Investor’s Business Daily writes that it may be time to go “all in on stocks” now that there is talk of opening up the economy again. Is this right or will continuing bad economic news send stocks even lower? When will be the time to buy stocks again?

When Will Be the Time to Buy Stocks Again?

Our sister site, Profitable Investing Tips, wrote about this very issue and noted that if you compare today to the 1929 crash that started the Great Depression, that crash lasted three years!

Economists are already saying that the coronavirus pandemic will drive the world economy to levels not seen since the Great Depression. In our article, How Far Could Stocks Fall, we noted that the 1929 stock market crash (which ushered in the Great Depression) was not limited to October of 1929. The market continued to fall until late 1932 by which time the Dow Jones Industrial Average had lost 90% of its previous value. Anyone who has cash in hand will have many opportunities to buy excellent stocks at bargain prices when the market bottoms out. But, when will that be?

Expert investors like Mark Mobius also say that the market has not hit its bottom.

The Coronavirus and How We Deal With It Will Decide the Course of the Stock Market

We are starting to see the financial damage of the coronavirus crisis in quarterly earnings reports and they are pretty grim. The stock market has reacted by falling a few percent again. While governors are planning slow and cautious reopening of their economies, it remains to be seen how many people will get back to work and how many businesses, especially small businesses, will survive.

The mixed messages coming from the White House are not helping nor are the attempts to divert blame for the slow initial response to this crisis. It should be no surprise that the market reacted to not only poor earnings reports but to Trump’s threatening to cut off funding for the World Health Organization at a time an international crisis threating lives (and investments) throughout the world.

What we repeatedly hear from those with the expertise to deal with this crisis both medically and economically is that we need to be driven by the science and not by politics, personal ambition, long-standing grievances, or the desire for power. When the world sees progress on both of those fronts, it will be time to buy stocks again. Unfortunately, while we are seeing some progress on the medical front due largely to social distancing, we are not seeing it in the USA from the administration.

Hedging Your Bets

If you believe that the market is near its bottom and that a recovery is not only due but that it will be strong, we suggest buying call options on your chosen stocks in order to lock in potential profits while protecting against downside risk.

Even the Great Depression turned around, especially with spending to support the war effort in WWII. A long term investment opportunity to consider might well be companies that will benefit from the sort of infrastructure improvement projects that the nation needs and that will help stimulate a healthy recovery.

The S&P 500 reached a historic high in late February and it has been all downhill since then. From its high of 3373, to index has fallen as low as 2237 before recovering to the 2475 range. This has erased all gains from the Trump era and started to eat into the gains during the Obama administration. Each new piece of bad news drives the market down enough to trip one or two trading circuit breakers. When the news brightens ever so slightly, the market recovers part of the recent losses but no more. This is what we can expect to see while trading stocks during a market crash driven by a once-in-a-century plague.

Trading Stocks during a Market Crash

This crash will be close to the 1929 crash in its severity. The issues will not be trading Tesla’s ups and downs as we discussed a month ago. Rather the issue will be if Tesla and others will survive! On our sister site, ProfitableInvestingTips.com, they discussed how far stocks could fall.

The 1929 stock market crash that ushered in the Great Depression was not a one day event and was not confined to October of 1929. There was a 10% correction of the market in March of 1929. And, the market came down 30% from its former high during the month of September. Then the market had three terrible days on Black Thursday, Black Monday, and Black Tuesday. On Black Thursday the market fell 9% before it rallied to “only” a 2% loss. In fact, the market recovered on Friday. But, on Black Monday it fell 12.6% followed by another 11.7% loss the next day, Black Tuesday.

Although the Dow fell more than 22% during the “Black” days, it continued to slide and have significant bad days for the next three years! The Dow Jones Industrial Average stood at 305 as the market opened on Black Thursday and by July of 1932 it was down to 41.22 for an 89.2% loss from its early September high of 381.17.

The market entered this situation in an “overbought” condition and the nation (as well as the world) had taken on huge amounts of debt because of low interest rates. As the virus burns its self out, killing people along the way and driving health care systems to the brink, things may look brighter but the financial wreckage will persist. Traders will need to keep fundamentals in mind as they use technical analysis tools to project the rise and fall of indexes and individual stocks.

The market will drive prices up and down on a daily basis according to the news but eventually those companies with strong balance sheets and products that keep selling during the pandemic will be reasonably strong. Those with debt problems and products or services that are being shut down by the pandemic will be in trouble and will need to be bailed out or they will not survive in their current form.

Who Will Get Bailed Out?

