By: Costas Bocelli — September 11, 2019
Today, I thought I would begin with a true story.
Then I’ll reveal one of the strongest groups in the stock market that millionaires are piling into, and show you exactly how to get in on the action.
So let me first take you back to the "roaring 90’s".
When I broke into the business as a professional trader more than twenty years ago, I had the privilege of working side by side with a true legend.
His name was Vinny.
Now let me tell you, Vinny was a big deal back in the day. He even served as the Chairman of the Philadelphia Stock Exchange for a while.
But Vinny’s real bread-and-butter was trading stocks. He had a market making business on the Philly exchange. Vinny never traded options, but was a wizard trading equities. He made millions.
As for me, I too was making markets, but I was on the options side of the exchange.
In the late 1990’s, the options business was booming. Technology stocks and the Dot.com craze were really hitting high gear, and options became the speculators “go to” product. It was never a better time being an equity options floor trader.
But on the equities side of the business, it was getting tougher. The move away from fractions to "decimalization" was a real game changer.
Of course, Vinny recognized what was going on and wanted in on the action. But he knew nothing about options. That’s where I came into the picture. Vinny was a casual acquaintance. I would bump into him from time to time.
The PHLX was in the basement of a building, and not very big. Sometimes I would use his firm to cross a stock trade when a customer wanted to do a “put and stock” or a “buy write” trade. So it was convenient to use one of the firms across the hall.
So one day, he approached me about coming on board to trade options for his firm. At the time, I was a making more than I ever have in my life as a floor trader, so I was reluctant to make any kind of change.
But Vinny could be quite persuasive, and “made me an offer I couldn’t refuse”. For the next two years, I sat right next to him every day trading the markets.
We learned a lot from each other. I was the young gun options trader. And he was the wise old gritty stock trader.
It was like we were best buddies. It was truly a special time I’ll never forget. But let me tell you, of all the things I learned from Vinny, there’s one thing really stands out...
Vinny asked me if I wanted to know the secret to being a great trader. Of course, I said yes, tell me! Vinny leaned over and in his Sicilian accent, he says “Costas, there is no relation between price and value. As long as you understand that, you’ll make a fortune in this business”.
And let me tell you, heeding that advice over the past twenty years has paid off handsomely.
For sure, the fundamentals matter. You may think a company is undervalued. Or, you may think it’s overvalued. But if the “market” doesn’t agree, how do you stand to profit?
As long as you listen to the price action, you’ll always be on the right side of the trade. And when you’re not, price will let you know that too.
Let me explain...
Since Donald Trump was elected president in November 2016, nearly three years ago, the Technology sector has been the best segment of the market for investors. High-growth tech names and momentum oriented stocks have outperformed the markets.
Investors that have been riding the strongest stocks that reside in the strongest sectors have been generating superior returns. Those that have focused more on value investing have underperformed.
Have a look at a three-year daily chart of the iShares S&P 500 Value ETF (IVE) relative to the iShares S&P 500 Growth ETF (IVW).
(Click any image to enlarge image)
When the trend is falling, IVW (Growth) is outperforming IVE (Value).
And when the trend is rising, it’s the opposite --IVE (Value) is outperforming IVW (Growth).
Over the past three years, the prevailing trend has clearly been downward, meaning that growth has been a superior investment over value.
Of course, you can see short periods where Value has outperformed Growth. And recently, we’ve seen money rotating out of Growth and into Value.
If you look towards the right, you’ll see a spike up on the chart. And if we zoom-in and look at a 3-month daily chart, you’ll see that the IVE (Value) has been outperforming the IVW (Growth) since late-August.
So is this the start of a great “unwind” out of Growth (and momentum) and into Value? No one knows for sure.
But if we continue to allow price to serve as a guide, we’ll get a better idea as to whether the run in Value has any staying power.
While Growth and Value continue to duke it out, there’s one segment of the stock market that’s ignoring the noise and breaking out on real strength.
The “Big Money” is piling into this one sector that in many instances blends growth and value together.
I’m referring to the Retailing sector, where Demand is in control.
If we look at the sector bullish percent chart, we’ll find that the indicator is in a rising column of X’s.
This tells us that more and more stocks are moving to “buy signals” and a clear indication that stocks are being accumulated within the group.
In our paid premium publication, Sector Focus, the Featured Sector of the Month for September was the Retailing Sector. In the video presentation, we highlighted the VanEck Vectors Retail ETF (RTH) as a vehicle to gain broad exposure to it.
The Featured Sector of the Month also includes nine individual investment ideas within the Retailing sector that possess superior traits of relative strength. There are also two actionable bonus option plays included.
The real secret to beating the market is to spot where millionaires are putting their capital... so you can put yours there as well.
On Tuesday, September 17th at 7PM EST Chris Rowe is holding what amounts to a "master class" on that very subject.
It's called the "The Great Retirement Reset 2019" and it's FREE if you want to attend.
Until next time,