Straight to your inbox from Keith himself!

*Trusted by 20,000+ savvy investors in 36+ countries (and counting)

☕ The truth about rotation, what to do next and why

Jul 12, 2024

Good morning! 👋

Earnings season is finally underway and there is already a clear difference between the companies you want to own and the companies you probably don’t. JPM versus WFC, for example.

We’ll get to that soon enough.

First though...

Let’s spend a minute talking about yesterday’s selling.

As I noted in last Sunday’s video short, I would be very surprised if traders didn’t come storming out of the gate to the downside at least once this week given the amount of money on the table.

And, right on cue, blammo.

The official story about what happened is “rotation” - meaning that money rotated from one sector to another, in this case from tech to everything else. Only “that dog don’t hunt” as my grandfather would say.

Rotation is a myth.

Rotation implies that the markets are a zero-sum game because investors move their money from one sector to another. If money comes out of tech, it must therefore go into value, or dividends, or bonds or something else according to pundits. Then back again.

That’s not how the game is played.

The markets continually create new profits as prices rise and fall. That’s why, over time, long-term investing gains tend to overshadow short-term trading results.

Big dips bring more stable, less active money into the markets in search of new opportunity every time.

Further, the world’s most successful investors don’t have directional risk the way you'd think because they a) focus on quality names at all times, b) control risk as part of the buying process over longer-term horizons and c) continually play offense even if they must think defensively to do it.

If that sounds familiar, it should.

I encourage you to do the same dang thing constantly!

What really happened?

That’s a more interesting question.

We may never know.

The way the selling unfolded and the speed at which it hit specific stocks makes me suspect one of two things:

A major hedge fund or some other member of the go-fast crowd got caught offsides with too much leverage and either had to sell or was forced to sell. It's not quite an Archegos situation but the mechanics are similar, particularly as computers trading so fast humans can’t keep up swing into action. Passive investing also plays a role most investors don’t expect.
Someone with a boatload of options wanted out which, in turn, created a “tail wags the dog” scenario via a process called “pinning.” It’s a very nasty game in which major players attempt to drive specific stocks towards specific prices as options expire with the goal being to maximize profits by hosing those holding contracts which allows the manipulators to collect their premiums without having to pay out. It’s illegal, of course, but the SEC doesn’t seem to have the ability or care to enforce the practice which, I might add, is increasingly camouflaged by passive investing, computerization and 24-hour markets.

What’s Next?

The markets have a very defined upside bias over time, so it makes sense to play to that even if there’s more selling to come. My guess is that there will be quite a bit of green on the board but that’s beside the point.

The only question you need to sort out is YOUR perspective.

If you’re thinking 24 hours from now, the odds of a higher close are slightly more than 50/50... technically 53% (I know because I run these numbers nightly).

If you’re willing to give it 3-5 years, now you’re talking 83%.

And if you’ve got a decade, the odds of a higher close rise to 93.4%.

Ninety-three-point-four percent!

Keep it stupid simple.

You know what to do.

And, if you don’t ... and would like some help ... or even just a kick in the asteroids along with a healthy dose of confidence that comes from knowing you own the right companies and are on the right track ... and the peace of mind that comes with those things ... I’m here.