivers highly qualitative market analyses by looking across 30+ correlations, multiple different sectors, industries and asset classes which enables us to have a multi-layered confirmation on the next direction for the market.

This is the reason why we were able to spot the broad-based market weakness at the end of February and recommended for our followers to be cautiously bearish and further gave them strategies to protect their capital from the upcoming downturn. Subsequently, in late March we were also able to identify that the market had already extended far too much to the downside and that a strong rebound was to be expected in April. In both of these scenarios, the new and innovative Dow Theory 2.0 not only protected our followers, but also allowed them to generate outstanding returns as well. Every single one of our Stock-picks for April reached its respective take profit levels that we laid out in our analyses, thus marking an outstanding appreciation of 25% on average in the first 4-6 weeks and has continued to further appreciated ever since! Our stock-picks for May and June also reached their initial and secondary take profit levels, thus also generating 25% return on average with a 4-8 weeks holding period. The stock picks for September generated on average 10-12% return for 2-4 weeks after publishing our analyses. The ones for October have recently dropped to the levels that we pointed out in our last month’s analyses, thus triggering our buy orders and putting us in a great position to generate 15-25% return in the next 4-6 weeks.

If you take a second and think about the fact that having a $20-40 subscription with DowExperts could have generated you a 10-25% return on your investment (ROI) on multiple occasions throughout the last few months, you would understand that this is an unprecedented opportunity for you as an investor to benefit from our professional and highly complex market analyses at these substantially discounted starting prices!

Looking ahead

Now let’s look ahead and see what the Dow Theory 2.0 has in store for us for the month of November and how we could further optimize our investment portfolios moving forward in order to reduce our risk-exposure and maximize our profitability in these uncertain times.

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