-- Trading at the Edge of Chaos --

Analysis, Perspective, Trading Strategy

At the Edge of Chaos: Bull Market Still Has Legs. Selectivity Matters.

Editor Joe Duarte in the Money Options

Despite the gloom and doom emanating from some quarters, investors in the right sectors and individual stocks are likely to continue to make money in 2021 as central ‘t banks continue to pump money into the financial system and robot trading algorithms continue to answer the age-old Wall Street battle cry: “DON’T FIGHT THE FED.” That said, volatility and perhaps even an occasional violent correction will be thrown in as even this market can’t stay hugely overbought forever.

Does that make me a perma-bull? Nope. It makes me a pragmatist and a trend follower, albeit a very worried one, given the potential for external events to derail any rally. But, even as major pullbacks develop, as they most certainly will at some point, if history is any clue, unless the Fed pulls back the money candy any and all dips will be eventually bought and money will continue to pour into stocks.

So what is the recipe for success? It’s pretty simple, at least in principle. First, and although it’s difficult to conceive that given the potential for all kinds of things to go wrong, purely from a stock trading stand point, it’s foolish to fight the Fed. But second, and equally important, it’s all about picking stocks that are in that pre-momentum run sweet spot.

So as 2020 ends and 2021 starts, trade one stock at a time and keep your eyes on the Fed.

I have recently added a new stock to my model portfolio which is precisely in that sweet spot and thus has significant upside potential. Have a look with a Free Trial. Click here .

Double Shot for the Caffeine Wars: SBUX vs. MNST

Recent Nielsen data shows that energy drink consumption rose 10.6% on a year over year basis in the third quarter; a fact that suggests that as the COVID pandemic rolls through daily life, the public is finding a need for caffeine. As a result, it makes sense to compare two of the major publicly traded players in the caffeine industry and see what their prospects might be in a rapidly changing world.



Starbucks (SBUX), which I own and I have featured in this space with some frequency, continues to attract money flows, which is why its stock is near its recent 52-week high. Moreover, management’s recent bullish multi-year outlook guidance as well as improving current sales and short-term outlook have boosted the shares nicely.



However, there is an interesting dynamic emerging as analysts are questioning whether energy drinks will be taking market share from traditional coffee. And that’s where Monster (MNST), which I also own, comes into play.

MNST recently reported an 11.1% gain in currency adjusted year over year sales, but essentially flat gross profits, which was used as an excuse to sell the shares post earnings report. Yet, as investors read through the earnings report, they learned that MNST’s sales are steadily rising, with its Reign brand growing at a nearly 19% clip. Moreover, sales of its coffee shot Java Monster 300 brand were up over 20% compared to the similar Starbucks Energy which were up 17.6%.

Technically, MNST seems to have the upper hand in the short term as its Accumulation Distribution (ADI) and On Balance Volume (OBV) are in a bit better shape than those for SBUX. Nevertheless, both stocks remain in an uptrend, which means that for now the caffeine wars seem to be more about consumer preference for the jolt they receive from their preferred brand. Certainly, it is plausible to consider that we may be seeing a change of preference for getting a lift from coffee to energy drinks, but it seems as if the whole thing smells more of marketing than fact.

So, is MNST taking market share from SBUX? Or are we comparing apples to oranges? For now, it seems as if the caffeine wars dynamic is worth looking at. The bottom line is that both stocks remain in uptrends and that for now they both seem worth owning.

Find out what other opportunities are presenting themselves in this market with FREE trial to Joe Duarte in the Money Options.com. Click here .

Market Breadth Makes Another New High

The New York Stock Exchange Advance Decline line (NYAD) made a new high to end the week of 12/24, again highlighting why shorting this market is a high-risk proposition.



What that means is that we are once again in a market where the burden of proof is on the bears.



The Nasdaq 100 index (NDX) is in a similar position to SPX, which means that the bulls continue to get the benefit of the doubt until proven otherwise.



The Nasdaq 100 index (NDX) is in a similar position to SPX, which means that the bulls continue to get the benefit of the doubt until proven otherwise.



The elephant in the room continues to be the bond market. Specifically, the U.S. Ten Year Note yield (TNX) remaining at the higher end of its recent trading range is still a cautionary sign. If TNX climbs above that crucial resistance area, there could be some asset allocation shifts that increase volatility across the currency markets and eventually the stock market.

Market in the Middle of Rotation. Stick with What’s Working.

The effects of the Federal Reserve’s long term easing cycle are clearly the dominant feature of this market. Certainly, there will be pullbacks and corrections. But it seems as if the market has now been fully conditioned to buy every dip.

Of course, when everyone buys into the obvious is usually when the unexpected happens, which is why I’ve been paying a lot of attention to the bond market of late. What I’m saying is that there is still risk of some sort of negative surprise taking stocks down at some point. But other than considering a hedge of some sort, it seems as if for now sticking with the uptrend, and keeping up with the market’s rotation is the best way to make money.

For more on how to deal with the current market checkout my latest Your Daily Five video here .


Joe Duarte is a former money manager, an active trader and a widely recognized independent stock market analyst since 1987. He is author of eight investment books, including the best sellingTrading Options for Dummies, rated a TOP Options Book for 2018 by Benzinga.com - now in its third edition, The Everything Investing in your 20s and 30s and six other trading books.

Meanwhile, the U.S. Ten Year note yield (TNX) is trading in a The Everything Investing in your 20s & 30s at Amazon and The Everything Investing in your 20s & 30s at Barnes and Noble.

A Washington Post Color of Money Book of the Month is now available.

To receive Joe’s exclusive stock, option, and ETF recommendations, in your mailbox every week visit https://joeduarteinthemoneyoptions.com/secure/order_email.asp.

JoeDuarteInTheMoneyOptions.com is independently operated and solely funded by subscriber fees. This web site and the content provided is meant for educational purposes only and is not a solicitation to buy or sell any securities or investments. All sources of information are believed to be accurate, or as otherwise stated. Dr. Duarte and the publishers, partners, and staff of joeduarteinthemoneyoptions.com have no financial interest in any of the sources used. For independent investment advice consult your financial advisor. The analysis and conclusions reached on JoeDuarteInTheMoneyOptions.com are the sole property of Dr. Joe Duarte.