What’s a Bullish Stock and When Should You Buy?

What’s a Bullish Stock and When Should You Buy?

What’s a Bullish Stock and When Should You Buy?

Like many industries, the financial sector has its own lingo that insiders use, which can sometimes be a bit confusing to those who aren’t familiar with it. One bit of investing jargon that even folks who’ve never stepped onto a trading floor might have heard of is the idea of “bears and bulls” being used to describe stocks or other investments. In short, a bear stock or market is one investors believe will be going down in value or underperforming. On the other hand, a bull stock or market is one investors believe will be going up or outperforming. For help with choosing stocks or other investments, consider working with a financial advisor.

What Does Bullish and Bearish Mean With Stocks?

As noted above, the definitions of bearish and bullish are simple, at least on the surface. A bullish stock is one that investors believe is going to go up in value or outperform its benchmark. For instance, let’s say you’re watching the financial news and a pundit says that she is “bullish on Company XYZ.” This means that that particular analyst believes that shares of Company XYZ are about to grow, potentially resulting in big gains in value for shareholders.

Bearish, on the other hand, means the exact opposite. If an analyst or investor is bearish on a stock, they think the share price will be going down or underperforming its benchmark. If a newspaper article mentions that traders have been “bearish on shares of ABC Cloud Services,” that means investing professionals think ABC Cloud Services is due for a rough patch, likely meaning the values of shares will soon be going down.

The two terms can also be used to describe the stock market as a whole. If you hear someone say that we are in a “bear market,” that means the expectation is that stock values will be going down across the board. A “bull market” instead means the expectation is that stock values will be going up.

Someone can also describe themselves as bullish or bearish on a certain sector of the market. If you’re bullish on pharmaceuticals, that means you think the pharmaceutical industry as a whole is entering a period of growth and stocks in that industry will be going up soon.

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What to Do With Bullish and Bearish Stocks

What’s a Bullish Stock and When Should You Buy?

Now that you know what bullish and bearish means, the question is what you do with that information. There are plenty of complexities of investing, but there are a few basic rules that you can trust to guide you.

If investors and analysts are bearish on a stock, it means experts expect it to lose value. If you see this analysis coming from sources you trust, there are a few things you can do. For owners of the stock, it might be time to sell. Remember, “buy low, sell high” is the most basic goal of investing, so if a stock is about to lose a huge amount of value, now may be the time to dump it. This is especially true if it’s currently sitting at a higher value than you bought it for.

If you don’t own the stock, shorting it may be a strong option. Shorting is a somewhat complex financial maneuver investors use when they believe a stock is going to lose value. If you aren’t comfortable pulling off a short sale by yourself, a financial advisor or broker can help you.

If analysts are bullish on a stock, though, that’s a sign that you should consider holding onto it for the time being, or perhaps buy even more. If you aren’t invested in a company that analysts you trust are bullish on, now might be the time to get in on it, right before the value rises.

Bottom Line

What’s a Bullish Stock and When Should You Buy?

A bullish stock is one that experts and investors think is about to outperform and potentially increase in value. It makes a good investment if you get in before that price increase takes hold. A bearish stock is one that the experts think is going to underperform and go down in value. These are stocks you may want to sell off before the price goes down or potentially short sell, if you feel confident enough.

When you suspect a bear market is coming, it might be the time to pull back on equities and invest in other securities, such as bonds or commodities. A bull market, on the flip side, is the perfect time to get into the stock game, as you could see value for your purchases relatively quickly.

Investing Tips

For help understanding the stock market and other investing terms, consider working with a financial advisor. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool connects you with up to three financial advisors in your area in five minutes. If you’re ready to be matched with local advisors, get started now.

If you make moves based on a bear or bull market, make sure to see how your sales or purchases impact your asset allocation and make more tweaks if needed.

Photo credit: ©iStock.com/Orientfootage, ©iStock.com/guvendemir, ©iStock.com/GlobalStock

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Opinion: Stock-market ‘internals’ are improving, so stay bullish on the S&P 500

The S&P 500 index SPX, +0.28% continues to trade near all-time highs. The NASDAQ-100 NDX, -0.05% QQQ, -0.05% also is repeatedly making new all-time highs.

Meanwhile, market internals – while not wildly bullish – have improved for the first time about 10 weeks. That has resulted in some “catch-up” by the Russell 2000 index RUT, +0.74% IWM, +0.69% , but it is still well below its all-time highs.

The most recent SPX support level, at 4370, was triply tested and it is strong. But SPX has advanced so much that 4370 is beginning to disappear in the rearview mirror. As for a higher support level, there is tentative support at last week’s lows, near 4470, but it has not been retested.

Lawrence McMillan

There is technically a remaining McMillan Volatility Band (MVB) sell signal from early July, but it has had little effect. It would be stopped out if SPX were to close above the +4σ “modified Bollinger Band” (mBB) which is currently at about 4550.

