Worried about what’s next? Here’s a strategy you can use immediately

Good afternoon!

The markets are closed here in the United States for Juneteenth, but tensions are running high.

I get it.

That’s why, rather than taking a day off, I thought you might appreciate learning about a pro-grade trick called the “Stair strategy.”

Never heard of it?

You’re not alone. Unless you’re a professional, you probably wouldn’t have had a reason to “use the stairs” in the past.

Things are different now.

The S&P 500, the Dow and the Nasdaq are all locked firmly in a downward trend; many people are worried their 401k will become a 201k.

Protecting what you have is more critical than ever. And easier!

That’s where the “stairs” come in.

Here’s what you need to know

The Stairs Strategy is based on a technical indicator called a stochastic oscillator.

Stochastics have been around since the 1950s when a gentleman by the name of George Lane developed ‘em as a way of measuring the relationships between closing prices and price ranges over time.

Stochastics are easy to understand and very accurate, especially when it comes to finding high-probability trading and investing entry points, exits and even hedges in trending markets.

Traders typically use stochastics on an intraday basis while investors often “zoom out” to a daily, weekly, or even monthly time frame.

Reading stochastic oscillators is super simple.

Stocks that are trending higher tend to trade at the upper end of whatever range is being measured. Conversely, stocks that are trending lower tend to trade at the lower end of the range.

For instance …

See the red and black lines along the bottom?

That’s the stochastic oscillator.

Prices above “80” mean the S&P 500 is “overbought.” That’s a $5 way of saying prices could relax or fall.

Conversely, prices below “20” are considered “oversold” which – you guessed it – implies a short-term upside reversal could be in the cards.

Savvy investors can simply step up or down with each new reading, hence the name … the Stair Strategy.

Now, look at this next chart.

This is where the Stair Strategy really shines, especially if you’re nervous about what might happen next.

Nobody knows for sure what’s around the corner. The markets can remain illogical longer than most investors can remain solvent.

Flying by the seat of your pants won’t cut it.

I’ve drawn three rectangles around key stochastic readings over the last 3 months, each of which correctly identifies another leg lower.

Anybody who had this information at their fingertips had ample time to get to safety, to hedge, to buy speculative puts or to use any other bearish strategy at their disposal.

And they will again!

People ask me all the time how I can say with such conviction that the markets are headed lower or higher and be so consistently accurate.

Now you know.

I’m looking at this chart and others like it. Then, using the information I see to draw reasonable conclusions about what happens next.

Potential actions when conditions are overbought (>80) include:

1. Taking profits to raise cash
2. Buying put options to profit from anticipated lower prices or profit from counter-trend trades around core positions
3. Purchasing inverse funds and other hedges to protect existing stocks you’d rather keep for the long-term

Again, this does not have to be complicated.

Let me show you.

Price, as you can see, clearly lines up with major inflection points in the stochastic oscillator. Every “step” lower is clearly identified giving anybody with access to this information time to take protective action and line up profit potential others flying by the seat of their pants missed.

So now what?

There’s no wrong way to use this information.

The stochastic oscillator is simple to understand, super accurate and widely available via the internet for free.

When stochastic readings are high, it makes sense to start thinking about the possibility of prices going lower.

When stochastic readings are lower, it makes sense to think about prices making an upside move.

Which BTW, is what the latest reading shows.

I hope you’re ready!

Best regards for health and wealth,

Keith

PS: If you liked today’s column, there’s something else you may like even better. I call it Your 5 Minute Guide to Hedging and it’s available here. (If you're an OBA reader, it's included in your June issue as well)

PPS: I’ll be sharing my thoughts on current market conditions, which companies to buy and more at the virtual MoneyShow on Wednesday at 320pm EST. I hope you’ll join me! (Sign up is FREE but space is limited)