Friday, May 31, 2024

Where Innovation Comes From

the companies with the deepest pockets…
 
   
     
   
 
MAY 31, 2024
   
TUCCI’S TWO CENTS
Where Innovation Comes From
 

Some of you who have been on this journey with me for a while may remember that back in December I wrote to you about why I believe tech will lead the way in the markets.

In other words: if the market is bullish over any longer time horizon, I think it will be led by tech.

I don’t see a scenario where the Magnificent 7 fall apart but the broad market maintains bullish sentiment.

And in tech, one name stands above the rest for me…

— Nate Tucci

 
 
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SCOTT WELSH’S TICKER TALES
Friday Great Value Trade (SMH)
 

There’s a difference between Deep Value and Value.

Deep Value is something that’s gone way below “fair value”.

Maybe it’s a controversy or maybe a company badly missed earnings or cut a dividend.

Whatever the reason, Deep Value companies have fallen quite a bit. And the idea is to use that extreme fall and capitalize on it.

It’s fallen so far, even if it doesn’t fully recover it’s probably a big winning trade.

That’s what Warren Buffett did early in his career, and it worked wonderfully.

But what if a stock almost never falls to extreme levels?

For example, the SMH (Semiconductor ETF) hasn’t been at its lower Band since 2008.

Waiting sixteen years for SMH to drop is probably not going to pay the bills.

And we’d be doing the same thing for AAPL and many other stocks. 

What can we do?

We can do what Buffett did with AAPL: we can get a great company at a “fair” price. 

Meaning: buy when price has fallen slightly below “fair value”--and hold on for a long time. 

We can see an example of this on SMH. 

Back in 2022, SMH fell slightly below “fair value”, which is signified by the dotted line on the chart (the dotted line is the 800-day simple moving average):

 
 

It had been a long time since SMH was at a “fair” price, so it might be a good idea to get involved and buy and hold at that moment.

And, of course, it worked out very well. 

That entry in October 2022 was around $88. Now it’s at $241. 

Buying a high-flying ETF that hardly ever goes on sale turned out to be a big winner.

Sometimes a fair price can turn into an extraordinary gain.

Happy trading,
— Scott Welsh

P.S. As a reminder, these plays are based on my longer-term Weinstein Stage Analysis method. The charts above use weekly candles and a 30 week simple moving average. For details on this method, see my explanation on this Ask The Pros episode starting at timestamp 20:45.
   
 

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