Time for "The Big Short" on Stocks?

Stocks are tumbling.

Over the past month, the S&P 500 has fallen 5%. The tech-heavy Nasdaq 100 has slid 8% over the same period.

Many of the market’s most important stocks have got hit even harder.

Apple (AAPL) has dropped 12% from its recent highs.

Microsoft (MSFT) has fallen 14%. And Tesla (TSLA) has nosedived 29% over the past few weeks.

The recent sell-off blindsided many investors. But it shouldn’t have…

As you’re about to see, stocks are following a predictable pattern. If history is any guide, the next few weeks could be tough sledding.

But that doesn’t mean you should panic. Soon, a major buying opportunity could present itself… one that both traders and investors will want to take advantage of.

Before we explain why, we want to welcome you to The Discount Weekly. Each week, we examine the biggest issues facing traders and investors… and explain how they impact your portfolios.

Today, we’re going to tell you exactly why stocks are under pressure. We’ll also have an important update on bitcoin to share with you as well.

But let’s begin by looking at stocks.

History Does Not Repeat Itself, But It Often Rhymes…

Stocks follow patterns.

If they didn’t, no one would bother with technical analysis.

The reason for this is pretty simple.

Human nature hasn’t evolved much over the past century.

People still tend to panic sell stocks when they’re falling rapidly. They also tend to chase stocks when they’re rising rapidly.

This is how fear and greed impact our decision making.

Of course, booms and busts aren’t the only kind of pattern that markets follow.

The stock market also tends to follow a predictable pattern around presidential cycles.

The chart, which is based on more than a century’s worth of trading data, says it all.

You’re looking at the Dow Jones Industrial Average has historically performed across the four-year presidential cycle.

In our case, Joe Biden became the 46th president of the United States in 2021. So, we’re in Year 3 of this cycle.

Historically, this has been a good time to own stocks. But that doesn’t mean the gains are evenly distributed across the year.

Historically, stocks start Year 3 off hot. Most of the gains during the first half of the year… before topping out over the summer.

And guess what?

That’s exactly how 2023 has played out.

The S&P 500 rallied 17% during the first six months of the year, while the Nasdaq 100 had its best start to a year ever. Typical Year 3 stuff.

Our free Telegram Channel 100-400%+ on longs this entire bull run (and we also just nailed the top with SPY and SMH Puts now up over 50-70%). 

We see this play out over and over again.

It’s because the sitting president will enact all sorts of pro-growth policies during the second half of their term.

The idea is that the current president will have a better chance of getting reelected if they boost the economy.

In this case, the Biden Administration introduced the Inflation Reduction Act and the CHIPS and Science Act last year. These two laws directed billions of dollars to industries like electric vehicle (EV) infrastructure and semiconductor manufacturing

Biden has also promised to wipe out billions of dollars in student loan debt, freeing up a ton of spending money for young Americans.

Now, you might not agree with these policies. But it’s hard to argue that they haven’t provided a near-term boost to both the economy and stock market.

Of course, the sugar high from these policies eventually wears off.

That’s why we often see the market pull back in the second half of Year 3 in the presidential cycle… which just recently entered!

In short, the stock market is currently following the presidential cycle to a tee.

And that’s not the only factor working against stocks…

Welcome to the Summer Doldrums

We’re also entering one of the worst seasonal periods of the year for stocks.

This chart shows the average monthly returns for the S&P 500 dating all the way back to 1928.

Historically, August is one of the weaker months for the stock market. But it’s nothing compared to September.

On average, stocks have fallen about 1% during the month of September. It’s the worst performing month by far.

When you consider where we’re at in the presidential cycle and seasonality, the next few weeks could be quite challenging for the stock market.

So, don’t be surprised if the indices head lower from here.

But that doesn’t mean the bull market in stocks is over. Beginning in October, stocks enter the strongest seasonal period for the stock market… as stocks typically perform strongly from October through January.

In other words, a major buying opportunity could arrive later this year.

The Crypto Corner

Stocks aren’t the only assets getting hit hard.

Crypto is also coming off a major selloff.

Here, we’re looking at the weekly chart of bitcoin.

For several weeks, bitcoin was basically doing nothing. It even reached extreme levels of low volatility.

Historically, periods of suppressed volatility like this has preceded big moves. In this case, bitcoin’s big move was to the downside.

This past week, bitcoin crashed 11%. What’s worse, bitcoin broke the uptrend that it’s been in since January.

The good news is that bitcoin didn’t keep crashing after its initial selloff and now it’s at major support.

Bitcoin is now trading at just over $26,000.

Bulls really need to see this level hold. A weekly close below $24,300 would be a major cause of concern. It could signal much lower prices for bitcoin.

What are we doing to profit off these moves and cyclical trends?

We update everyone in our free Telegram Channel on common sense trades we are taking, currently in, and keeping our eye on. We banked over 100-400%+ on plays this entire bull run and nailed the top with SPY and SMH Puts recently as well - those are up over 50-70%.

We will also be launching The Discount Portfolio soon. Here you can track all of our long term, mid-term, and short-term trades in real-time, with common-sense analysis for each position we take. A service that anyone, from beginner-to-advanced, can easily understand and take advantage of.

Be sure to subscribe via email, if you haven’t already, to receive the notification when our portfolio service launches.

Don’t forget to follow on YouTube for daily and weekly video updates.

Have a great rest of your week!

See You Next Sunday!