BlackRock Joins the 'Melt Up' Camp
'Correction watch' continues... Keep an eye on financials... BlackRock joins the 'Melt Up' camp... Don't miss tomorrow night's big event...
Editor's note: The Digest team is "on assignment" in New York City, so tonight's update will be brief. Be sure to read tomorrow's Digest for an exciting announcement.
Regular Digest readers know we've been on 'correction watch' for the past several weeks...
There's no doubt U.S. stocks have had a remarkable rally to start the year. The benchmark S&P 500 Index has risen more than 15% year to date. It's on pace for one of its best years in history.
But the rally has been gradually slowing since February. And as we noted last month in the March 22 Digest, some potential warning signs are now flashing.
Investor sentiment – which had become extremely bearish in December – has flipped back to a bullish extreme. It has now reached levels that typically precede at least a short-term pullback in stocks.
Likewise, we noted that some important sectors – most notably, financial stocks – have "diverged" from the broad market. They've begun to lag behind as the market has continued higher. Again, this type of behavior is often an early warning of a correction.
But we're not alone...
Our colleague Greg Diamond – editor of Ten Stock Trader – is also cautious today. And like us, he believes the divergence in financial stocks is one of the big reasons why. As he explained in his Weekly Market Outlook yesterday...
Specifically, I am looking at the Financial Select Sector SPDR Fund (XLF)...
Note the lower highs since this sector topped out last year. It is possible for a rally to $28 with several big bank earnings reported this week, but again, this would set up yet another lower high within this downtrend.
Unless the financial sector can close above the $29 level (previous highs), this downtrend remains intact and adds to the overall divergence within equity markets... which, in my analysis, is a warning sign.
Greg also shared a longer-term chart highlighting the relationship between financials and the broad market over the past two years...
The S&P 500 is the blue line, and XLF is the black line.
As you can see, there was a tight correlation (which is bullish) up until the markets topped out last year.
As the S&P 500 rallied this year, the financials have diverged and the correlation is breaking down (which is bearish). Again, I've marked the lower highs on XLF in red to illustrate the breakdown in correlation and downtrend in the sector.
To Greg, the bottom line is simple...
Unless he sees higher highs in all the major indexes – along with bullish price action in important sectors like the financials – he will continue to urge caution.
He believes the risk of a false breakout – or "bull trap" – is simply too great.
Of course, we should also remind you that not everyone here at Stansberry Research is cautious today...
As longtime readers know, our colleague Steve Sjuggerud has been incredibly (and consistently) bullish on U.S. stocks for the past 10 years now.
For the last couple of years in particular, Steve has been calling for a "Melt Up"... an explosive final surge higher before the long bull market ends.
If you read our free DailyWealth e-letter yesterday morning, you know that remains the case today. Steve is still as bullish as ever... and he still expects we'll see a Melt Up before it's all said and done.
This morning, we learned that the head of the world's largest asset manager now agrees...
Larry Fink – founder and CEO of BlackRock, which manages nearly $6 trillion – is now firmly in the Melt Up camp. As financial news network CNBC reported...
"We have a risk of a melt-up, not a meltdown here. Despite where the markets are in equities, we have not seen money being put to work," [Fink] told CNBC's Squawk Box. "We have record amounts of money in cash. We still see outflows in retail in equities and in institutions." ...
"Many people thought we were going to be in a period of rising rates. We were not and we saw huge underinvestment and people had to rush into fixed income," Fink said. "We have not seen that in equities yet."
Fink added that, with central banks being "more dovish than ever ... there is a shortage of good assets" for investors, which could ignite the melt-up in the global equity market.
But Fink isn't the only notable investor in Sjug's corner today...
Our friend Whitney Tilson – whom Steve himself has called "truly brilliant" – is also leaning bullish right now.
If you've been reading Whitney's recent guest essays in the Digest, you know he made a name for himself as a strict value investor. So you may be surprised to learn that's he's especially bullish on a couple of "big tech" growth stocks today.
For example, Whitney is incredibly bullish on Amazon (AMZN) today...
Contrary to popular opinion, he believes the online retail behemoth is on the verge of tremendous profitability. In fact, as Whitney explained in a recent special report on the company, he believes shares could easily see triple-digit upside over the next few years...
At first glance, Amazon seems to only make money from [its Amazon Web Services cloud-computing business], plus a small but highly profitable advertising business. Meanwhile, the retail side of the business sports thin margins.
In reality, Amazon's huge upfront expenses are hiding a good retail business and an excellent advertising one. This is a great thing: The company is investing now to gain as many customers as possible, forgoing today's profits to make robust profits in the future...
If Amazon's revenues grow at 20% annually over the next three years (a super-conservative assumption), they will reach $411 billion by 2021.
Assuming AWS margins remain steady, advertising margins match Google's, and retail margins return to pre-investment levels, Amazon's operating profits will grow nearly 70% per year over the next three years.
Whitney's surprising take on "big tech" is just one of the can't-miss topics he'll be sharing during tomorrow night's "Empire Investment Summit."
If you'd like to learn more about how Whitney – a man who has nailed so many big calls that CNBC dubbed him "The Prophet" – searches the markets for big potential winners, you don't want to miss this free event. It'll begin promptly at 8 p.m. Eastern time.
Click here to reserve your spot right now. You'll even get access to the rest of his report on Amazon – and other absolutely free resources, like a three-part video series on one of his favorite companies... behind-the-scenes Q&As... and more – just for signing up.
New 52-week highs (as of 4/15/19): Automatic Data Processing (ADP), Celgene (CELG), First Trust Nasdaq Cybersecurity Fund (CIBR), Cabot Oil & Gas (COG), Disney (DIS), Fortinet (FTNT), Hershey (HSY), McDonald's (MCD), MarketAxess (MKTX), Microsoft (MSFT), Match Group (MTCH), O'Reilly Automotive (ORLY), PepsiCo (PEP), Procter & Gamble (PG), Rollins (ROL), and T-Mobile (TMUS).
In today's mailbag, several readers share their investing and trading experience with "forever stock" Disney (DIS). As always, send your comments, questions, and concerns to feedback@stansberryresearch.com.
"Yes, I bought Disney in May 2018 and am up slightly less than 30%. Thanks." – Paid-up subscriber James S.
"Pulled the trigger on Disney about 6 months ago due to Porter's recommendations. Another great call from the guru. Thank you Porter." – Paid-up Stansberry Alliance member George P.
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"Bought 100 shares @ $109.15 on 1/4/2019. Sold ALL back @ $111.81 on 4/1/2019. I had to sell shares so I can buy TSLA! Hehe. Just kidding. Should have held on tighter for a couple more weeks. Can't win 'em all!" – Paid-up Stansberry Alliance member Matt E.
"DIS: +30%, FDX: +10%, KHC: (only) -5%, TATE.L: (not recommended, but a Global Elite) +15% (not bad considering all the Brexit nonsense), MDXG: +284%, and KL.TO: +220%. The last was in the TradeStops green zone for the last 4 years. I went looking on my own and used your example of what to look for [no teaching, only learning] and bought 1.5+ years ago. These gains (and future gains) are only possible because of my Stansberry Research Alliance / Venture memberships. Cheers." – Paid-up Stansberry Alliance member D.H.
Regards,
Justin Brill
New York, New York
April 16, 2019