A company like Boeing is integral to the success of the US economy. Over the years they have typically vied with all of US agriculture for first place as an exporter. They were already having problems due to the 737 Max disasters and now will have trouble selling their other airplanes as airlines will not have any money and travel will curtailed for an indefinite period. This is a company that we can expect to see bailed out and the sort of stock that could be profitable to trade directly or with options.

Tesla is on a roll with stock gains of 19% and 20%. Many investors see Tesla and its electric vehicles as the wave of the future, but the stock can be volatile. Can you make money trading Tesla over the short term instead of trusting that the company will surpass GM, Toyota, and the rest? CNBC writes about Tesla jumping yet again.

Tesla stock is surging again, roaring above $900 a share in Tuesday trading after major shareholder Ron Baron forecast the company will top $1 trillion in revenue in a decade and as investors who bet against the stock scrambled to catch up.

Because many traders shorted the stock, there has been a lot of catching up. And, as the company posted its first profit ever, those who invest based on fundamentals instead of hope seem to have started putting money into the company. Analysts have raised the price target from the $300 range in December to nearly $500 today. However, the stock is now trading well above the new target price.

Investments in Tesla Inc.

Tesla has traded on the NASDAQ since July of 2010 when it traded at $17 a share. As recently as 2013 you could buy a share for $39. Then Tesla went up into the $200 to $300 range through 2016 and spent 2017 and 2018 pushing $400. At that time Tesla fell back and bottomed at $204 a share in July of 2019.

Over those years Tesla started as a “story stock” based on the belief that electric cars would become the norm and that Tesla would lead the way. However, the company never made any money and routinely had problems meeting production quotas. That was the main issue as the stock price fell during early 2019.

However, the company solved many of the production issues and, for the first time, showed a quarterly profit! The question now for traders is if you can make money on Tesla or has the big jump in stock price already happened? And, if that is the case, can you short the stock or trade options?

How Should You Trade Tesla Today?

In this regard there is an interesting article in Tech Crunch. They pose the question, what is going on with Tesla? Why is the stock price rising so rapidly?

The company reported earnings on January 29th, last Wednesday, leading to a nice bump in the company’s value. That sort of post-earnings move is quite normal. However, its value appreciation since that event is a bit harder to understand.

Tesla’s financial health has improved in recent years. However, Tesla reported effectively zero year-over-year revenue growth, slimmer operating income, and modestly improved adjusted profit in Q4 2019, hardly the picture of a company that should quickly appreciate 60 percent in rapid fashion.

They note that the thing that has improved greatly for Tesla is its price to sales ratio (PS ratio). The PS ratio for Tesla had fallen to its lowest (and about a seventh of what it was years ago). With recent price increases, the PS ratio is still about half of its highest from years ago. What this tells us is that as the company has marginally improved its production and profit, those who are investing on hope are inspired to buy more of its stock.
Smart traders will probably bide their time and lie in wait for a small bit of bad news that will drive the stock downward again!

Kraft Heinz has been one of the “widow and orphan” stocks that routinely pay dividends year after year and are rock solid stable. That is no longer the case! Warren Buffett’s Berkshire Hathaway holds just over a fourth of KHC stock and Berkshire Hathaway lost more than $4 billion in one day as Kraft Heinz fell by 27.5%. What happened and, with his famous business acumen, can Buffett fix Kraft Heinz?

What Happened at Kraft Heinz?

Investor’s Business Daily dissects the Kraft Heinz meltdown.

Kraft Heinz (KHC) plummeted Friday after writing down the value of some of its best-known brands by $15.4 billion, an acknowledgment that changing consumer tastes have destroyed the value of some of the company’s most iconic products.

The packaged-food giant’s charge to reduce the goodwill value of the Kraft and Oscar Mayer trademarks and other assets came with disappointing fourth-quarter earnings and an accounting subpoena from securities regulators. The charges resulted in a net loss of $12.6 billion, or $10.34 a share.

Kraft Heinz stock fell 27.5% to 34.95, hitting a record low.

Changing tastes in the packaged food world, a desire for more organic or apparently organic products have severely eaten into and destroyed value in the Kraft Heinz product line. The admission of such problems and the acceptance by investors destroyed a fourth of the company’s value in a heartbeat.

An Understandable Investment That Was Not Well Understood

Kraft Heinz came into being in a move set up by Berkshire Hathaway and the 3G Capital private investment firm. They merged Kraft Foods and Heinz to create the third largest food and beverage company in the USA. The parent companies go back to the 19th century.