Equity-only put-call ratios have rolled back over and are heading lower. That is bullish for stocks, since a local maximum on the equity-only put-call ratio is a buy signal for the stock market.

The process has been a slow-moving one, though, because of what had been negative internals in the market. That is, a majority of stocks were declining, and traders were buying puts on those – forcing the ratios lower, despite new S&P highs. Now, the situation is resolving itself somewhat, as call buyers of equities have returned, and the ratios are declining. This is some evidence of an improvement in the internals in the overall stock market.

For the record, the computer analysis programs have still not confirmed the buy signal in the weighted ratio – hence, the question mark on that chart.

Lawrence McMillan

Lawrence McMillan

Breadth is another internal area that is improving. Both breadth oscillators remain on buy signals, although they are not as strong as we’d normally see when trh S&P is making a series of new all-time highs.

However, cumulative breadth indicators are still lagging behind. That means the negative divergence that began in early June is still in place. As long as that is the case, the stock market can still rise, but one should be particularly attentive. Do not drift into complacency. Raise trailing stops on your long positions where appropriate, and – most importantly – adhere to those stops if they are triggered.

New 52-week highs have taken control over new 52-week lows once again. This is true not only for NYSE data but also “stocks only” and NASDAQ. Hence, this indicator is back in the bullish camp, rather strongly.

The entire complex of implied volatility remains bullish for stocks at this time. There is a VIX “spike peak” buy signal in effect from Aug. 19, and the trend of the VIX chart is downward. Moreover, the construct of volatility derivatives is bullish, too: the VIX futures VIX, +1.86% are trading at a premium to VIX, and the term structures slope upward.

Lawrence McMillan

In short, remain bullish as long as SPX remains above support at 4370. That is, retain a “core” long position and raise trailing stops appropriately. Meanwhile, confirmed buy and/or sell signals can be traded around that “core” position.

New recommendation: Conditional SPX sell signal

Based on the above article, we are going to lay out some parameters regarding taking a bearish position should SPX support be broken:

IF SPX trades below 4370 and stays there for an hour,

THEN buy 1 SPY Sep (24th) at-the-money put

And sell 1 SPY Sep (24th) put with a striking price 25 points lower.

In addition,

IF SPX closes below 4370,

THEN buy another bear spread:

Buy 1 (more) SPY Sep (24th) at-the-money put

And sell 1 (more) SPY Sep (24th) put with a striking price 25 points lower.

Note it is possible that the second condition (close below 4370) could occur without the first condition being satisfied (if SPX breaks below 4370 late in a trading day). If that is the case, then buy 2 of these spreads on the close.

Finally, if these spreads are established, stop yourself out of all of these bear spreads on an SPX close above 4430.

New recommendation: Put-call-ratio buy signals

There are no takeover rumors that are particularly interesting this week, but there are several good-looking put-call-ratio buy signals at the current time. This is a result of heavy put buying in stocks that were declining (reference the equity-only put-call ratio commentary in the article above). These include Brown-Forman BF.B, -2.13% , FedEx FDX, +0.72% , Leidos LDOS, +1.43% , IPG Photonics IPGP, +2.07% and Paccar PCAR, +1.51% .

We are going to recommend two conditional call buys; if the underlying stock can’t get above the conditional price, then don’t buy the calls.

IF Leidos Holdings closes above 99,

THEN buy 3 LDOS Oct (15th) 100 calls

LDOS: 97.78

The last two times that the put-call ratio in LDOS reached similar pessimistic heights, it was a good buy signal for the stock (see chart).

Lawrence McMillan

IF Paccar closes above 83,

THEN buy 3 PCAR Oct (15th) 82.5 calls

PCAR: 82.66

Paccar’s weighted put-call ratio is at an extreme high of about 150 ($150 being spent on puts for every $100 being spent on calls). That is by far the highest reading in a long time. That bearish pessimism is strong. By the contrary theory of put-call ratio signals, that would be a buy signal.

Lawrence McMillan

In either case, if the calls are bought, we will hold as long as the corresponding put-call ratio chart remains on a buy signal. We will update the situation weekly.

Follow-up action

All stops are mental closing stops unless otherwise noted.

Long 3 DUK Sept (17th) 105 calls: The trailing stop remains at 104.20.

Long 1 RAPT Sept (17th) 30 call: Continue to hold without a stop.

Long 2 HOLX Sept (17th) 75 calls: These calls were rolled up previously. Raise the trailing stop to 77.50.

Long 1 SPY Sept (10th) 433 put and short 1 SPY Sept (10th) 408 put: This spread was bought in line with the equity-only put-call ratio sell signals. Those sell signals are still in place.

Long 5 STAR Sept (27th) 25 calls: The stop remains at 24.60.

