We’ve seen time… and time… and time again just how large a part human emotion plays in big market moves.
Whether it’s classic Greenspan-ian “irrational exuberance” at market tops, bidding up everything from tulip bulbs to dot-com stocks, or – less so these days – despair that catches like wildfire, sending otherwise perfectly sound stocks plummeting with no business case for them to do so.
In other words, emotions drive financial markets (and, importantly, the individual securities on them) “out of whack” – sometimes severely so.
This emotion drives investors to make bad, if not disastrous, decisions, gleefully overpaying at tops and selling at a long-term loss at bottoms.
Nevertheless, if you can hold your nerve, keep a proper perspective, and not go along with the crowd, you’ll find that there’s massive upside in these extreme situations – especially the one I’m going to show you.
Now, these aren’t just rare opportunities. You can find these extremes everywhere in the market, at just about any time.
They show up in broad indexes… specific market sectors… individual stocks and bonds…
And each one is a huge opportunity…
How to Play an “Extreme Continuation” Event
Now, to many investors, filtering through the hundreds of extremes that appear in the market every day may seem like an insurmountable challenge.
There’s that emotion again…
But I’m going to let you in on a little secret: The one you’ve really got to watch out for with “dry powder” is easy to spot.
It has a unique “how often” and “how much” profile.
One of my very favorite trades is playing a strong stock that is in a strong sector and buying it on sale because its price has dropped to a temporary oversold extreme.
It’s called an “extreme continuation.”
