I Don’t Normally Call Tops or Bottoms, but…

I Don’t Normally Call Tops or Bottoms, but…

This isn’t something I normally do.

I’m not one to make big, broad market “calls”…

But today, I’m making an exception:

All the evidence tells me the bottom is in for growth stocks.

Why am I confident sticking my neck out like this?

Simple.

It has nothing to do with “intuition” or “gut feelings”…

As RiskHedge’s chief trader, I base everything off what the charts are telling me.

It always, always comes down to price action.

And right now, the evidence is overwhelming.

The worst appears to be over for growth stocks. I’m predicting a rally from here. And below, I’ll share the smart way to take advantage.

But first, let’s take a look at some important “tells” that make me confident going on record like this…

  • This first chart shows the performance of the Invesco QQQ Trust (QQQ).

QQQ invests in stocks that make up the tech-heavy Nasdaq index.

You can see that QQQ rolled over last month. It then started trading sideways. Many investors and traders feared that it would paint a “bear flag.”

In other words, they were expecting tech stocks to roll over again. That would be serious bad news for the market.

But it did the exact opposite. As you can see, QQQ broke out to the upside.

Source: StockCharts

This is excellent news for investors.

  • Of course, we’re not index investors here at RiskHedge…

We’re stock pickers.

And growth stocks are my bread and butter.

And I see plenty more bullish signs for growth stocks when I look “under the hood” of the US stock market.

Here’s another chart. This one shows the performance of the VanEck Vectors Semiconductor ETF (SMH), which invests in a basket of semiconductor stocks.

Source: StockCharts

It too broke out to the upside recently, reclaiming its 50-day moving average in the process.

This is more proof that conditions have improved dramatically recently.

  • Semiconductors are the “brains” of modern electronics…

They’re how computers search, process, and deliver information.

Of course, semiconductors aren’t just in computers and smartphones these days. They’re now in everything from pacemakers to “smart” lightbulbs to the Alexa in our kitchen.

In other words, semiconductors power every tech industry.

This makes them a good “tell” for the broad market and economy. If they’re doing well, investors shouldn’t usually be concerned about the market.

  • Biotech stocks are also bottoming out…

You’re looking at the performance of the iShares Nasdaq Biotechnology ETF (IBB). This fund invests in a basket of biotech stocks.

Below, you can see IBB is starting to break out of its 2-month downtrend…

Source: StockCharts

This is great news for investors, even ones who don’t dabble in biotech stocks.

You see, biotech stocks are riskier than investing in online shopping or enterprise software stocks.

Many biotech companies haven’t even generated their first sale yet. Some haven’t even completed development of their first drug.

Because of this, biotech is often the hardest-hit industry during market pullbacks. Biotech stocks also deliver some of the biggest gains during rallies.

In short, biotech stocks are a great measure of risk appetite.

  • Here’s more proof that speculative sentiment is returning.

This chart shows the performance of the ARK Genomic Revolution ETF (ARKG), which invests in a basket of genomics stocks.

Genomics is a “bleeding edge” health industry. Companies in the space are pioneering “precision healthcare.”

It’s an exciting, new field. No one can say for certain who will dominate this space five years from now.

And that makes investing in genomics stocks risky.

It also makes genomics stocks another great measure of risk appetite.

Below you can see that ARKG sold off hard last month.

But it looks to be in the process of bottoming out. ARKG reclaimed its 10-day moving average. This suggests ARKG could be gearing up for a rally.

Source: StockCharts

All of these are extremely positive signs for growth stocks over the next few months.

But please understand:

  • I’m NOT saying to go “all in” on growth stocks today.

Despite all the evidence I just showed you, I’m investing like I might be wrong.

And you should, too.

(My colleague Stephen McBride wrote an excellent piece on this idea here.)

Nobody has a crystal ball when it comes to predicting the market’s next move. It’s impossible to know for certain what markets will do. And stocks have a way of surprising us...

So, while the evidence is overwhelming that growth stocks have bottomed, I know it’s possible markets will prove me wrong. That’s why, as always, I’m sticking to my two “golden rules” of trading. And I suggest you do the same...

One, keep your position sizes reasonable (we suggest no more than 2% in any one position).

Two, be quick to cut any trades that go against you.

  • You should also focus on growth stocks displaying relative strength…

This is something I preach a lot, because it’s so important.

“Bottom fishing”—buying stocks that have been performed poorly in search of a “bargain”—may work for some folks. But 10 years of trading experience tells me it’s usually a loser’s game.

You’re much better off identifying and buying the strongest stocks.

In IPO Insider and Disruption Trader, I’m focusing on genomics stocks, and special purpose acquisition corporations (SPACs).

These sectors look to be in the initial stages of bottoming. But they still have some work to do to confirm a new uptrend.

So if you’re going to get involved in these explosive sectors, be sure to focus on the leaders to maximize your odds of turning a profit.

Justin Spittler
Chief Trader, RiskHedge