Divergence: the Rare Market Phenomenon To Hoist Your Portfolio
Divergence is a rare market phenomenon that has a perfect track record of minting millionaires.  And now it's emerging yet again.
[Editor’s note: “Divergence: the Rare Market Phenomenon To Hoist Your Portfolio” was previously published in September 2022. It has since been updated to include the most relevant information available.]
If you’ve been feeling anxious about the market recently, you’re not alone.
Just a few months ago, the number of Wall Street bulls dropped to its lowest since the financial crisis of 2008.
Now, it’s pretty obvious why all the bulls disappeared. A war is raging on in Europe. Inflation has been running at record high levels. The U.S. Federal Reserve has been on an aggressive quantitative tightening cycle. And in March, we saw a regional banking meltdown that resulted in several banks’ failures and sent major shockwaves through the entire financial market.
Not to mention, oil prices have been surging again. The housing market has slowed. And as the labor market shows signs of cracking, folks are worried the Fed will hike the economy right into a recession.
Obviously, in the face of these economic and political headwinds, it’s time to sell stocks and run for the hills. Right?
Wrong.
Ever heard the saying, be greedy when others are fearful? Well, that saying has never been truer than it is today.
While everyone else is panicking, my team and I have identified a unique stock market phenomenon that’s emerging right now. And it only emerges in times like these, when everyone is worried sick over a crash.
In fact, this phenomenon is the most bullish market indicator in history.
It would’ve led you to buy Microsoft (MSFT) at 40 cents in 1988 or Amazon (AMZN) at $6 in 2001. You would’ve snatch up Nvidia (NVDA) at 40 cents in 2002. Each of those investments have since turned modest $10,000 stakes into million-dollar paydays.
Well, right now, my team and I are witnessing this phenomenon emerge yet again. So, while everyone else may be running for the hills, we’re running toward the stocks displaying this phenomenon. History says we’ll have the chance to turn thousands into millions…
But only if we act now.
So, what’s this phenomenon all about? Let’s find out.
The “Divergence” Phenomenon That Repeatedly Mints Millionaires
We’ve discussed this rare market phenomenon in these issues before, so we’ll be brief in our description this time around.
In short, we call this trend a “divergence.” It centers on huge divergences that emerge between where a stock is trading and where it should be trading.
Essentially, our analysis suggests that the long-term trajectory of stocks is ultimately determined by the company’s earnings and revenues. The correlation is unmistakably strong at more than 90%. And that’s about as strong as any correlation gets in the real world.
Occasionally, though, the two trends diverge. That is, stock prices drop, while revenues and earnings rise. Typically, this happens during times of widespread fear in the market. Investors let sentiment analysis – not fundamental analysis – drive their decision-making.
Every time this happens, it’s followed by a convergence. The stock price snaps back to the revenue/earnings trend lines.
Basically, the relationship between stocks and earnings is like a rubber band. Whenever it gets stretched, it eventually snaps back. And those snapbacks tend to produce enormous returns in stocks that have the biggest divergences.
This happened in the late 1980s after Black Monday. Investors who capitalized on the divergence back then had the chance to make 500% returns over the following five years.
It happened again in the early 2000s with the dot-com crash. That divergence phenomenon allowed savvy investors to score nearly 750% average returns over the next five years.
And it happened most recently with the 2008 financial crisis. During that divergence, investors had the chance to score 1,000% gains over the next five years.
It’s a rare stock market phenomenon that has a perfect track record of minting millionaires.
And now it’s emerging yet again.
The Biggest Divergence Yet?
Obviously, there’s a lot of fear out there right now. Just like there was a lot of fear in 1988, 2000 and 2008. And just as it did back then, this fear is creating a divergence.
Across the market, companies are seeing stock prices fall sharply while revenues and earnings keep growing.
Previous divergences created excellent (some would say life-changing) buying opportunities. This one will be no different.
In fact, per our data analysis, the divergence we’re seeing today could be the biggest one yet.
Our proprietary divergence metric – which we call the “divergence magnitude” – quantitatively calculates the size of a stock’s divergence. And it shows that many stocks are currently amid historically large divergences.
Moreover, our analysis also revealed a strong correlation between the size of the divergence and the size of the convergence. That is, the more an individual stock diverged, the bigger its subsequent rebound was. Think of the rubber band analogy. The farther you pull back a rubber band, the faster and more furiously it snaps back into equilibrium.
And right now, what we’re seeing with stocks is the rubber band stretched to its maximum. What comes next will be the biggest individual stock rally in the market’s history.
The Final Word
I’m not a comedian, but if I may, I’d like to finish this issue with a joke.
Knock, knock!
Who’s there?
Opportunity.
Opportunity who?
You fool. Opportunity only knocks once.
Currently, folks, an enormous investment opportunity is knocking on your door. It won’t knock twice.
And honestly, the timing couldn’t be better. We’ve recently talked in these issues about pouncing on a stock at just the right moment – when it’s preparing for a big breakout. And when it comes to divergent stocks, what a breakout that will be…
Now, leaving these interpretations up to human reasoning can be a great way for emotions to lead to sub-optimal market moves. Countless studies have proven that emotions trip up investors, resulting in losses or missed gains.
Instead, we believe that a high-power computer network running detailed, complex algorithms is a vastly superior approach. And we’ve just finished developing a new quant system that does just that.
This means we’re not finding trades based on hunches, gut feel, or emotions. We’re using computers that don’t get greedy or scared. They process cold, hard data, then produce impartial results.
And that’s how we reduce false breakouts and avoid most premature, whipsaw sell signals. This new system holds the key to creating massive wealth in any market climate.
Take advantage of our groundbreaking tech, and set yourself up for enormous gains.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.