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What the Dow Roller Coaster Should Be Telling You

Written by Alex Koyfman
Posted February 7, 2018 at 7:00PM

Three days ago, the most iconic financial index in the Western Hemisphere, the Dow Jones Industrial Average, suffered its worst one-day point loss in its entire 133-year history.

1,175 points to be exact, shed in a single trading session. 

The plunge was the culmination of a weeklong decline that's been so dramatic that even on a two-year chart, it easily stands out as the most eye-catching feature. 

dowcorrect

Of course, in the days following this cold splash of water, we've regained almost 1,000 of those points (as of this writing), and according to my Twitter feed, it seems like the bulk of the financial community is treating this event as nothing more than a minor stutter step in what is otherwise an unstoppable bull market. 

A healthy correction, as some might call it. 

Some, however, aren't quite so sure. 

Billionaire investor Carl Icahn, who made his fame and much of his fortune betting on Apple, thinks these wild fluctuations are symptoms of an overleveraged, highly unstable market. 

“There are too many exotic, leveraged products and one day these securities are going to blow up the market,” he said in an interview with CNBC earlier this week.

The CBOE Volatility Index, more commonly known by its ticker symbol VIX, spiked earlier this week by almost 200%, hitting its highest point since October 1, 2008.

This should be especially worrisome because by all other measures, at least officially, the economy is in good shape. 

The tax cuts are in; U.S. gross domestic product is now expanding at an annual pace of more than 3% (inflation adjusted) for three straight quarters; jobs numbers are at historic highs... and yet.

It's Just a Little Tiny Heart Attack. No Need for Panic.

Across the social media universe, this “stutter step” is now being called “the most predicted correction in history.”

Perhaps most telling of all was that while the bloodbath was raging, something else wasn't: Donald Trump's Twitter account. 

All of the evidence comes together to form a hypothesis that's far from shocking: After nine straight years in a bull market and an entire generation of young traders who have only read about corrections the same way I've only read about the days before indoor plumbing steering the market, a bitter dose of reality was definitely in order. 

The problem now is that, with confidence shaken, where will it end?

Another stutter step could conceivably trigger a cascade of selling, and next thing you know, we're not sitting on a 5% or 7% decline, but on a 25% or 40% decline — one we don't bounce back from quite so easily.

It sounds scary, but it's happened before, and if it happened again, it would make a 1,200-point drop — only 4.6% at today's levels — look like a walk in the park. 

On October 19, 1987, a day forever known as “Black Monday” in the financial world, the Dow lost 22%. 

Today, that would amount to a 5,500-point single-day drop, an event that would probably not be shrugged off quite so readily as what transpired earlier this week. 

And if you stretch the losses to a period of weeks or even months, we need look no further than the opening act of the last recession, which took the Dow down by 50%.

Millennial Traders Are Convinced the Good Times Are Here to Stay... How's Your Confidence Now?

For almost nine years now, confidence has been peaking, and for the last 15 or so months, that confidence has been transitioning into full-blown hubris.

Just hours after Wall Street came back from its single-biggest point loss ever, it was full-steam ahead again, as if nothing had happened.

Back to business as usual.

It's becoming very reminiscent of late 2007, when the big bank heads were assuring the world that the mortgage industry was built on a foundation of solid granite.

To me that spells risk... a lot of risk. More risk than even the most risk-insensitive of us out there are willing to consciously accept.

Frankly, I don't see any way out of this besides literally getting out.

The problem with leaving the market and hording cash in hopes of catching the bounce after the crash is that you just might end up waiting longer than you want. 

Time is money, and for people looking to fortify their savings for retirement, leaving the market and those steady gains is not an option. 

There has to be a way to rapidly bolster your portfolio on investments that were never the focus of the mainstream market mania that brought us to this point.

The investments I'm talking about are those that appreciate on their own merits in a highly competitive market, with minimal influence from the unbiased media, not on broad market bullishness or investment fund popularity.

During Pre-Recession Volatility, Avoid Mainstream Investments

It's a class of stock (yes, these are stocks, not ETFs, options, or any other form of financial voodoo) that is generally overlooked and underbought, except in moments when the underlying companies make breakthroughs. 

Bank on those breakthroughs, as well as the subsequent mainstream media campaign to spur investors, and you will end up selling into the hype, rather than buying like the average guy on the street. 

I've been working with this little-known and even less-understood class of investment for years now — since the last recession, in fact. 

And even though no investment is immune to global trends, I can say one thing to you about these companies: they're never overbought just because the Dow is strung out on stimulants. 

The strategy to playing these stocks is simple: buy before the breakthrough, and wait. 

You'll be entering into investments that only professional investors are aware of, and just like those professional investors, you'll be holding until the mainstream media drives the interest to the common retail investor. 

And then, just like the pros who are trading right alongside you, you sell. Let the next group try to eke out gains as the story makes its rounds across the news outlets.

This isn't so much a shelter from recession... It's a trading philosophy backed up by real-world tactics... Or in more common terms, it's how the 'smart money' invests. 

For those who aren't Wall Street insiders or wealthy independent venture capitalists, it's perhaps the only way to escape the traps of mainstream investment volatility.

Now, I know you may think I'm talking about something that takes an MBA and an attorney on retainer to get into, but you're wrong. The stocks I'm talking about can be traded using most online brokerages like Scottrade and E-Trade. 

The opportunities are real, and as the markets creep toward the unknown, the opportunities grow larger... But you need to know which chances to take. 

Check out my instructional video on how to make one of the world's least understood yet most lucrative classes of publicly traded stocks work for you. 

Click here for instant access.

Fortune favors the bold,

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Alex Koyfman

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Coming to us from an already impressive career as an independent trader and private investor, Alex's specialty is in the often misunderstood but highly profitable development-stage microcap sector. Focusing on young, aggressive, innovative biotech and technology firms from the U.S. and Canada, Alex has built a track record most Wall Street hedge funders would envy. Alex contributes his thoughts and insights regularly to Wealth Daily. To learn more about Alex, click here.

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