A Big Bullish Sign for U.S. Stocks

'Cash is already pretty much dead'... The mainstream media continue to play 'catch up' with Sjug's China research... A big bullish sign for U.S. stocks... The market is getting a little 'frothy' in the near term...

'Cash is already pretty much dead'...

The mainstream financial media continue to play "catch up" with our colleague Steve Sjuggerud's China research...

Early this summer, we noted several outlets were finally realizing the bullish implications of index provider MSCI's big decision regarding emerging markets. As regular Digest readers know, this decision played out almost exactly as Steve predicted months earlier... And his subscribers were positioned well in advance.

More recently, the media have begun to catch on to the huge technological revolution taking place in the country today. This trend – which Steve has dubbed the "New China" economy – is transforming everyday life in China in ways most Americans wouldn't believe. As financial-news network CNBC reported over the weekend, cash is "already pretty much dead in China"...

Mobile pay is taking China by storm and changing daily commerce.

The transformation of a society limited to bills denominated in 100 yuan ($15) or less into one where QR payment codes abound was by far the biggest change in mainland China since my last visit four years ago.

When eating out or shopping with local friends, they paid by scanning a QR code on the restaurant table or by showing a similar code on their smartphones to the store clerk. A spices shop, museum souvenir store and seller of traditional Chinese calligraphy brushes all had signs saying they accepted mobile pay.

CNBC also noted that two companies in particular are leading this revolution...

Rather than, "Do you take credit cards?" the question was often "Do you take Alipay? WeChat Pay?" The running joke was that street beggars would rather take a mobile donation than cash...

Mobile payment volume in the country more than doubled to $5 trillion in 2016, according to Analysys data cited by Hillhouse Capital in a May report. In the first quarter of this year, Alipay had 54% of that mobile payments market, and WeChat Pay accounted for 40%, the study said.

Again, Steve's subscribers aren't surprised...

He has been talking about this trend – and the companies that are leading it – for more than a year. As he explained to his True Wealth China Opportunities subscribers last September...

"I don't carry a wallet or purse," an executive told me during our first meeting in Beijing. This executive saw that I was a bit confused. So she smiled, held up her mobile phone, and said something shocking: "I do everything through WeChat or AliPay."

It turns out, she's not alone. Most people in major Chinese cities do exactly the same thing... They don't carry cash or credit cards...

Think about what that means... In the last two years, paper money in China has been replaced almost completely... by something that nobody really used just two or three years ago.

The Chinese actually invented paper money. They were the first to use it – more than 500 years before the Europeans. But they found something they like so much better today that the use of paper money is now done (for the most part) in China's major cities.

What the heck is going on? It's nothing short of a technological revolution... It might be the greatest technological revolution that I have seen in my career. It is happening faster and on a larger scale than anything I have ever seen.

True Wealth China Opportunities subscribers who took Steve's advice are doing incredibly well...

Those who bought Tencent (TCEHY) – the owner of WeChat – and Alibaba (BABA) – the owner of AliPay – are up 69% and 75% respectively, so far.

A big bullish sign for U.S. stocks...

Regular readers know Steve's bullish China call isn't his only bold prediction of late...

While many analysts have been calling for a top in U.S. stocks, Steve has remained bullish. He continues to believe we're in the early stages of a "Melt Up" that will push stocks to incredible new highs before the bull market finally ends. And the latest data continue to support his thesis...

The major U.S. indexes - the Dow Jones Industrial Average, the S&P 500 Index, and Nasdaq Composite Index - continue to set new all-time highs. But in the past few weeks, we've also seen new record highs in the Dow Jones Transportation Average and the small-cap Russell 2000 Index for the first time in months. Likewise, financial stocks have finally surpassed their pre-crisis highs.

These are all bullish signs for the market. They suggest the rally is broad and many different stocks are participating. Today, we have one more...

You've likely never heard of the Value Line Geometric Index. Like the S&P 500 Equal Weight Index Steve has been following, this is also an "equal weight" index. However, its returns are calculated a bit differently.

In short, rather than use average returns, the Value Line Geometric Index uses median returns. Like equal weighting, this further reduces the noise by limiting the impact of a few strong performers. That makes this index one of the truest measures of how the broad market is performing.

The Value Line Geometric Index had gone almost nowhere for nearly 20 years... until late last year.

As you can see in the following chart, it finally made a sustained move above its 1998 and 2007 highs...

It has spent most of this year consolidating above this line. But last month, it began moving higher again, and now sits at a fresh all-time high.

This is a big bullish sign... Like Sjug's other market "vital signs," this one is also saying the rally is healthy today. And it suggests further gains are likely.

Of course, this doesn't mean we can't see a correction in the near term...

While the big picture remains bullish, several short-term measures are looking a little frothy.

For example, many of the sectors we noted above are quite "overbought" right now. As CNBC recently reported...

How overbought? The relative strength indicator (RSI), a widely watched momentum indicator of stock movements in the last several weeks, has the Russell 2000, industrials, financials and energy sectors all with an RSI over 90. That is WAY overbought. Readings below 40 are considered oversold, anything over 70 is overbought, and over 90? Well, you are in rare territory, and it indicates the market will likely slow down.

Likewise, we note CNN's Fear & Greed Index – a composite of seven different measures of investor sentiment – has soared over the past few weeks. It has jumped from just 38 (classified as "fear") one month ago to an "extreme greed" reading of 95 on Friday. These extremes often precede at least a minor pullback in stocks.

