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How to win in a market pullback

Looking at the market recently, less experienced investors may think stocks only go up. 

Seasoned investors know better… Pullbacks happen, and planning is how you stay ahead of the game. 

I’ve been preparing for a market pullback for some time. Despite markets staying at lofty levels, my stance hasn’t changed. More importantly, my game plan remains at the ready.

Today, I’ll show you what I always do when markets slide, and why I do it…

If you’re familiar with my work, you know I believe in outlier stocks. That’s because they reward long-term investors with riches.

It’s one thing to love holding outliers when markets are flying high. It’s another thing entirely to be able to pounce on outlier opportunities when “fire sales” happen.

When it’s time to buy, most won’t

The funny thing about opportunity is that it rarely looks like one. Gifts don’t always come neatly wrapped with a bow—especially in the stock market. 

Market opportunities tend to be when the news is terrible, fear and uncertainty are high, and the landscape looks bleak. In those conditions, the normal human reaction is to duck for cover.

But human instinct rarely helps when investing. Emotion tends to be the enemy. Often, ideal buying opportunities come when stocks are in freefall, headlines are scary, and pundits are full of stories of why “this time is different.”

The last 20 years have seen plenty of volatile bumps in the investing road… the dot-com bubble and subsequent crash, the global financial crisis, multiple recession fears, and a once-in-a-century pandemic, just to name a few.

Making opportunistic investments during such periods requires courage and fortitude. But each time, the best outlier stocks eventually recovered… exceeding expectations.

When times get tough, and fear hits, having a buy list ready is critical.

At my research firm, Mapsignals, we follow the Big Money into the best stocks. By Big Money, I’m talking about institutional investors, Investment banks, pension funds, hedge funds, insurance companies, endowments… powerful institutions that hold roughly 80% of the money in the market today.

For years, I handled billions of dollars in trades on Wall Street… and I saw time and time again how Big Money investors set the tone for stocks. If you want to trade successfully, you need to tune into what these guys are doing. 

Our firm created an algorithm based on all of those years of experience. It’s our extrapolation of which stocks Big Money investors are plowing into. 

Stocks exhibiting the most Big Money signals tend to keep getting more signals… 

Have a look at one outlier: Adobe, Inc. (ADBE).

Notice how the chart is full of green. Each green bar is one of our Big Money signals. 

Now, I also want you to notice how several pullbacks came and went. Those green signals may have paused, but they eventually started again.

Big Money usually gravitates back to the best stocks once the dust settles.

Let’s look at another outlier: NVIDIA Corp. (NVDA).

Look how the same pattern emerges. Tons of green signals initially led the stock higher… Then scary pullbacks brought opportunity.

Let’s look at one more with Paycom Software, Inc. (PAYC).

Simple as it may seem, that’s my playbook: identify outlier stocks and grab them with both fists when blood is in the water. The time to strike is usually when you don’t want to. When emotion tells you to be scared because of falling prices and bad news, that’s when you should get excited.

I like to focus on outlier stocks for one simple reason: They’re the ones that tend to keep going higher. 

If you’re into real estate, think of outlier stocks as 5th Avenue property in Manhattan. The Big Money tends to hang around there… it’s the best of the best. And if anything ever goes up for sale, it’s usually not long before it’s snapped up.

So, when doomsday headlines come and stock prices seem like they can’t stop sliding, don’t duck and run. Stand and deliver.

I have my playbook, and now you do, too.

Luke Downey
Luke Downey is the co-founder of Mapsignals, which focuses on finding outlier stocks by following the big money. Luke is also an options instructor with Investopedia Academy. Prior to Mapsignals, he spent many years on institutional derivatives desks at Cantor Fitzgerald & Jefferies, LLC.

Editor’s note: In the last few months, Big Money billionaires like Buffett and Dalio have quietly poured a collective $1 billion into a small pool of income-generating assets… and if history’s any indicator, this little-known asset class could EXPLODE as much as 1,217% in the coming months.

In a new presentation, Frank explains how fast-moving Main Street investors can cash in on this massive opportunity… Watch here.

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