Hold Your Nose and Buy!
Greg Guenthner

There are times when it pays to be contrarian.

This is not one of those times. 

Stocks have exploded higher since the election, with some of the market’s most speculative areas taking on leadership roles.

If you’re looking for a melt-up, you’ve come to the right place.

I’ve spent weeks talking about how the markets are primed and ready for a major move higher. All the signs were pointing to the beginning of a powerful melt-up move.

We just had one final hurdle to clear – last week’s election.

Now that the three-ring political circus has pulled up its tent stakes, we can turn our full attention to the raging bull market lifting stocks to new heights.

During less favorable conditions, it pays to take profits early and avoid chasing some of the market’s wilder breakouts. But right now, your best bet at booking outsized gains will come from the most speculative stocks and sectors, many of which previously languished on the back burner as semiconductors and Big Tech dominated the leaderboard.

I know how difficult it can be to switch gears and grab onto a runaway market. But if you want to keep up with the best of them, you’re going to need to hold your nose and buy.

The market’s in the perfect spot to continue running into the holiday season – maybe even well into Q1 2025.

But the rocketship isn’t going to wait for you to climb aboard. The only way to keep up during these optimal conditions is to fill your trading portfolio with the most explosive trades on the market.

Your biggest risk right now: not taking enough risk while the trading window is open. 

Money Never Lies

The market is giddy as Trump marches back to Washington. Stocks are adjusting to the reality of a new Trump administration and the policies it will bring, with tariffs and a more crypto-friendly environment as the top-of-mind issues shaping market returns over the past week.

Did Trump’s win matter to the market? Perhaps. More importantly, the election results were not close. The nation wasn’t forced to endure any hanging chads, recounts, or provisional ballot counts dragging out the results into late November. The early results washed the uncertainty away well before the wee hours of the morning, much to the chagrin of the spin doctors manning the cable news election battlestations.

The news lies. Money doesn’t. The betting markets were correct in predicting a Trump victory (despite many folks attempting to explain away the discrepancy between betting markets and polls leading up to Election Day). In fact, the futures market began signaling a Trump victory well before my early bedtime. The dollar was ripping, stocks were moving higher… it wasn’t even 10pm and I had all the confirmation I needed.

Since the election, the market has embarked on an absolute tear. The S&P 500 has not yet posted a red close, rallying nearly 4% since last Tuesday’s close. Meanwhile, the Nasdaq has jumped nearly 5%.

The chase is on! 

Here are the areas of the market that demand your focus as we put the election behind us:

1. Crypto Cruises as Bitcoin Reaches for $100K

Bitcoin came dangerously close to hitting $90,000 for the first time Monday afternoon. As I’ve discussed many times before, I believe it will easily hit $100K at some point before 2025 (a move that doesn’t look as far-fetched as Bitcoin has rallied almost 50% off its October lows).

Now that Bitcoin’s rally is accelerating, it will probably overshoot the round-number breakout. Look for it to tag $110K — or maybe even $120K — before it starts to slow down and consolidate.

Bitcoin’s not the only way to play this rally, either. Smaller tokens and “meme coins” are already starting to run. The crypto miners are also extending higher. This is where you’ll find the more explosive (and volatile!) gainers.

2. Go Small to Win Big 

We’ve been all over the small-cap theme since the long wait for the iShares Russell 2000 ETF (IWM) to rally back above 220 over the summer.

Well, we’re finally getting that breakout extension we’ve been waiting. IWM gapped up following the election and hasn’t looked back, gaining nearly 8% in just one week. This move handily outpaced the major averages – and we’re betting it continues to sprint higher in the weeks ahead.

3. The Most Powerful Pattern on the Market 

Out of all the explosive post-election plays, the biggest winners will probably come from what my colleague Enrique Abeyta calls “Echo Trades”.

The echo trade is a rare pattern that follows a stock market collapse.

Enrique has witnessed such an opportunity unfold only twice during his thirty-year career: the early 2000s internet bubble and the 2008 global financial crisis.

It all begins once a stock has fallen 80-90% from its previous bull market high. Blood is in the streets. Investors are scared. And no one wants to touch a company destined for bankruptcy.

I’m sure you’ve all heard the Wall Street adage, “When the time comes to buy, you won’t want to.” That’s when the echo trades begin to surface…

For starters, they don’t go bankrupt like many of their peers. Instead, they slowly begin to execute on their “big story,” the business plan that sent the stock soaring in the first place.

Amazon is a dotcom-era poster child for the echo trade and perhaps the best company in the history of the US stock market. But it wasn’t the only tech company that went on to thrive after surviving the internet bubble.

Of course, the global financial crisis also provided plenty of echo trades. And if you were hip to the pattern you could have made life-changing investments.

Fast forward to today, and Enrique is seeing this once-in-a-decade pattern develop again.

Check out Carvana Co. (CVNA). The stock posted massive gains during the pandemic melt-up, followed by a 99% decline into early 2023. Carvana towers sat empty like boarded-up businesses in downtown San Francisco. Bankruptcy was a foregone conclusion and the stock was a zero.

But CVNA didn’t file a chapter 7. Instead, it plugged those vending machines back in and started selling cars. As it turned out, the e-commerce story was legit and Carvana could deliver.

That’s when CVNA went from echo trade to echo boom…

As Enrique points out, this pattern isn’t limited to single stocks; echo trades emerge in waves after a major selloff.

And this extremely rare opportunity is happening again right now.

Keep an eye on the former tech-growth darlings for these echo trade setups. These trades are your best chance at booking big gains as the melt-up rally accelerates.

 

 

Greg Guenthner, CMT, is chief strategist at Forge Research Group. He has spent the better part of the past two decades developing long-term and short-term strategies with a single goal in mind: to help everyday investors generate outstanding returns and control their financial futures. Greg’s charts, analysis, and insights have appeared in Marketwatch, Forbes, Yahoo Finance, and many other financial publications.

 

 

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