As always, the market is unpredictable, but don't be surprised if the rally takes a breather soon.

New 52-week highs (as of 10/6/17): AbbVie (ABBV), AMETEK (AME), American Express (AXP), Allianz (AZSEY), Bristol-Myers Squibb (BMY), Berkshire Hathaway (BRK-B), CBRE Group (CBG), First Trust Nasdaq Cybersecurity Fund (CIBR), Eaton Vance Enhanced Equity Income Fund (EOI), Huntington Ingalls Industries (HII), Intel (INTC), ETFMG Prime Mobile Payments Fund (IPAY), iShares U.S. Home Construction Fund (ITB), Lockheed Martin (LMT), Microsoft (MSFT), ProShares Ultra Technology Fund (ROM), ProShares Ultra Financials Fund (UYG), VF Corporation (VFC), and Verisign (VRSN).

In today's mailbag, several subscribers respond to Porter's Friday Digest request. As always, send your notes to feedback@stansberryresearch.com.

"Porter – Over a number of decades I have subscribed to probably far too many financial research newsletters. So much of what is out there is just empty hogwash. I became an Alliance member after initially subscribing to something else and realizing you had a knack for figuring out who was really smart and could make you and your business a winner. I don't appreciate some of your political opinions but I don't give a hoot because you and your guys are so damn smart financially, and that's why I read and take into account your opinions before I make my own decisions. And yes, the subscription has paid for itself many times over the years. Thank you." – Paid-up Stansberry Alliance member P.B.

"Well, your thesis is quite correct. More than 8-10 years ago I sat in my study looking at my family's long term obligations, combined incomes of me and my spouse, along with our spending habits, and particularly financial needs of my three children growing. Both me and my wife came from lower middle class families. We were taught good basics with one major flaw. We both were imprinted with a mind set that finer financial things were for more fortunate people like lawyers and doctors, people who could afford higher educations. Looking at my small 401k, I told myself there has to be a better way, and that investment must hold some sort of secret to reach better goals.

"Not only did this wake up my curiosity, it also implanted my determination. This was just before the financial crisis, when I opened a small online brokerage account, 2 actually, less than 10K for both mind you. I constantly loss money, though discouraged, my determination told me not to stop, look for answers. I then started signing up for free financial newsletters. It seemed these people knew something I didn't, they wrote of markets and contrarian investments, all Chinese to me, but I knew there was a formula some where I just had to figure it out, or find someone who knew how to explain it. During the course, the Bush financial crisis passed and I came across this article 'The End of America.' In this Article, this guy Porter wrote, most people knew something wasn't right, they just couldn't put their finger on it... I knew that instant reading the article that this guy was sharing 'The Right Information'...

"After one free newsletter, fast forward to today, 3 subscriptions from Stansberry Research, 5 small individual brokerage accounts, IRA earning 18%, an employment 401(k) earning 19%, all from 'determination' and Finding the Right Information from the Right Source. Thank you." – Paid-up subscriber Tony W.

"'The Right Information.' That's why I read/listen to what you say, Porter. You & the outstanding crew you have assembled. Thank you." – Paid-up subscriber Richard Louis

"Yes, the right information is the key to everything... Porter, I started out targeting jobs with high pay and low time commitment. I used that income to finance my professional training. Rather than sign up for a school costing tens of thousands of dollars, I shopped for the best instruction for each phase of my training, and continued working as a bus driver, cab driver, truck driver. I always made it a point to get training time with the examiner prior to each certification test. so that I knew what they were looking for, and knew and understood the examiner. As I was getting my training, I sought out contacts in the industry to call and ask what they looked for in job candidates, and proceeded to get all of those things on my resume. I paid for interview coaching in order to do my best in those crucial minutes.

"Once I got the career job, I put this idea to work in sports team endeavors. I hired world champions to be a coach/player, with us as part of the team, until I had a team that could perform at a high level while the coach stayed on the sidelines. We were the early adopters of simulators at the time. It was great to leap beyond the learning curve of other teams.

"I have been telling people this for decades, 'Seek out the people with the right information. Get right in there working with the people you want to become. There is no substitute for seeing it all up close.' I've told people this, but I can't think of too many of who have gone this path." – Paid-up Stansberry Alliance member Sally E.

"I couldn't agree with you more about getting the right information. But maybe someday you could write about the reluctance of even highly educated people to seek out the right information or recognize it when they see it. I've all but given up telling people about products like TradeStops because most of them seem to start from the position that, coming from the investment industry, it has to be flaky, or that it is for the financially challenged – i.e. not themselves. Who knows, maybe they are right, because to be honest that is precisely how I see myself. The strange thing is, I've never found being 'limited' has been a problem because if nothing else it forces you to work hard and keep an open mind. It also forces you to develop something I have consistently found in successful people: common sense. You can learn many things in the world, but common sense isn't one of them. Thanks for another wonderful essay. I DO read these things, as I know many other people do – just not those too smart for them." – Paid-up subscriber Dave H.

"Yo, Porter... If there was a way to agree with your stated position more than 100%, that's the position I would take... Thank you, again. I continue to believe that the $2,900 I sent you in early 2000's to become Alliance Member #19 is the second best investment money I have ever spent, next in line only behind my San Jose [shopping center], refinanced 3 times with multiple millions in negative equity, throwing off $400K+ per year in spendable cash. I LOVE your work and results. Please continue!!" – Paid-up Stansberry Alliance member Carl J.

Regards,

Justin Brill
Baltimore, Maryland
October 9, 2017