As regular readers know, I’m a big fan of the four stages of the stock cycle.
This is an idea originally pioneered by legendary trader Richard Wyckoff.
The cycle is made up of four distinct stages…
- Stage 1: Consolidation
- Stage 2: Accumulation
- Stage 3: Distribution
- Stage 4: Capitulation
The pattern is clear.
It repeats itself like clockwork and has for more than 100 years.
And this year, Stage 4 has taken out several high-flyers…
Still, some investors just can’t help themselves. They want to buy these stocks “on the cheap.”
Problem is… They usually get even cheaper.
Take Roku, Inc. (ROKU) for example…
The stock tripled in less than a year during its Stage 2 uptrend. But then, the selling started.
Institutions began dumping the stock in early 2021. That’s what created the Stage 3 volatility.
Stage 3 is your warning. It is the tell that you need to get out of the stock.
This period can be short, so it is important to learn how to spot it.
The biggest clue will be wild price movements.
If a stock that only made small pullbacks of 10%-15% is suddenly pulling back 30% or more, that’s your warning sign.
This volatility is the footprint of large institutional selling.
What comes next will not be pretty. The time to sell is NOW!
But ROKU is not alone.
Take a look at Teladoc Health, Inc. (TDOC), which was one of the hottest stocks of 2020, suffered a similar fate.
So did Peloton Interactive, Inc. (PTON), Zoom Video Communications, Inc. (ZM), Redfin Corporation (RDFN) and dozens of others.
So, please, take my advice…
Quit trying to bottom fish and buy stocks on the way down.
Only buy stocks in Stage 2 uptrends!
That’s where you’ll earn the majority of your gains.
Embrace the surge,
Editor, Stock Surge Daily