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“I felt as if I were riding a pendulum. Just as I would swing into the abyss of hopelessness, the pendulum would swing back with some small goodness.”
That’s from Between Shades of Gray, written by bestselling author Ruta Sepetys. It’s the story of a teenage Lithuanian girl who was abducted and forced to work in a Soviet-Siberian labor camp.
The book is about suffering, pain, hope and fortitude… feelings a lot of investors can relate to. But there’s an important investment lesson hiding in the pendulum quote I shared.
As you probably know, a lot goes into a stock price. Some of it is math — earnings, assets, expenses and more. But stock prices are also a product of emotions, psychology and opinions on the underlying company…
In fact, there are plenty of times when feelings have more influence on a stock than the pure mathematics.
For instance, when a stock’s price keeps going up and up and up, even though the company is losing more and more money every year.
Or when a company has a strong balance sheet and great earnings, but investors are dumping shares left and right.
In situations like these, you can bet that investors are valuing emotions over facts. They’re putting money into companies they like and taking their money out of companies they hate.
But these illogical situations don’t last forever. The next piece of bad news from a beloved company could be the last straw for investors — causing its stock price to suddenly reverse.
Likewise, a good earnings report could be all it takes for investors to realize they’ve gotten a company all wrong… and they’ll start buying back in.
If you can get into one of these stocks before a dramatic turnaround, you have an opportunity to profit immensely.
I call them “pendulum profits.”
Twitter Inc. (TWTR) is a perfect example.
When Twitter debuted on the New York Stock Exchange in the fall of 2013, investors rushed to buy — thinking it was going to be the next great tech titan…
But after shares peaked at $70 in early 2014, they started to sell off.
Investors were worried about the company’s declining revenue and user numbers.
So while the S&P 500 was soaring, Twitter bottomed out in the spring of last year around $14.
Traders also were betting heavily against the stock, with Twitter’s short interest peaking at 70 million shares.
Things looked like they couldn’t get any worse.
I call these moments the “peak of pessimism.” And it’s when you need to pile into these stocks… not rush out.
If you bought Twitter back when it was trading for $14.30 and kept it until now, you would have made over 200%!
That’s because revenues started to turn around late last year… and instead of decreasing, they started to rise.
As their top line increased, investors were happy to see the company turn a profit in the first quarter of 2018.
But you didn’t have to just be lucky to buy in at the bottom.
In fact, my Weekly Wealth Alert trading service, I recommended Twitter call options on two separate occasions — call options rise in value when a stock’s price rises — and I knew Twitter was in for a major turnaround.
How did I know Twitter was in store for a major turnaround?
By reading the market! I saw a surge in bullish options activity ahead of Twitter’s first quarter earnings report… meaning something big was about to happen.
Sure enough, we bagged triple digit-winners on both of my Twitter plays.
So the next time you hear about a major stock sell-off, take a closer look.
You might not be able to gauge a stock’s option activity on your own. But you can look for signs that sellers and trades have gone too far — betting on the stock to continue losing despite clear bright spots on the horizon.
When a stock has been sold to the point that it’s undervalued — the peak of pessimism — you can shoot for serious upside if the pendulum starts to swing the other way.
Pair that expected move with options, and you stand to make a ton of fast cash like my Weekly Wealth Alert readers did with Twitter.
It’s just a matter of identifying the small goodness in a company when investors have swung into the abyss of hopelessness. Then ride the pendulum when it inevitably swings the other way.
For more information on how you can start profiting off these valuable swings, check out my exclusive interview with former Bloomberg anchor Adam Johnson.
In it, I detail the entire strategy I use to pinpoint these moves, and even back it up with my trade history.
And the best part — this system is incredibly easy for everyday investors like you to follow.
So what are you waiting for? Let’s make some money.
Yours for weekly profits,
Alan Knuckman
P.S. Due to the exclusive content shared in my interview with Adam Johnson, this interview will be erased from the internet at midnight tonight.
To learn more about this extremely lucrative strategy before it’s deleted…
Which will give you the chance to turn just a small starting stake into more than $135,086 in mere days… Click here.
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From:: Daily Reckoning