Thurday’s Big DOW Dump Shows Us Where The Real Sector Strength Is – Mike Swanson (09/04/2020)

Yesterday the DOW fell over 800 points. It was the worst daily point drop since March and a lot of stocks simply got smashed. However, when I looked through my charts after the close a lot of the lagging stocks did not really fall that bad. Take a look for instance at the airline ETF JETS and stocks like NCLH. This tells us that this was not a total meltdown inside the stock market yesterday. The drop was led by and fueled by the popular big cap tech stocks in the Nasdaq. Many people it seems decided to sell and take profits – and momentum robots and people trading on margin buying more as things go up can do that at any moment.

Here are the top losers in the Nasdaq 100 yesterday

ZM -9.97%

NVDA -9.28%

MELI -9.10%

TSLA -9.02%

DOCU -8.73%

SWKS -8.3%

AMD -8.3%

AAPL -8.01%

Those are big declines and notice TSLA and AAPL on this list. These two stocks have been going up so much in the past few months that almost every single time you turn on CNBC you’d see them being talked about. But nothing can go straight up forever and so yesterday these stocks dumped. Look at the AAPL chart now.

Is this the top in Apple stock?

It certainly got so overextended that a pullback was overdue and could happen at any moment. I doubt this is the start of the next big crash, but there is no way to really predict from one day’s trading action yesterday what will happen. Things will have to play out a little more before I can draw any real conclusions from this.

I just don’t like to trade things this uncertain and stocks like TSLA and AAPL became so risky once they went up so much that I kinda stopped paying attention to them.

You don’t need to try to figure out everything happening in the markets to make money from them. Focus on what you can know.

What I can tell you is this – when the market has a big daily drop what you want to do is look to find things that are in bullish trends trading above their 200-day moving averages that barely dropped. If you do this then you’ll see where the real strength is in the stock market.

Well while the DOW fell 2.78% and the Nasdaq dropped 4.96% yesterday the price of gold only dipped 0.92%. We saw this in March when gold fell about 10% and the S&P 500 fell over 32%!

Gold is simply now more stable and safer than the US stock market averages are and are on track for more easy gains than popular ETF’s like SPY and “momentum monsters” like TSLA are.

Gold goes up, but doesn’t fall as much as the stock market does when it drops.

This is why gold and silver ETF’s now make up over 1/7th of my IRA and main investment accounts for core positions.

And for super charged gains I buy mining stocks. And the mining stock ETF GDX also fell less than the S&P 500 did yesterday too and is still simply consolidating on its 50-day moving average.

I own a position in GDX, but I’m more excited about my top stock pick of this month as it is a small cap mining stock and the best of them go up a lot on the rallies. Notice though on this chart that the GDX/SPX ratio has been going up now since March and looks like it is about to turn up again.

Of course this is a daily chart so we are looking at a short-term time frame. It’s confirming the bullish overall trend for mining stocks, but the long-term charts have ramifications for 2021. That is a subject I talked about with Jordan Roy-Byrne in a discussion I had with him I posted on the website Thursday. If you missed it you can find it by clicking here.

As far as Bitcoin goes – it has crashed 20% in the past two days. Don’t ever let anyone talk you into buying it. It is not a safe haven. It doesn’t go up as much as AAPL when AAPL goes up and crashes completely when the stock market corrects.

Remember the best way to beat the stock market is to buy the things beating the stock market. That isn’t Bitcoin. That’s gold and silver.

-Mike



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