Jasdeep Singh Shares 4 Tips to Pick Stocks in This Pricey Market

By  //  August 31, 2020

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With the S&P 500 recording new all-time highs only a few days ago despite the unprecedented economic fallout caused by the COVID-19 pandemic, investors are struggling to grasp how the stock market can go higher from here despite what the economy is facing.

With the S&P 500 recording new all-time highs only a few days ago despite the unprecedented economic fallout caused by the COVID-19 pandemic, investors are struggling to grasp how the stock market can go higher from here despite what the economy is facing.

Although it is true that there seems to be a disconnection between what Wall Street is doing and what is going on in the global economy, there’s an old but popular saying among investors: “Don’t fight the tape”.

What this means is that regardless of whether the market is disconnected or not, as long as the current price trend continues to point up, you should follow it instead of fighting it.

So, if you are struggling to “go with the tape” in the market as is, business consultant Jasdeep Singh has a few recommendations you can follow to get past these feelings.

Tip #1: The trend is your friend

A price trend is a linear pattern that indicates the direction in which prices have been heading based on the closing prices of previous trading sessions.

Following the trend means that investors should be inclined to place bullish bets – take long positions – in the stock market as long as the trend points in an upward direction, while the contrary applies if the trend suddenly reverses.

Based on the chart above you can see that the S&P 500 has been riding a strong uptrend off its March lows, which means that the market is in fact pointing up regardless of what is going on with the economy.

That doesn’t mean that the trend cannot be reversed at some point, but it does mean that until the tables turn in a different direction, this is a bull market.

Tip #3: Long-term prospects beat short-term gains

Day trading has become a hot topic these days as people have found some fun in trading stocks while confined within their homes, especially since sports and other similar events have been cancelled amid the pandemic. 

However, trading stocks successfully – and most important, profitably – is not something everyone can achieve.

For this reason, instead of trying to guess where the markets as a whole or a stock is headed next, you would be better off picking companies that have a strong record of sales growth, high profit margins, high levels of free cash flow, and low debt.

These companies should provide better returns over time than what you can snatch by trading stocks on a daily basis.

Tip #3: Watch out for highly indebted or unprofitable companies

Risky companies will be the first ones to face plunging stock prices if a market correction takes place at some point.

Based on Mr. Singh’s research, many companies with high leverage levels or unprofitable operations are currently trading at market valuations that are just too hard to make sense of.

These companies will face a swift reckoning if the markets go sideways at some point and investors should either stay away from them or trade their shares with extreme caution to make sure they can get out of their positions without facing severe losses if a doomsday scenario does materialize.

Tip #4: Keep your stop-loss orders up to date. 

 A stop-loss order is a trade order that triggers a market order once a certain stop price is reached. 

This type of order is used by investors to cap their losses if the market or a stock suddenly drops down below levels they think are indicating a shift in the trend.

Since the market is going up on weak fundamentals and a shaky economic backdrop, riding the trend at this point should be done with extreme care, and this can be achieved by raising your stop prices as your holdings continue to increase in value.

That way, you’ll lock in a portion of the profits you have made while the market went up, while you can also cap the losses on the trades that are currently in the red zone.

Bottom Line

If you feel uncomfortable investing in the stock market at this point you shouldn’t feel bad about it. Valuations are indeed lofty and, in some cases, unjustifiable considering the economic backdrop.  

However, staying off the market could result in losing the chance of profiting from further upside movements, which according to research could lead to an underperforming portfolio by the end of the year.

By following some of the recommendations provided by Jasdeep Singh in this article you can ride this out-of-phase market trend, at least while it lasts.

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