A Rare Bullish Signal for Stocks
A rare bullish signal for stocks... History suggests gains of 20% or more over the next 12 months... A short-term warning sign... Keep an eye on the market's leaders...
We just got a rare bullish signal for stocks...
According to a recent note from Morgan Stanley strategists, an unusual indicator, based on the widely followed University of Michigan Consumer Sentiment Index, suggests the bull market will continue.
In short, the U.S. is currently in a bullish period of "elevated and stable" consumer sentiment. From the note...
We define elevated and stable consumer sentiment as: 10-month rolling average is above 90, and year-over-year change is not greater than 10% and not less than -10% for 10 straight months.
The firm's analysis shows this situation is rare...
It has only occurred five other times in the last 40 years: in 1985, 1995, 1998, 2002, and 2005. And each time, it has been incredibly bullish for stocks...
According to the note, the benchmark S&P 500 Index produced a median return of 21% and 42%, respectively, over the one- and two-year periods following each positive signal.
The latest signal was triggered last June... And the S&P 500 has rallied about 17% in the 11 months since. This not only suggests the indicator still "works," it also implies much more upside remains ahead.
Regular Digest readers know we never recommend giving too much weight to any single indicator. But this is just one of several notable signs that suggest stocks could go higher – potentially much higher – before this long bull market finally ends.
In fact, our colleague Steve Sjuggerud believes we'll see a "Melt Up" – an explosive final stage of the rally – where the stodgy Dow Jones Industrial Average more than doubles to 50,000 before it all ends… and many individual stocks absolutely soar.
It sounds incredible, we know… But Steve's research suggests it's not only possible, it's highly likely. He has prepared a short presentation explaining it all. Click here to see it now. (This does not lead to a long video.)
Of course, this doesn't mean the market can't pull back in the near term...
After all, corrections are a natural part of any bull market... And we've seen several big declines since this one began in 2009.
But we've now gone 18 months without a pullback of 10% or more... We're simply overdue.
Perhaps the biggest reason for short-term caution can be seen in the following chart of the S&P Technology Sector Index...
This Index is a subset of the broad S&P 500 Index comprised solely of blue-chip technology-related stocks. And just four stocks – Apple (AAPL), Microsoft (MSFT), Facebook (FB), and Alphabet (GOOGL) – account for nearly half of the sector's total market value.
As you can see in the chart, the sector is approaching what traders call significant "resistance."
The red line has acted as a "ceiling" for tech stocks since the bull market began. Even if these stocks ultimately break through this level, they're unlikely to do so on the first attempt. A short-term reversal – or at least a pause – is likely.
We also note that technology insiders have recently become much less bullish...
According to technology veteran Fred Hickey, editor of The High-Tech Strategist, executives at the biggest tech companies including Apple, Facebook, and Alphabet have been selling millions of shares over the past six months. Yet over the same time period, virtually zero insiders have been buying.
As we often say, insiders can sell for any number of reasons, so this isn't always a bearish signal. But they only buy for one reason: They believe shares will go up.
Seeing folks take profits after a big rally isn't surprising... But the dearth of buying at these firms suggests insiders also believe the rally has gotten ahead of itself.
Why do we bring this up?
Because these stocks aren't just some of the most popular stocks in the market today. They've also accounted for an incredible percentage of the broad market's gains this year. As financial-news network CNBC reported on Tuesday...
Approximately a third of the stock market's gains this year have come from just five stocks as of last week: Apple, Amazon, Facebook, Microsoft, and Alphabet Class A shares, according to data from Howard Silverblatt, senior index analyst at S&P Dow Jones Indices...
The disproportionate contribution of gains from those five issues underscores the tech sector's eye-popping performance this year. Information technology has risen nearly 20% in 2017. By comparison, the second-best-performing sector this year – consumer discretionary – is up 11.5% in the period.
U.S. stocks have been on fire this year, with the S&P 500 up 7.7% but the tech-heavy Nasdaq up more than twice that amount with a 15.3% gain. The two indexes also notched record closing highs on Friday.
In other words, if the rally in tech stocks takes a "breather," the broad market is likely to follow.
Our advice remains the same: Stay long, but keep a close eye on your stops.
New 52-week highs (as of 5/31/17): Aflac (AFL), Boeing (BA), Becton Dickinson (BDX), Blackstone (BX), Quest Diagnostics (DGX), Euronet Worldwide (EEFT), National Beverage (FIZZ), PureFunds ISE Mobile Payments Fund (IPAY), Nuveen Preferred Securities Income Fund (JPS), McDonald's (MCD), 3M (MMM), Monsanto (MON), Paysafe (PAYS.L), and Guggenheim China Real Estate Fund (TAO).
In today's mailbag, more rave reviews for P.J. O'Rourke... some confusion about the Stansberry Research "Top 10"... and rare praise from a long-time subscriber. Send your notes to feedback@stansberryresearch.com.
"I want to repost PJ's piece today, but won't because we don't do this. It is the best piece PJ has ever done for Stansberry, in my opinion. Bravo!!!! I'll be back on the site to read this one over and over. He gave me the laugh of the year! Oh, and I must be getting good... I've been watching this [move in gold] and am awaiting the buy signal. I expected to see today's analysis any day this week. I've been trained well ladies and gentlemen. Thanks!!!!" – Paid-up subscriber Marty S.
"P.J., I have to tell you I look forward to your posts as much as any of my Stansberry articles. You sooo nailed it on health insurance I'm still chuckling. This topic is something created to cause hand ringing where there was none before, just to round up votes. Where no one thought to look before. More control over the rest of us who don't appreciate being controlled. Thank you for your service, P.J." – Paid-up Stansberry Alliance member Steve J.
"Amen PJ! Alas I only have a single shot .22 purchased by my Grandfather in 1920 at Montgomery Wards. When my Dad developed Alzheimer's, I had my brother take all the guns out of the house. He only returned one which was my childhood .22. I do have Collector's edition '64 Derringers but they have never been fired and I think Lincoln was about the only person ever killed by one. Loved the piece, I have a Master's degree in Health Care and I could easily fix the system if someone only gave me a chance." – Paid-up subscriber Craig R.
"You list stocks that have done well. How do I get a list of current recommendations? Every time I subscribe to your newsletter or any other newsletter, it's the same thing. This is what I should have bought, but what about now?" – Paid-up subscriber Alice P.
Brill comment: Alice, we assume you're referring to the "Stansberry Research Top 10" we publish at the bottom of every Digest mailing. You're correct... This is a list of our best-performing open recommendations across all our publications. But we think you've misunderstood...
You see, this daily letter – the Stansberry Digest – is included free with any paid Stansberry Research subscription. The scope and purpose of the Digest is simple: to help you sift through the "noise" and put the day's important financial news in context... particularly as it applies to the big trends and themes we're following in our paid advisories.
But we don't usually make specific investment recommendations in the Digest. (Though, we will occasionally break this rule, such as when Porter recommended buying McDonald's shares in the April 10, 2015 Digest.)
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"Kudos to Justin – I was spoiled by Sean for many a good reason. Each day I am less spoiled, and, my comfort level with Justin's Digest is, well, comfortable. P.S. Sure do wish P.J. was on paid staff at 1600 Pennsylvania Ave." – "Happy" paid-up subscriber Kevin L.
Brill comment: Thanks for the kind words, Kevin. As Porter often says, his primary goal at Stansberry Research is to tell you, our subscribers, what he would want to know if your roles were reversed. I've done my best to live up to that lofty standard as well.
Regards,
Justin Brill
Baltimore, Maryland
June 1, 2017