Don’t Let The Herd Trick You Into Optimism

May 28, 2020

As the old market adage goes…

“Markets can stay irrational longer than you can stay solvent” – John Maynard Keynes

Although that quote surfaced sometime in the early 1900s, it’s even more relevant today.

Just look at the past six months of the S&P.

It’s a series of crashes and recoveries… a series of panic and then optimism. But what it really shows is that investors don’t have a clue.

Look how much the S&P has recovered. Are the first and second quarter earnings for the market overall going to justify that recovery? Definitely not.

The economy is still only partially open in most places. Consumers are still hesitant. And although we’re seeing some habits start to return to normal, it’s not going to happen overnight.

But something interesting happened in the markets between last Friday and yesterday. Sentiments changed in certain sectors. I bet you’ll never guess which industry saw double-digit gains in two trading days.

Apparently, investors think that consumers are in a hurry to travel by land and by sea.

Take a look at this 6-month chart for the Norwegian Cruise Line.

Among the various moments of optimism, you’ll see one that happened just over the past few days. Share prices were up 9% yesterday…and 26.5% since Friday.

How can investors really believe that in a world where we can’t have gatherings of 10 or more people, we’re going to allow packed cruise ships?

And a quick look at the news gives us these optimistic quotes. You’ll notice my sarcasm:

“Coronavirus means Hawaii may not see cruise traffic until 2021”

“Dubai, Galapagos and beyond as cruisers think long-haul for ‘21”

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And it wasn’t just Norwegian that saw that kind of movement. Carnival Corp was up 19%. American Airlines were up 23%. Spirit Airlines was up 36.6%. All since Friday.

The rest of 2020 is sure to be bumpy for these companies. All signs point to an improvement in 2021… maybe. It’s really going to depend on many factors around the globe.

But wait, it gets even more strange.

Since Friday, investors favorite “stay-at-home” plays started lagging. Zoom Video Communications dropped 5% and Peloton dropped 10.3%.

These are the companies that may actually have the earnings numbers to support their trading prices. And investors are over them. Time to move on to better and more exciting things.

I’m not going to agree with the market on this one. Just because other investors are doing it, doesn’t mean it’s a good idea. Usually, that means it’s too late. But this time, there’s simply no justification for the movement.

Jumping into the tourism industry right now will certainly tie your money up for a very bumpy ride.

These stocks are not on an upward trajectory.

Look back at that Norwegian chart. How many times do we see that optimistic skip upwards? Then investors realize nothing has changed. The cruise ships are still sitting empty.

So, what can we focus on for the future? What have we learned from Coronavirus?

Technology is becoming more important than it ever was. Yes, people ordered groceries before March, but how many people will adopt?

Debit cards had chips in them before the virus, and merchants finally started adopting touchless payment when they no longer wanted employees to touch your debit card.

Internet providers offered free or discount internet to teachers and students so they could create online schools. They also offered it to low-income families for unemployment and job applications.

The public-health crisis pointed out that the internet is essential. And more importantly internet with the capability to handle live video conferencing such as Zoom.

I recommended Zoom to readers of my investment newsletter Wealthy Tech Investor. They walked away with a hefty 122% return in just over 4 months.

There’s no doubt that technology is more important than ever to streamline life and keep us connected. It means looking for those companies that are going to make components smaller and faster.

That means the implementation of 5G and beyond.

And that’s exactly where I’m looking.

My top pick for June will be sent to subscribers on June 2nd. I’ve got a feeling this could be our next triple-digit winner.

Cruise lines and airlines are in for a choppy ride, our dependence on technology, however, is going nowhere but up.

To make sure that you’re on the list for my June 2nd recommendation check out the details here.

Joshua M. Belanger
Joshua Belanger is founder of CounterVest and the editor of Hot Money Trader. He has been providing ordinary investors blockbuster returns since 2008. In 2018, the average return of Hot Money Trader beat the markets by over 15%

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