The Cycle Never Stops Stock gets overvalued. Crashes back toward fair value. Usually overshoots to the downside. Then bounces back hard - sometimes overshooting to the upside again. NVDA just proved this perfectly. From $153 to $86 to $184. Classic mean reversion cycle playing out in real time. Now, when I'm playing mean reversion, I'm not typically look at a place on the chart which tells me to buy or sell. Instead, I am looking at valuation metrics like current PE ratio vs. its 5-year average—to name one. Then I dig a little deeper to avoid any "valuation traps." Sometimes a stock can appear relatively cheap, for example Target right now, but have some underlying issues, in their case it's Amazon and WalMart taking market share from them. YOUR ACTION PLAN When I see these extreme moves, I don't chase either direction. I wait for the snapback. NVDA at $90? That was free money waiting to bounce. NVDA at $180? That's asking for trouble. Been doing this for three decades. The rubber band always snaps back. Always. In The War Room, I'm tracking stocks doing exactly this right now. Some crashed too far due to one poor quarterly earnings report and are ready to bounce. Others ripped too high, ready to fall. The crowd chases the move. I wait for the reversion. That's the difference between making money and losing it.
FUN FACT FRIDAY | The Jackson Hole Economic Symposium, where Jerome Powell gave his much-anticipated speech today, has been held annually in Wyoming's Grand Teton National Park since 1981. Why? The location was picked partly because then-Fed Chair Paul Volcker was an avid fly fisherman who couldn't resist the lure of the nearby Snake River's trout-filled waters!
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