On April 7th, Jim Cramer warned investors about a potential “Black Monday” event.
He predicted the stock market could see a dramatic additional 20% decline from that moment.
What happened next?
The market rallied by over 10% in just the next trading session.
This is exactly the type of information on financial media that tricks investors into making poor decisions during volatile times.
These are moments that should prompt you to ask yourself: Am I dumb money?
Today, we’re going to show you what our approach is in these volatile markets.
Understanding Today’s Extreme Volatility
Volatility, as measured by the VIX index, has spiked to levels only seen 2 times since 1990:
- During the 2020 COVID pandemic
- During the 2008 financial crisis
When the VIX exceeds 30, the average daily S&P 500 move is about 3-5%.
When the VIX sits below 15, the average daily move is just 0.3-0.5%.
This means the market moves we’re seeing right now are approximately 10 times larger than during low-volatility periods.
So, this is not the time for life-changing investment decisions.
It’s neither the moment to pour your life savings into S&P 500 call options nor to go all-in on inverse ETFs.
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The Long-Term Opportunity
There is one thing you can do in these volatile conditions:
Take advantage of large corrections to make long-term portfolio investments (10+ year horizon).
For long-term investing, valuation is what matters most.
The S&P 500’s P/E ratio has moved from 22 down to 18 in this correction – a 20% reduction in market valuations.
This makes stocks about 20% more attractive for long-term investors than just a couple months ago.
Could valuations go lower in the short term?
Absolutely…
But the data is clear: the cheaper you buy stocks, the higher your expected return.
Historically, when the P/E ratio is 18, you can expect about a 5% annualized return over the next 10 years.
While 5% isn’t spectacular, it’s much better than the negative annualized returns historically associated with a P/E of 22.
This is why we never discussed long-term buying opportunities throughout 2024 – stocks were simply too expensive back then.
But, the recent correction has brought valuations to a level where long-term returns look relatively more attractive now.
Interestingly, if we plot 1-year returns instead of 10-year returns against valuations, there’s almost zero correlation.
Buying expensive stocks can lead to good results over the next year, while buying cheap stocks can lead to poor short-term returns.
This is why PE ratios aren’t something we use for trading decisions at Bravos Research.
At Bravos Research, we’ve navigated these markets with remarkable success.
In just the past year, we’ve had:
- 129 total trades completed
- 85 winning positions
- 44 losing trades, with controlled risk
- Diverse portfolio spanning multiple assets
We recently secured a 58.5% profit on $UAMY, despite the tricky market conditions.
You can view our entire track record for free here.
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Our Current Approach
Throughout this correction, we’ve been extremely selective with our new trades.
We’re not trying to be heroes by making big market calls.
The only certainty is that this pullback will eventually end… and on the other side is often a long, steady bull market with plenty of opportunities for patient traders.
For example, in 2021:
- Apple, Amazon, and Google each gained over 100%.
- Tesla and Bitcoin rose 200%.
- Natera was up by 350%.
- Elf Beauty saw a 800% rise.
We were able to capitalize on these at Bravos Research by focusing on outperforming stocks during favorable market conditions.
Potential Scenarios Ahead
Today, the best-case scenario would like something like 1998.
Stocks saw a violent 20% correction where the S&P 500 sliced through all key moving averages, followed by choppy price action.
But ultimately, the market saw a recovery above those moving averages.
This signaled the continuation of the bull market for another 1.5 years.
The worst-case scenario would be similar to 2007.
Back then, the market saw a failed recovery without regaining its bullish technical structure.
Sellers remained in control, and the bear market continued.
Today, we’re simply watching to see if stocks can recover back into a bull market structure.
Trading isn’t rocket science, it’s about discipline.
The problem?
90% of traders can’t sit patiently during these market conditions.
If you want help staying level-headed, understanding today’s market environment, and accessing all our trading decisions, make sure to try our service.
At Bravos Research, we’re delivering:
- Get full access to our trading and investment strategy.
- 3 Investment Strategy videos every week.
- Real-time buy and sell Trade Alerts.
We recently booked a 34.2% profit on $WPM and 58.5% profit on $UAMY, despite these market conditions.
View our 2024 track record for free on our website here.
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