Meme stocks are dead and so is crypto. Past fad stocks are crashing. Even stocks that we were told would always go up are now lagging badly in this market. I’m speaking of stocks like GOOG and NVDA. Yes, we’re in a bear market and there is now margin debt deleveraging that is a part of that, but how do you find stocks to buy?
The key trick for that is to look for sectors and stocks in them that are outperforming the S&P 500. You see laggards tend to crash harder than everything else on stock market pullbacks, while those stocks that are outperforming the market tend to lead on rallies and then are also in a position to even eventually break away from the stock market action at some point.
You can easily see if a stock is outperforming the S&P 500 or lagging by looking at its relative strength ratio. I use stockcharts.com to do that with a simple ratio analysis.
For example, take a look at the GDX mining stock ETF chart here.
The ratio is GDX : SPX.
While the GDX ETF has been chopping around in a range for over a month, it’s relative strength plot on the bototm of the chart has been going sideways and trending up. It went sideways in September when the S&P 500 dumped hard. Even though GDX pulled back that month too, it fell less than the S&P 500 did.
Contrast that relative strength action with META stock here.
META stock has been lagging the market all year and continued to lag in August, September, and October.
That poor performance warned that things were bad for the stock and the company.
So, META crashed over 20% in a day last week and fell another 6% yesterday.
Stock market laggards are millstones in an account in a market like this, and frankly should be sold on stock market rallies if one wants to reduce the risks in their account.
For buys for trades you need to focus on those sectors and stocks that are outperforming the S&P 500.
If you are new to this website then you need to get on my free stock market update list by clicking here.
If you have any comments or questions put them in below.
-Mike