Long 2 DHI Sept (17th) 92.5 calls: These calls were bought on July 29, when D.R. Horton DHI, -0.37% closed above 93. Since this recommendation was based on a put-call ratio buy signal for DHI, we said we would hold the position as long as that buy signal is still in effect. It is no longer in effect, so sell these calls now to close the position.

Long 2 AFRM Sept (17th) 65 calls and short 2 AFRM Sept (17th) 80 calls: Affirm Holdings AFRM, +2.60% traded sharply higher on news that Amazon.com AMZN, -0.46% is going to the Affirm payment system. Our bull spread, which expires in less than three weeks, only expanded to 12.20 (the maximum is the difference in the strikes, 15 points), even though the stock is almost 20 points above the short (higher) strike. We are going to hold in order to attempt to capture some of that remaining time decay. Meanwhile, stop yourself out if the stock closes below 88. There previously were takeover rumors involving the company; they have not resurfaced lately.

Long 5 VNE Sept (17th) 38 calls: Hold while we see if a bidding war breaks out.

Long 2 SPY Sept (24th) 440 calls and short 2 453 calls: This was bought in line with the VIX “spike peak” buy signal of Aug. 19. Now that SPY has rallied above the short strike (453), sell the spread and replace it with a straight long call position: Buy 2 SPY Sept (24th) 453 calls. Hold these calls without a stop.

Long 2 IWM Sept (24th) 233 calls: We will hold unless both breadth oscillators roll over to sell signals.

Send questions to: lmcmillan@optionstrategist.com.

Lawrence G. McMillan is president of McMillan Analysis, a registered investment and commodity trading advisor. McMillan may hold positions in securities recommended in this report, both personally and in client accounts. He is an experienced trader and money manager and is the author of the bestselling book “Options as a Strategic Investment.”

Disclaimer: ©McMillan Analysis Corp. is registered with the SEC as an investment advisor and with the CFTC as a commodity trading advisor. The information in this newsletter has been carefully compiled from sources believed to be reliable, but accuracy and completeness are not guaranteed. The officers or directors of McMillan Analysis Corp., or accounts managed by such persons may have positions in the securities recommended in the advisory.

Here are some investment trends to watch in an ever-changing economic landscape

By Christopher Dhanraj

Roller coaster best describes the mobility of the economic landscape over the past year. As we sit today in the third quarter of 2021, keep a close eye on the following trends.

Cautious optimism is the current buzz phrase, given the mixed economic signals that vacillate between a bullish and a bearish market:

• The COVID-19 vaccine roll-out and Delta variant emergence, job recovery, a strong appetite for fiscal stimulus, and bi-partisan infrastructure support top the list of bullish signs.

• Rich market valuations, growing inflation concerns, a rise in real interest rates and volatility at the single-security level point to bearish market signals.

The takeaway here is that investors should be prepared to navigate any market environment.

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Value-oriented investing

Economic recovery as we’re now seeing acts as a tailwind to most industries, opening the door to rich valuations and the opportunity for value investing. This investment strategy involves picking stocks that appear to be trading less than their book value. Value investors actively seek out stocks they believe the market is underestimating, offering a chance to profit by buying stocks at discounted prices.

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Given that U.S. equity valuations are at all-time highs, consider focusing on fundamental metrics such as free cash flow and earnings when constructing portfolios. And with rising interest rates pointing to an improving economy, the opportunity to invest in financial institutions that can take advantage of the increasing rates is another option for investors.

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While private real estate sectors indicate diverging performance, industrial has been one of the most resilient real estate sectors throughout the pandemic, buoyed by rising e-commerce demand. Likewise, investment activity in the manufactured housing sector is demonstrating resilience with valuations for manufactured housing communities trending upward. Word to the wise for investors: valuations matter in the long-term.

Long-term optimism

Investor optimism has increased significantly since the COVID-19 vaccine, placing the pandemic in the rear view mirror for some stakeholders. Interestingly, this money is being put back to work in not just public but also private markets, showing that investors are focused beyond the short-term.

Goals-based planning

The imperative for investors is to remain capitalized amidst the current stimulus backdrop, with goals-based planning driving investing tactics that are low-cost, tax efficient, and diversified. Assets like stocks can grow cash flows beyond inflation, though with a high degree of volatility, while assets like bonds often produce steady cash flows and lower volatility. Real estate assets add to a portfolio’s diversification. The bottom line is much value exists in U.S. equities, infrastructure, preferred securities, and dividend growth strategies.

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Ultimately, a well-constructed, diverse portfolio can help investors weather market landscapes, whatever they may be.

For more information contact Chris Dhanraj at chris.dhanraj@CLAconnect.com or 813-384-2737. For more information about CliftonLarsonAllen LLP, visit CLAconnect.com.