Buffett has been quoted numerous times to the effect that he does not invest in a company unless he understands what they do, how that makes money, and how that will continue to make money over the long term. A business whose products are known and consumed by millions every day and whose products are the center of the supermarket business would seem to be a natural as a Buffett investment. Furthermore, he is a master at merging and cutting costs. Unfortunately, investors in this company did not see the demographic trends that send shoppers to look for organic foods, “healthy food choices,” and other competitors of Kraft Heinz and its stable of old products.

The company misled investors, intentionally or unintentionally, with rosy forecasts which turned out to be widely off the mark. The bottom line is that the Kraft Heinz line of products is not as popular as it once was and the company did not see that coming or intentionally closed their eyes to the truth!

Can Buffett Fix Kraft Heinz?

Warren Buffett is perhaps the most famous and most successful investor in the world. He routinely vies with Bill Gates and Jeff Bezos for the claim to be the wealthiest man in the world and that includes his donating about $7 billion to charity every year! His investment results over the years border on the miraculous. So, can Buffett fix Kraft Heinz? Because, if he can, this is a fantastic stock to buy on the dip and either cash in for short term profits or hold forever.

Unfortunately, a big part of Buffett’s strength is putting together big deals and the cutting costs and improving operational efficiency. He has already done this with Kraft Heinz. His other major strength is seeing into the mind of the consumer and understanding what will sell and make money for years to come. In the case of Kraft Heinz, he has used the efficiency card and simply missed the call on how well Kraft Heinz products will sell. This is probably not a stock to buy on the dip because it has simply corrected to its real intrinsic value.

The US stock market is just finishing its most volatile week ever. Automated trading programs seem to be driving stocks up and down in large steps. This is dangerous territory for investors and an ideal opportunity for short term day traders. Trading volatile stocks with technical analysis may result in significant profits during such times.

What Is Volatility?

According to Investopedia, volatility is the range of prices for a given stock or index.

It is quantified by short-term traders as the average difference between a stock’s daily high and daily low, divided by the stock price.  A stock that moves $5 per day with a $50 share price is more volatile than a stock that moves $5 per day with a $150 share price, because the percentage move is greater with the first. Trading the most volatile stocks is an efficient way to trade, because theoretically these stocks offer the most profit potential.

The key to trading volatile stocks with technical analysis and making money is finding the stocks to trade and correctly using technical indicators to trade them. One only needs to run a stock screen for volatility and volume to find stocks to trade.

What is Technical Analysis?

Technical analysis is the reading of price patterns in order to predict the next market movement. These price patterns have statistical significance and are based on many previous market situations.

Volatile stocks are prone to sharp moves, which require patience in awaiting entries but quick action when those entries appear. As with any stock, trading volatile stocks that are trending provides a directional bias, giving the trader an advantage. Certain indicators can be used to trade volatile stocks, but the trader must also monitor price action – watching if the price is making higher swing highs or lower swing lows relative to prior waves – to determine when indicator signals are taken and when they are left alone.

There are many technical indicators but knowing how to use one or two to their best advantage is a better approach than trying to use too many and becoming confused by their predictions.

Trading Volatile Stocks with Technical Analysis in Today’s Market

The eventual price of a stock is determined by its earnings and prospects of future earnings. But, the short term price of the stock is based on the market’s opinion of how likely earnings are to rise or fall. Over the last few years the big tech stocks have led the market and always were the most likely to take a hit when the market corrected. A smart technical trader will keep this in mind when trading the ups and downs of the current market. Business Insider looks at how tech stocks got mauled and which ones are likely to be hurt worse.

The losses were widespread, and even the FAANG basket – Facebook,Apple, Amazon, Netflix, and Google parent Alphabet – wasn’t spared. Apple (-12%) and Google (-5%) are down for the year, and Facebook (-27%) has fallen off a cliff. Meanwhile, Amazon (+18%) and Netflix (+21%) are still higher, but they’re well off their highs.

And while FAANG stocks have been hit hard, there are other names that have fared far worse. Two types of companies – Chinese tech and semiconductors – were among the hardest hit, as uncertainty around the US-China trade war and slowing global growth weighed on investor sentiment.

Here is where knowledge of stock fundamentals is important. The day to day and even minute to minute market fluctuations are driven by technical traders and by the greed or fear of individual investors. But, eventually a stock will end with a price consistent with its fundamentals. A technical trader trading volatile stocks with technical analysis will do well to keep this fact in mind.

Trading Volatile Stocks with Technical Analysis PPT