Investing can be as complicated – or as simple – as you make it…
If you want to, you can comb through books about the investing greats. You can learn what makes them tick and how they did what they did.
Then, it’s time to roll up your sleeves and get to work. You might do deep-dive research into dozens of companies. You could spend hours picking apart their businesses and scrutinizing their financial statements.
And you’d be doing all that work… while hoping to get an edge over thousands of professional investors who are doing the same thing.
That’s the hard way. Sure, it can lead to incredible results. But you can also do darn well by keeping things simple… and sticking with the trend.
All those pros doing the deep research are setting prices. But when prices get moving, they tend to keep moving.
We can follow that trend to earn easy profits. Acting at the right time can help us put the odds in our favor, without taking on huge risks.
Now is one of those times. The S&P 500 Index broke a rare streak in recent weeks… And stocks could jump 15% over the next year as a result.
Let me explain…
You can measure the trend in plenty of different ways. One way is to use a tool called the simple moving average.
For example, the 10-month moving average just takes the average of closing prices over the past 10 months. When a stock trades above that line, it’s in an uptrend.
Another easy way to measure the trend is to see if stocks were up or down over the past 12 months. If they’re up, then the trend is positive.
The S&P 500 had a positive 12-month return at the end of April. That alone isn’t special… Rather, it’s the fact that this was the first positive return in a year.
Stocks consistently showed a negative trailing 12-month return from the end of April 2022 through March 2023. But that turned positive in April and May of this year. You can see it in the chart below…
It’s darn rare to see a year or more of losses based on this measure. Similar streaks have only happened eight other times since 1950.
Here’s what matters, though… Once this kind of streak ends, the trend is up. And stocks have a history of fantastic returns after a trend reversal. The table below shows the details…
Just owning stocks is one of the simplest and most profitable long-term investments you can make. The S&P 500 has increased 7.8% per year since 1950. But you can do even better if you buy when the trend turns higher…
Similar setups have led to 5.5% gains in three months, 10.1% gains in six months, and an impressive result of 15.1% gains over a year. That’s nearly double the typical gain in stocks a year later.
What’s more, stocks were higher in every case over the following year. It’s tough to find an indicator with a perfect track record. But this one has it.
The three most recent times that this indicator triggered were especially powerful. Those cases were in 2009, 2003, and 1982. And they ended up being the three best buying opportunities of the past 50 years.
We’re seeing a similar setup today. Stocks have been losing money since 2022. But the losing streak recently ended. That’s just one more reason we want to stay bullish and own stocks right now.
Good investing,
Brett Eversole
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Source: Daily Wealth