Long term trends in are defined differently socially then they are in the market. Long term social trends are usually under the surface, and you see them build slowly year after year until it becomes main stream. The trend can last 3-5 years after becoming ‘Mainstream’, but the goal is to catch on before then.
Market trends are much shorter, focusing more on short term issues than longer term trends. The market cares more about news headlines; selling off in a panic and surging on better than expected news. A market trend is bumpy, lasting last multiple years, but the path in which it gets there is not as smooth.
I believe long term trends are a 9-11 year process broken up into four distinct phases; Infancy, Build Up, Leading, and Exhausted.
Infancy (1-2 Years) – This phase is very generational, centered on the younger and most recently graduated. The focus now is on the Millennials. It is important to focus on what they want and what they are doing. An IPO may come out and pop to high gains, but settle. A larger company may see its stock begin a gradual, steady rise.
Build Up (3-5 Years) – This has caught on via social media, word of mouth, and has become very noticeable in pop culture. Corporations rush to try and fill the need met by much smaller niche companies. New product lines try to sort out what consumers really want. This is usually accompanied by scattered choppiness in the stock.
Leading (6-9 Years) – Most generations are now fully involved in the trend. Companies cater products to mass market. Products are well known and sophisticated. Expect a surge in stock price and continued strength.
Exhausted (10-11 years) –It is no longer cool or vogue to be in that trend. Usually by this point, something else has taken over. While you can still make money in these trends, the gains will not be steady enough to justify it. Stock will most likely take a large hit in price.
The ultimate goal is to catch the trend in the first 3 years before everyone else does. The big question is, how do we do this? The answer isn’t as hard as it seems…pay attention to what is around you.
To illustrate my point, let’s look at the athletic and wellness trend (which I believe is in its 6th year). In 2010
2010: Millennials are coming of age, graduating from college and getting into the work force. Obesity issues were running rampant on the news and awareness started to increase. Millennials embraced this news and started eating healthier and living more active lifestyles. Chipotle increased in popularity, McDonalds began losing its lure, and organics started to come on the scene.
2011: Hospitals started to embrace the “Preventative Healthcare” initiative. Yoga pants and athletic apparel were the craze, hitting college campuses and being worn by young people everywhere. Devices like the Fitbit came out and Federal Law now required calorie labeling at restaurants.
2012: It became the trend to wear the brands Athletic line of clothing. The older generation came into social media where people post their athletic accomplishments. Media coverage of the Affordable Care Act is getting men and women of all ages to take a look in the mirror and in their kitchen cabinets. Restaurants roll out more low calorie options, adding low calorie portions of the menu.
2013: Crossfit is all the rage. Older generations are starting to focus on fitness and maintaining their health. Fitness starts to oversaturate the market, and millennials are looking for the next big thing. Preventative healthcare is still being pushed by hospitals. “Clean living” and Paleo diets take the grocery stores by storm.
2014: Technology and fitness finally come together in a seamless way, reeling the Millennials back in for good. GPS watches aren’t overbearing and Fitbits can track everything from sleep to heart rate and calories. Apps on your phone make it easy to track meals and caloric intake. Millennials are having more kids and its “appropriate” to have your child eat at McDonalds. Starbucks comes out with healthier options for their lunch and snack options.
2015: Apple comes out with the Apple Watch and iHealth app. All major grocery stores pack their aisles with organic food and athletic clothing is more popular than regular clothing. It becomes “Cool” to show that you work out and track your fitness goals. Fitness and health is literally everywhere you look.
As you can see from the monthly $NKE chart above, the stock goes in and out of favor even though the social trend is building steam. There are many reasons for the up and downs. New apparel companies come out and take share from the company, and it takes time for the company to adjust and regain share. For example, when $LULU lemon hit the scene, they had the loyalty of all yoga pants wearers and it was only cool to have the $LULU logo on them. As $NKE saw this was a longer trend, more emphasis went on yoga pants creating their own look with more colors and designs that nobody else was doing. Overtime it became cool to wear ‘The Swoosh’ again.
It is important to note that there are many companies that explode onto the scene, but go in and out of trend much faster. It is important to profit from these big gainers in order to beat the market. Look for more information on this in an upcoming post.
With the market swinging pretty violently in both directions this week, we had only one entry ($FB), no exits. It is important to note that one stock, $RH is very close to stopping out. With $RH reporting earnings this upcoming week, I will be watching this one very closely.
The market as a whole is still strong. There are some sectors like transportation, energy and utilities still in a funk but overall there are some VERY strong underlying trends. I expect cyber security, biotech, organic foods, healthcare and financial sectors to carry us through the rest of 2015. My watch list is below:
$CYBR – Broke out on weak volume, but a large percentage gainer. I expect the stock to show weakness this week. Waiting for volume to get into the stock.
$WFC – Top pick for banking. If interest rates rise, watch for this stock to soar. Stock has run up too much to purchase, but waiting for a pullback.
$HAIN – Stock will get bought out at some point. Stores are increasing their organics section.
$ISIS – Stock is still consolidating after a long bullish run. Looking for volume and the resistance to become the support.
$CELG – In the same situation as $ISIS. Stock is strong with a large pipeline. Look for this to run.
$JACK – Probably the most undervalued stock I am following. Money is flowing into $SHAK, and once that bubble pops, expect the money to flow back into this one.