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Divergence Transforms 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 that’s been emerging in the U.S. stock market for the first time in 14 years.

You know that it’s all about stock prices deviating from their core fundamentals. You’ve heard that it only emerges during periods of peak market volatility. And it’s consistently delivered the chance to double or triple investments in 12 months and 10X returns in five years. And you know it’s so powerful that it sends divergent stocks higher, even if the market crashes.

Of course, you know that it’s the financial opportunity of a lifetime.

But did you know that the divergence we’ve been watching develop is the biggest one yet?

That’s right. We saw huge U.S. stock market divergences in 1988, 2001 and 2008. But what we’re seeing now is a bigger divergence than any of those — by a wide margin.

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

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

The opportunity in Divergence 2022 could be much, much bigger.

SHOP Divergence Will Bring Huge Market Gains

The best way to illustrate divergence is by comparing a company’s stock price with its revenues.

The two should always trend in the same direction. If revenues are moving higher, the stock should be rising, too. And if revenues are dropping, the stock should be falling as well.

Divergences occur when this immensely powerful relationship breaks. Revenues and earnings keep moving higher, but the stock price drops. And this creates a generational buying opportunity in that divergent stock.

Right now, we’re seeing some huge divergences appear in certain stocks across the market. Indeed, these are some of the biggest we’ve seen in the history of the U.S. stock market.

Take Shopify (SHOP), for example.

Shopify is a provider of e-commerce solutions to small- and medium-sized retailers. The company is riding the wave of online selling trends and the democratization of retail. Its revenues have been and are projected to keep growing very quickly. Yet, the stock price has collapsed recently, creating an enormous divergence between fundamentals and price. By the numbers, this is one of the largest divergences we’ve ever seen.

See the chart below. Historically speaking, what normally happens next is the purple line rapidly snaps back to the blue line. This sets the stage for quick triple-digit gains in the stock. Our numbers indicate that, due to this divergence, SHOP could more than double in a hurry.

Roku’s Great Divergence

Or consider Roku (ROKU).

Roku is a streaming device maker. It operates a TV software ecosystem that connects consumers to their favorite streaming services. It’s the “cable box of TV streaming.” Roku has and will continue to grow quickly as more users, content and ad dollars shift into the TV-streaming space.

Yet, the stock price has collapsed recently — without a drop in revenues — creating an enormous divergence. Our numbers indicate that this is one of the largest divergences in history. And it could result in a fast, 400%-plus rally in ROKU. Rake in those market gains!

The list goes on and on. Across the stock market today, we’re seeing some huge divergences appear in individual stocks with great growth potential. This is creating an ultra-compelling investment opportunity, the likes of which we haven’t seen since 2008.

That’s the good news.

The better news? Divergence 2022 is bigger than anything we’ve seen yet. And that means the returns going forward could be bigger than anything we’ve seen yet, too.

The Bigger the Divergence, the Bigger the Returns

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

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

Check out the following scatter plot that tracks multiple historical examples from 1988, 2001 and 2008. It graphs the size of various divergences (the X-axis) alongside the size of the 12-month forward returns (the Y-axis).

Clearly, there’s a positive relationship between divergence and returns. The bigger the divergence, the bigger the forward returns.

And that’s important because what we’re observing across the U.S. stock market now are some of the biggest divergences ever.

Of course, there’s Shopify and Roku. But relative to some of the other divergences out there, those are small.

Some stocks are reporting divergence magnitudes of 500 percentage points or more.

Those are the stocks that stand to win the most in Divergence 2022. And they’re the stocks we’re researching intimately right now.

The Final Word on Major Market Gains

The greatest market phenomenon in capitalism’s history 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 unaware — and those who ignore it — could lose a lot of money over the next 12 months.

Trust me. This is something you don’t want to — and, quite frankly, can’t afford to — miss. Indeed, this divergence window won’t stay open for long. It’s diminishing as we speak.

Capitalize on this rare market phenomenon while you can. And you’ll be able to turn today’s market volatility into triple-digit gains.

On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.

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