These stocks are worse than a flat Bud Light 🍺

Hey Folks!

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Now, if you’re frustrated because the market has been as flat as a discarded can of Bud Light recently, you’re not taking advantage of everything that RagingBull has to offer.

But I know it’s exciting to pay a lot of attention to the highest volume stocks that often get the most press attention.

However, stocks like Apple, Microsoft, and DoorDash are not always where the action’s at.

In fact, during times like this, when the broad market is uncharacteristically boring, these are the kinds of stocks that usually don’t offer options buyers the volatility they need.

Here’s what I mean…

Over the past 12 months, Apple, Microsoft, and DoorDash have traded extremely close to the S&P 500.

Folks, when a stock is trading with a correlation greater than .90 like all of these stocks have been, you’re limited in the amount of Alpha that you could be contributing to your portfolio.

This basically means that the moves these stocks make are around 90% determined by the market overall.

What’s the point of stock picking then? Just by the SPY and be done!

I trade because I think I can do better (much better) than simply buying the SPY!

Teachable Moment:

“Alpha” is an investment term used to describe an investment strategy's ability to beat the market, or its "edge." 

[In my “Alpha Hunter” service, we use a strategy to hunt down above average trading opportunities.]

This is a big reason why I typically tailor my strategies to find opportunities that are not so tied to the broader market.

After 20 years of trading experience, making sure I pay close attention to the level of diversification in my portfolio is one of those critical items that I make part of my daily routine.

It’s also why I chose Aerovironment (AVAV) for my Bullseye Pick of the Week this week.

So far, this strategy is proving its value once again, since AVAV, which trades with a correlation of just 0.65 to the S&P 500 over the past 12 months, jumped around 2% higher on Monday while the SPY was basically even, and then today while the markets rolled over, AVAV was actually trading green most of the day.

That is precisely what “relative strength” looks like in real time.

While my idea hasn’t been a homerun winner (yet), it hasn’t lost any ground in a very rough market week.

But that’s just one example that, quite frankly, does little to showcase what I am doing with my economics background right now.

You see, on Monday, we got the first bit of interesting economic data in the form of the NAHB/Wells Fargo Housing Market Index.

And what I saw got me VERY excited for the potential it now presents.

What this chart shows is that the NAHB/Wells Fargo Housing Market Index has now had two straight lower readings over the past two months.

Bottom line, the fact that this divergence in fundamental data has been brewing as the Homebuilder Index (XHB) has been struggling to maintain its long-term uptrend opens the door to a lot of potential in the Homebuilder sector.

And that’s why I am paying close attention to this sector for my Alpha Hunter Watchlist – and I hope you are, too!

That’s all for today’s edition and thank you for sending a quick note to let me know you received this email.

To YOUR success!