Editor's note: No investor can time every single trade perfectly...
With the volatility we've seen in the market over the past year, investors have been keeping their money on the sidelines for fear of erasing their hard-earned gains. But this ongoing uncertainty doesn't mean you can't put the odds in your favor...
In fact, Ten Stock Trader editor Greg Diamond believes today's chaotic price action could create plenty of buying opportunities for folks who are prepared. Greg is an expert in a trading strategy called "technical analysis," which involves studying past trends to determine the market's next move.
In today's Masters Series, adapted from the January 17 Weekly Market Outlook issue, Greg explains how investors can use technical analysis to pinpoint the best timing for their trades... details why today's rampant market volatility could drag on... and highlights the decline of shipping stalwart FedEx to show what it means for the broader market...
Timing Is Everything
Time passes by quickly, in the markets and in life...
My daughter turned four this week, and I still clearly remember the day she was born.
Like most kids her age, she's curious about the world around her and asks a lot of questions...
Mainly, she wants to know "why."
"Why is the sky blue?"
"Why is the grass green?"
Her favorite question is, "Why do I have to go to bed?"
Most parents (including me) respond with, "Because I said so." But normally, I take the time to explain as much as possible to her.
She recently asked why the moon has different shapes in the night sky. So, I explained the cycles of the moon, the rotation of the Earth, and their relationship to the Sun.
My wife looked at me with humorous contempt and said, "Really, Greg? You're explaining cycles to her already?" (We had a good laugh.)
When it comes to technical analysis, it doesn't matter why certain cycles emerge or why specific signals help us execute trades.
The point is that cycles work... And since they've worked in the past, I want to use them again and again.
When looking at cycles and price action, the key is figuring out the "when." Simply put, the "when" involves pinpointing when to trade. It all boils down to timing.
A big misconception among investors is that you can't time the market. That's nonsense... We can always use price fluctuations to time how we buy and sell assets.
Is it perfect? No. But by combining timing analysis with price action, we can improve the probability of making successful trades.
Of course, there are no guarantees and there's no Holy Grail. But by utilizing our trading strategies, we can time the market and our trades with accuracy, even in turbulent times...
In last week's Weekly Market Outlook, I noted that volatility will intensify.
Like my daughter, some of you might ask why this is happening...
There could be several explanations. Maybe it's the Federal Reserve's policies... persistent inflation... earnings reports... the Russia-Ukraine war... or maybe even the tensions between China and Taiwan.
I don't know the exact reason. And again, I don't care about the "why."
The "when" is what matters... and the "when" is right now when it comes to one stock we haven't focused on in a while.
Let me explain...
Longtime Ten Stock Trader subscribers know that I focus on certain stocks for clues about what's happening in the market.
Some stocks top out or bottom out before larger indexes do the same. Again, why this happens isn't important. The point is that it's a common occurrence and we must pay attention to it.
In this essay, I'm going to analyze shipping giant FedEx (FDX)...
In this price chart, you can see that FDX peaked a few months before the broader market did in June 2021. This stock has been in a long-term downtrend ever since.
You'll also notice the big "gap" down around September 2022. FDX rallied from these lows, but it's now facing resistance...
The black dashed lines mark a series of resistance levels, which intersect with the 200-day moving average (200-DMA), marked in red. (Remember that the 200-DMA measures the long-term trend.)
FDX recently struggled to rally above the $193 level. But on January 11, the stock topped out.
You can also see that the relative strength index ("RSI"), at the bottom of the chart, has reached overbought levels. All of this is happening within a downtrend, which tells me the downtrend is not over yet.
Here's the weekly FDX price chart, which provides more clues about the stock's current weakness...
The 55-week moving average (55-WMA) – the solid blue line – crossed and is moving below the 200-WMA – the solid red line. This setup, along with the price action moving into the resistance levels (marked with red dashed lines), forms a bearish signal.
Those resistance levels mark areas where FDX could reverse direction and head lower. It suggests that FDX could drop 20% to 30% over the next two months. I've marked that scenario with red dashed lines below the current price... Those are the targets to watch.
Also note the Composite Index at the bottom of the chart. The blue dashed line on the index is sloping down, unlike the area with the same two price points... That's sloping up at the top of the chart.
These technical patterns are reinforcing the bearish setup I mentioned above.
In sum, we can add FDX to the list of stocks that will continue declining.
This week should mark the end of the recent market rally... And as a result, now is the time to uncover buying opportunities amid this ongoing market uncertainty.
Editor's note: Greg not only believes we can find overlooked assets, but he says we're on the brink of a huge moneymaking opportunity. He believes a rare market event that has happened just three times in 25 years could soon ripple through stocks...
That's why Greg recently hosted an online presentation to discuss how investors can position themselves to double their money 10 different times before this inflection point hits. Plus, he'll reveal the ticker symbol of his No. 1 investment for 2023. If you missed this presentation, click here to watch the full replay...