In This Market, Money Does Grow on Trees
The stock market is on fire this year!
Money making market opportunities are virtually endless. It doesn’t matter what you trade, when, or what direction. There are plenty of gains to be found in this environment.
The stock market recovery rally has attracted most of the attention this year, and rightfully so. The Dow and S&P are finally attacking their pre-pandemic, all-time highs. And I don’t have to remind you about the soaring tech trade. Even as the Nasdaq Composite extends into nosebleed territory, the big tech stocks continue to soar.
But one of the best performers in 2020 comes from an asset you might not have an eye on right now…
I’m talking about lumber. Just look at this incredible chart:
Lumber has absolutely exploded this summer. As of this week, it has gained a whopping 175% off its April lows. It looks like money does grow on trees!
In fact, one of my trading friends cashed out with a one-contract $40,000 winner in what I consider a less-than-ideal, illiquid market.
The big move in lumber makes sense in this market environment. Think about how Home Depot has outperformed as millions of Americans have been stuck at home and looking for new projects. Add to this the mad scramble for suburban real estate, and you have the perfect storm for lumber gains.
Riding the momentum wave has worked wonders for my trading friend — and anyone else who hasn’t tried to pick tops in this market. My “it all comes back to commodities” approach has paid off with enough wood to build some seriously sturdy profits…
Keep it In the Money,
Chart of the Day: The Dow finally does it!
We highlighted the strong performance of the Dow Jones Transportation Average earlier this week. Transportation names exploded out of the gate at the very beginning of August as investors ventured back into airlines and shipping names. These stocks are continuing their breakout move as September approaches.
But what about the industrials?
As it turns out, the Dow Jones Industrial Average is blazing its own trail higher this week. Thanks to a strong breakout move this week, the Dow is now just about 3% from its all-time highs set back in mid-February:
Note how the industrials are jumping above 28,500 and into the gap-down area from where the market first began breaking down earlier this year during the first weeks of the pandemic crisis. Now that the Dow is closing this gap, 29,000 appears to be a reasonable short-term target for the resurgent industrials.
Trading Tip of the Day
The market can stay irrational longer than you can stay solvent.
It’s very difficult to find new trades right now if you are unwilling to chase the overextended big tech stocks… As we talk about all the time, we have to let the market come to us. Just blindly buying these stocks going straight up can lead to disaster.
But that doesn’t mean you should try to short these high-flying tech stocks! Yes, the market’s overbought — especially some of the FANG+ names. Just remember that these stocks can stay overbought for a long, long time — long enough to crush any short sellers in their path.
You should always be prepared for sharp pullbacks. They’ll eventually materialize. Just don’t throw your money away fighting the market’s strongest trends!
— Greg Guenthner