Divergence turns volatility into massive market gains

[Editor’s note: “Divergence Transforms Volatility Into Massive Market Gains” was previously published in May 2022. It has since been updated to include the most relevant information available.]

By now you should know all about the ultra-rare divergence phenomenon emerging in the US stock market for the first time in 14 years.

You know these are stock prices that deviate from their fundamental fundamentals. You have heard that it only emerges during periods of maximum market volatility. And it consistently offers the ability to double or triple investments in 12 months and 10x returns in five years. And you know it’s so powerful that it drives divergent stocks higher, even if the market crashes.

Of course, you know this is the financial opportunity of a lifetime.

But did you know that the divergence we are seeing developing is the largest to date?

It’s true. We saw huge divergences in US stock markets in 1988, 2001 and 2008. But what we are seeing now is a divergence bigger than any of them – by a wide margin.

Our analysis suggests that the greater the divergence, the more bigger potential returns.

You can forget about doubling or tripling your money in 12 months…

The opportunity in Divergence 2022 can be a lot, a lot bigger.

SHOP Divergence will bring huge market gains

The best way to illustrate divergence is to compare a company’s share price with its earnings.

Both should always tend in the same direction. If revenue increases, the stock should also increase. And if earnings fall, the stock should also fall.

Divergences occur when this immensely powerful relationship breaks down. Revenues and profits continue to rise, but the stock price falls. And that creates a generational buying opportunity in this divergent stock.

Right now we are seeing huge divergences appearing in some stocks in the market. Indeed, these are some of the largest we have seen in the history of the US stock market.

Take Shopify (STORE), for example.

Shopify is an e-commerce solution provider for small and medium retailers. The company is riding the wave of online sales trends and the democratization of retail. Its revenues have been and should continue to grow very rapidly. Yet, the stock price has crashed recently, creating a huge divergence between fundamentals and price. In numbers, this is one of the biggest discrepancies we’ve ever seen.

See table below. Historically speaking, what normally happens next is that the purple line quickly returns to the blue line. This paves the way for quick triple-digit gains in the stock. Our numbers indicate that due to this divergence, SHOP could more than double quickly.

A graph illustrating the evolution of the SHOP price and the annual turnover

Roku’s Great Divergence

Or consider Roku (ROKU).

Roku is a streaming device manufacturer. It operates a television software ecosystem that connects consumers to their favorite streaming services. It is the “TV streaming cable box”. Roku has and will continue to grow rapidly as more users, content, and advertising dollars move into the TV broadcast space.

Yet the stock price has crashed recently – with no drop in earnings – creating a huge divergence. Our numbers indicate that this is one of the largest divergences in history. And that could lead to a rapid rally of more than 400% in ROKU. Reap those market gains!

A graph illustrating the evolution of the ROKU price and annual revenue

The list is lengthened increasingly. Today, across the stock market, we see huge divergences emerging in individual stocks with high growth potential. This creates an ultra-compelling investment opportunity the likes of which we haven’t seen since 2008.

That’s the good news.

The best news? Divergence 2022 is bigger than anything we’ve seen so far. And that means the returns going forward could also be bigger than anything we’ve seen so far.

The greater the divergence, the greater the returns

One of the most interesting discoveries we have made about these divergence phenomena is that, in short, size matters.

We found that the bigger the divergence, the bigger the convergence.

Check out the following scatterplot which tracks several historical examples from 1988, 2001 and 2008. It plots the size of various divergences (the X axis) as well as the size of the 12-month forward yields (the Y axis).

Clearly, there is a positive relationship between divergence and returns. The greater the divergence, the greater the forward returns.

And that’s important because what we’re seeing right now in the US stock market are some of the biggest divergences on record.

Of course, there’s Shopify and Roku. But compared to some of the other divergences, these are small.

Some stocks are reporting amplitude deviations from 500 percentage points or more.

These are the stocks that will gain the most in Divergence 2022. And these are the stocks that we are studying intimately at the moment.

The Final Word on Key Market Gains

The greatest market phenomenon in the history of capitalism has arrived on Wall Street for the first time in 14 years.

Investors plugged into it could make a lot of money over the next 12 months. Those who don’t know – and those who don’t – could lose a lot of money over the next 12 months.

Trust me. It’s something you don’t want – and, quite frankly, can’t afford – to miss. Indeed, this divergence window will not remain open for long. It decreases as we speak.

Take advantage of this rare market phenomenon while you can. And you can turn the current market volatility into triple digit gains.

As of the date of publication, Luke Lango had (neither directly nor indirectly) any position in the securities mentioned in this article.

About Larry Noble

Check Also

2 ETFs I would like to buy in this volatility

Exchange-traded funds (ETFs) could be a solid choice amid the market declines we’re seeing this …