Welcome to my Mind Over Markets video presentation for Friday, February 17. The powerful stock market rally of January has lost steam, as the Federal Reserve this week floats the idea of even higher rates amid unexpectedly brisk inflation data.

The S&P 500 has gained only 1% in February so far, after drifting sideways since its peak early this month. The latest consumer price and producer price index data, released Tuesday and Thursday, respectively, show that inflation continues to run hot. Expectations that the Fed will soon turn more dovish suddenly appear unrealistic. Market exuberance has ebbed.

As investment risks increase, I decided that now’s a good time to interview a seasoned advisor on our staff who makes money for his followers under any market conditions: Dr. Joe Duarte, chief investment strategist of Profit Catalyst Alert and Weekly Cash Machine.

 

Dr. Duarte has been a professional investor and independent analyst since 1990. He is a former registered investment advisor and author of the bestselling Options Trading for Dummies, and several other books including Market Timing for Dummies and Successful Biotech Investing.

Dr. Duarte also is a practicing physician with a thriving medical practice. Think of him as your “investment doctor.” Below are edited excerpts of our discussion; my questions are in bold.

How would you describe yourself as an analyst? Is there a school of thought, or a set of overarching precepts, that you follow?

Yes, I’ve developed what I call the MELA system: M for markets, E for economy, L for people’s life decisions, and A for algos, which is artificial intelligence.

In the past, the economy fueled the markets, but since the late Nineties and early 2000s, this relationship went backwards. The way I see it, it’s now the markets that actually fuel the economy.

When the markets do well, the economy does well, because the intermediate step is the 401k plan. When people have money in their 401k plan, and the plan keeps going up, they want to buy things. They buy cars, they buy houses, they make long-term life decisions.

With social media and artificial intelligence in the markets, the algo trading and all of those things we’re aware of, that just speeds up the process. Trends happen faster, and they last longer, because the algos fuels those trends, and they become self-fulfilling prophesies.

Since the economy is fueled by consumer spending, the economy grows. This in turn leads to improving corporate earnings which increases stock prices and again fuels the 401k, and so on in a virtuous cycle.

Which sector looks the most appealing to you?

Technology, especially the cloud and companies that produce apps. Platforms that let people collaborate. We’re on a collaborative platform right now. We’re on Zoom, having this conference call.

And piggybacking on those trends, once these chip companies are able to make faster, smaller, more efficient chips, the whole cycle will go ahead and repeat itself.

As a medical doctor, one of your specialties is biotechnology investing. What trends currently excite you about biotech?

Biotech is a disappointment right now, to be honest with you. That’s because everything has been about COVID vaccines, and rightly so. I’m not at all suggesting that it’s not important, but because of that, all the money has gone toward companies involved in vaccines in one way or another, although as the pandemic wanes, that’s now changing.

I believe the future of biotech is osteoarthritis, pain management, rheumatoid arthritis, lupus, and cancer. Those are the big areas where, in the future, when we have breakthroughs, it will drive share prices significantly higher.

Moreover, companies that develop non-vaccine treatments for COVID are also likely to see some benefit for their share prices.

What’s the most dangerous risk facing investors right now?

If there’s anything that worries me the most, it’s the Federal Reserve making a big mistake on interest rates.

And as we know, central banks rarely get it just right. They either become too hawkish, or too dovish. In terms of current risks, what are some of the most sensible hedging strategies right now?

Caution is simple if you just take a step back and think. If you’re someone who trades 1,000 share lots, you might want to cut that back to 400 or 500 shares. Trading smaller lots cuts your risks.

Shorten your time frames. If you’ve made, say, 10% in a couple of weeks, there’s nothing wrong with taking some off the table, earlier than normal. If you made a bundle in a week, take it off.

Also consider income strategies. Buy/write, call strategies, look at the dividend paying stocks…those are the approaches in iffy markets that usually work.

Thanks for your time, Joe.

Editor’s Note: When we’ve put inflation and rate hikes behind us, certain innovative companies will explode on the upside. Which brings me to my colleague Dr. Joe Duarte.

Dr. Duarte has been a professional investor and independent analyst since 1990. He is a former registered investment advisor and author of the bestselling Options Trading for Dummies, and several other books including Market Timing for Dummies and Successful Biotech Investing.

Dr. Duarte is the chief investment strategist of our premium trading services, Profit Catalyst Alert and Weekly Cash Machine.

In a new report, Dr. Duarte pinpoints a groundbreaking tech disruption worth $75 trillion…and it all starts with one under-the-radar $3 stock.

This investment opportunity in the tech sector is poised for market-crushing gains in 2023. Learn more by clicking here.

John Persinos is the editorial director of Investing Daily.

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