Mr. Miyagi’s Best Stock Market Investment Advice

Adam O’Dell | Friday, February 1, 2013 >>

“Walk on road.

“Walk right side… safe.

“Walk left side… safe.

“Walk middle… sooner or later you get squished, just like grape!”

That’s the advice Mr. Miyagi offered Daniel-san in the 1984 classic, The Karate Kid, as he transformed the scrawny kid into a fighting champion. This was my favorite movie growing up – I loved the classic duality between good and evil. (I don’t much like the remake with Will Smith’s son though. Why Hollywood insists on messing with perfection, I’ll never know.)

I never realized, 20 years later, that I’d be gleaning investment advice from Mr. Miyagi’s sage wisdom.

To transform yourself from a scrawny investor into a wealthy champion (like Mr. Miyagi did with Daniel-san) you have to pick a side. Walk the left side. Or walk the right side. Don’t walk the middle path.

And just like Mr. Miyagi taught the classic “wax on, wax off” technique, successful investors today need to learnrn the art of balancing today’s “risk on, risk off” stock market.

Despite the many debatable, complex nuances of the stock market… right now it all boils down to just two market environments: risk on and risk off. This is one aspect of the approach I take with the beta testers of my new service, Cycle 9 Alert.

The result?

A 113% gain in just 51 days!

Here’s how we did it…

On Tuesday, November 20 I sent my Cycle 9 Alert beta-testers a note about an interesting trend I’d spotted in the stock market …

As I watched the S&P 500 drop 9% between mid-September and mid-November I picked up on a shift in sentiment. “Risk off” sectors began to outperform the “risk on” sectors as money flowed out of bank stocks and into consumer staples.

So I recommended my beta-testers make a play on a shining star in a defensive sector – Kroger, the country’s top-dog grocery chain.

In my buy alert, I said:

The market is at a pivotal turnrning point. I want to stay with a defensive sector pick this week, but I’ve found a way to capture the upside too. A strong market rally from here into year-end would give a big boost to one Consumer Staple stock that’s doing some interesting things. That stock is Kroger Co. (NYSE: KR).

Kroger is in the Consumer Staples sector, so clearly a “risk off” investment. I also liked Kroger’s venture into the healthcare sector, another “risk off” investment, but one with incredible Baby Boomer-fueled demand. I even told subscribers that Kroger’s acquisition of Axium Pharmacy Holdings could lead to big gains in this stock.

Kroger took off like a rocket right after I made the call. Here’s what happened…

See larger image

We bought Kroger call options on November 27 for $2.25 a contract. Just TWO days later, we sold half the position for a 51% gain.

A little less than two months after the original recommendation, we sold our second half for a gain of 113%.

Just like Daniel-san harnrnessed the power of “wax on, wax off” to conquer his opponents in the ring, staying in tune with the market’s “risk on, risk off” split personality is key to staying on the right side of the market.

And that’s why I keep a watch list of investments – some “risk on” and some “risk off” – which I monitor daily. I even rank them on a “Leaders and Laggards Board” so I have a clear picture of the overall mood of the stock market.

So, the important question right now is: what kind of stock market are we in today?

My watch list tells me “risk on” investments are clearly in vogue. I know this because the top investments on my watch list include an oil fund (OIL), the small-cap Russell 2000 index (IWM), Brazil (EWZ) and the energy (XLE), industrial (XLI), consumer discretionary (XLY) and biotechnology (IBB) sectors… all of course “risk on.”

The bottom-feeders on my list are things like investment-grade bonds (LQD), municipal bonds (MUB), a global infrastructure fund (IGF) and the utilities sector (XLU). Clearly, the market is currently shunning “risk off” investments.

Look to the “risk on” sectors for profit opportunities in the coming months.

And don’t forget…

“Walk middle… sooner or later you get squished, just like grape!”

Adam O’Dell
Editor, Cycle 9 Alert

P.S. My Cycle 9 Alert service is still in beta-test phase. But with the successes we’ve enjoyed as we’ve put it through the paces, we’re nearly ready to open the service up to anyone interested in growing their investment portfolio. What successes, you ask? Well, so far we’re looking at gains of 113%, 91% and 87%. I’ll keep you posted on how we progress. And you’ll be the first to know when my service goes live.