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20 Top Investments As Stocks Rally to New Records: Salama

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Life as an options trader can be unforgiving.

While professional stock derivatives trader John Salama anticipated the key technical levels for the market last fall, including nailing the exact downside target for the SPDR S&P 500 ETF, he wasn’t rewarded for it because his call was premature by just a few weeks.

“I was a month early before,” Salama said in a recent interview with Business Insider. “It’s funny — in trading, being early is wrong.”

Salama was no stranger to tough breaks in 2023. The trader said he finished the year in the red, though his portfolio is off to a successful start in 2024 as stocks have rallied. And although this year will have twists and turns, the trader is highly bullish about what’s next.

“I don’t want to doubt this market,” Salama said. “I still think it’s strong — I don’t want to be bearish here. There’s too many sectors that are outperforming.”

Stocks will pause soon but still have upside

Following a brief consolidation period in early January, the S&P 500 has taken off again and set a streak of record highs. Salama said that stocks can continue to head higher in the medium term.

“The trend is your friend,” Salama said. “I don’t see this ending.”

Salama said the S&P 500’s winning streak will end at some point. But the trader explained that a brief pause would be a healthy development for markets.

“We should take a breather,” Salama said. “This is similar to running a race — you’re going to take a breath here, and we’ve been on a nonstop tear, essentially, since Halloween.”

Chances are, the S&P 500 will top out around current levels of 4,900, Salama said. He added that the index should then stall for a bit before reaching the 4,970 mark in mid- to late-February. Stocks should then run out of steam in March and slip to the 4,750 mark, Salama predicted.

As for what could spark a mild sell-off, Salama pointed to disappointment about interest rates. Markets were overly optimistic, projecting four to five rate cuts starting in March. That now appears unlikely since economic growth has proven to be highly resilient.

Otherwise, stocks will slip once investors no longer believe they’re a bargain, the trader noted.

“The 14-day RSI-80% is 5,000, so I wouldn’t expect this to get much, much further than that,” Salama said. “It’s just so expensive. You’re going to run out of buyers, and that’s what leads to corrections. It’s not too many sellers, it’s lots of buyers, and I expect you to get that around 5,000.”

Even if the S&P 500 takes a hit, Salama doesn’t think it will be down for long. He said the index could be back up to 5,200 by the end of April, which would be higher than the recently updated year-end targets from Wall Street’s biggest bulls.

At that pace, investors might assume there’s no limit to how high US stocks could rise in 2024. However, Salama warned that this year’s gains will likely be front-loaded, meaning that equities could top out and trade sideways for the remainder of the year after reaching those levels.

20 top places to invest now

Since May 2020, Salama has traded professionally using his own money, though he works with a proprietary trading firm called Maverick Trading to juice his returns. Salama sacrifices 30% of his profits in exchange for leverage of up to five times, which can give a big boost to his payout.

The professional trader thinks a wide variety of stocks can take off in this market. He spoke of 20 parts of the market or companies that look attractive, though he doesn’t have positions in all of them.

“I think you get — not an ‘everything rally’ — but I do think other underappreciated parts of the market get love,” Salama said.

Broadly, index funds tied to the Dow Jones Industrial Average, the equal-weight S&P 500, and the small-cap heavy Russell 2000 look set up for success, Salama said. However, he’s also optimistic about both mid caps and mega caps, so there’s no size that can’t do well.

There’s a flight to quality stocks in today’s market, Salama said, so he favors technology and communication services companies like Meta Platforms (META), Alphabet (GOOGL), Microsoft (MSFT), Netflix (NFLX), Nvidia (NVDA), and Advanced Micro Devices (AMD).

The Facebook and Google parents are thriving despite weakness in the advertising market while Microsoft became the world’s most valuable company earlier this year, overtaking Apple. Netflix is lapping its streaming competitors, as evidenced by its blowout fourth-quarter earnings report, while Nvidia and AMD are semiconductor standouts dominating during the AI surge.

Investors looking for widespread exposure to the two sectors can pursue exchange-traded funds (ETFs) like the Technology Select Sector SPDR Fund (XLK) and the Communication Services Select Sector SPDR Fund (XLC), Salama noted.

Within the consumer discretionary sector, Salama expressed interest in e-commerce, cloud computing, and media powerhouse Amazon (AMZN). Conversely, the trader said he’d fade Tesla (TSLA) — even before its Q4 earnings report completely bombed.

Healthcare is worth staying in despite its forgettable performance in the last year, in Salama’s view. The defensive sector was named a top idea among investment firms again for 2024 given its quality nature and ability to stay afloat in most markets.

Finally, financials look enticing, Salama said — especially regional banks like Truist Financial (TFC). The group has a promising technical setup, the trader noted, plus its economic sensitivity is a tailwind in an economy that grew at a surprisingly strong 3.3% pace last quarter.

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