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Do The Bulls Have It Now?
If you look at the tech-heavy indices and use a wave & fibonacci toolkit you can say, well, that was a rough start to the year, phew, we’ve bottomed, here comes a bunch of free money as tech stocks recover. Like this:
And this:
So, easy argument, right? Indices corrected in line with typical wave patterns, inflation peaking as everyone knows, election year, Fed under pressure to not ruin everyone’s life in the runup to the midterms, oh and also … this. ARKK has sold off back to its pre-Covid level. Would have been cheaper just to give all the stimulus checks directly to Big Money - lower admin costs at least.
All of this suggests a bottom may be in, and that the big indices at least could be headed up to new highs over the course of the next 18 months or so. If so, there are some compelling buys out there we believe.
Of course, nobody knows what comes next. The world doesn’t look so great if you stare out the window and you could find 100 reasons to be bearish about stocks in about 10 minutes if you tried. Fed, consumer confidence, global tensions, terminal decline of the West, raining in Wichita … the list goes on.
For what it’s worth we think the market hit an inflection point last week. And since the middle of last week there has been a rally on, but if we are headed where the wave charts on SPY and QQQ suggest - which is to say, up big, then there’s plenty of time yet to catch these moves. And if it’s just another fakeout, then, playing small and using stop-losses can limit your risk. Indeed if these charts flatter to deceive and we get another bearish move down, the recent reversal points of many growth stocks are very close to the current price, and so give you a proximate low to trade against and to set a stop-loss just below. So, you can position for the upside and protect yourself on the downside with relatively tight stops, limiting your risk.
Here’s three of our top picks to try to ride the recovery - one low risk, one medium risk, and one with still more risk. The first pick is available to all our readers, ideas two and three are for paying subscribers only. (If you want to sign up as a paying member you can do so at this button below).
A Low Risk Growth Name Trading At Value Stock Prices
OK, first up, our favorite low-risk recovery idea is Meta Platforms, ($FB). The stock is trading at just 4x TTM revenue, 8x TTM EBITDA and 10x TTM unlevered pretax FCF. Whilst growing revenues at 28% on a TTM basis right now. So even your finally-right-after-all-these-years-oh-so-gloaty-bear-buddy won’t vomit on this one. And the chart is all beat up.
That’s such a deep Wave 4 correction that many folks would say well, that’s not a Wave 4 at all. We however think it is a W4 because waves 1 thru 3 fit the pattern so well … and so we think FB can move up nicely soon. You can see that a safe stop-loss level isn’t too far away. Long term holders could shoot for new highs here, shorter term folks could look to buy now and sell at $230 or $260 - just under the Fib levels it passed on the way down, which will likely be respected on the way back up.
Onto our medium-risk and higher-risk ideas.