Why Market Selloffs Are Healthy

by | Jan 3, 2019 | Bishop's Corner

Apple was the first stock to ever hit $1 trillion in market cap in 2018. It has now lost nearly 40% from those historic highs.

Here’s the thing… stocks go up, and stocks go down.

Unfortunately, the majority of financial planners will preach one thing to you: buy… buy…buy

While its true, that betting against America is a losing strategy in the long-term, it doesn’t mean you have to get steamrolled in the short-run when stocks are selling off.

Why Market Selloffs Are Healthy

You might think I’m crazy for saying this…but sometimes it’s good to see stocks sell off.

There is a multitude of reasons why it’s good to see stocks sell off:

  • The market moves in cycles.


    Think about the sentiment during a historic bull run…traders are euphoric and are buying highs – thinking stocks can even run higher. However, what they don’t realize is the fact that sometimes these companies are overvalued…until the market corrects to “normal” valuations.

    If the market continues to remain in a bull market for decades, chances are valuations will become inflated…think about what happened during the 2008 global financial crisis.

    I don’t know about you…but I don’t like to buy overvalued stocks, and usually, I’ll wait for sharp pullbacks and my money pattern to flash a buy or sell before going out on a limb and trying to pick a bottom or top.

 

  • Helps companies be more competitive.


    When stocks don’t correct or sell off, it leads companies to be complacent – thinking whatever they’re doing is perfect. However, this leads them to be lazy and lack innovation. You see, without sell-offs, how would a company know what it’s doing right and wrong?

    They wouldn’t know what they’re doing wrong…

    For example, Apple hit a $1T market capitalization in 2018. The company was in complete euphoria. However, what they weren’t focused on was competing in different spaces…ultimately leading to this:


    You see, if you’re at the top for so many years, it’s easy to become lazy. Rather than looking to switch up the iPhone prices, especially if they want to tap into the Chinese market…they can’t charge as much as they do in the U.S.

    This ultimately led to weak iPhone projections, causing the stock to have a massive gap down as annotated in the daily chart above. 

    With this selloff, this should drive Apple to be more competitive in the Chinese iPhone market…potentially leading to higher revenues and earnings in the future.

     

  • Prevent bubbles from forming


    How does a bubble form?

    Traders and investors keep buying an asset class – thinking there’s a tremendous upside…leading to market participants buying at insane valuations, driving prices even higher.

    If there were no corrections or market selloffs, you would probably see stocks plummet further – just like it did between 2008 and 2009 during the global financial crisis and 2000-2002 when the internet bubble popped.

    Had there been pullbacks, maybe crises could be averted.

How to Take Advantage of Volatile Markets


If you’re a buy-and-hold investor…corrections and bear markets are the worst thing. You see, in different market environments, it makes sense to be active, yet nimble.

But what happens if the correction or bear market is unforeseen?

Well, you could use options to hedge your portfolio.

For example, let’s say your long the SPDR S&P 500 ETF (SPY) and are fearful of a short-term correction, but want to stay long the market…You could buy put options to hedge your long position.

Now, there are also ways to make money when stocks are crashing.

You see, you could place speculative bets to make money using options during selloffs.

For example, here’s a look at a recent trade – in which I was able to make nearly $23K.

Now, traders in Weekly Money Multiplier are able to get alerts on trades like this in real time…

Hi Jeff,

Just made my first 100% winner…EVER! I’m very new to options so learning as fast as I can. Earned a little over $5,000 on QQQ today (100%). I think it could have been a 200% Winner if I would have held longer, I was just so excited to be up so much and in case there was a big quick retrace on today’s gap down, didn’t want to risk it. Should have taken half off at 100% as you recommend. Need to work on patience.” – David Cook 

“Dear Jeff, 

Thanks for your IQ call. Closed one trade already up over 100% !! Opened another one today and climbing. Taking your option courses day-by-day and learning fast but taking the trades slow.” – Warren Lobb

Looking for Selective Buys


After the market has sold off, it could uncover some buying opportunities. You see, the talking heads create fear during volatile market environments…in turn, causing them to panic sell, sometimes at levels where they shouldn’t be…

That said, there could be a lot of opportunities after the market finds a bottom.

Now, if you want to see how I’m able to selectively buy options on stocks and exchange-traded funds (ETFs)…and multiply my money…then check out this webinar here.

The next time you see stocks become inflated…think about going on the defensive if you’re a buy-and-hold investor. If you’re an active trader, you might consider going on the offensive and trading options to potentially multiply your money.

To YOUR Success!


Jeff Bishop
Weekly Money Multiplier

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