If You're Confused, You're Not Alone
If you're confused, you're not alone... Plenty of reasons for caution... And plenty of catalysts for the bull market to continue... Why it's more important than ever to own 'the right stuff'... Mark your calendars for the 'Bull vs. Bear Summit'...
If you're confused about the stock market today, you're not alone...
Following their single worst December since the depths of the Great Depression, stocks just closed out their best January since 1987.
And as Porter's team of analysts noted in the latest issue of Stansberry's Investment Advisory , published on Friday, both the bears and the bulls have plenty of "fodder" to support their arguments today. As Mike DiBiase and Alan Gula explained...
Beneath the rally we still see reasons for caution...
First and foremost, our proprietary complacency indicator is still giving us a bearish reading. The score rose to 26 this month from 25 last month.
The following chart puts this move into perspective...
As a reminder, any score below 30 on this indicator tells us that investors are dangerously complacent and a correction is likely over the next 12 months.
The indicator last dipped below this key level just prior to the market's peak last fall. Yet, despite the nearly 20% drop through the end of the year, it has remained below 30 during every month since. This is unusual... And it's a bearish signal for stocks.
In addition, Mike and Alan noted the fundamental picture appears to be weakening as well...
More from the issue...
Recent economic data show that the global economy, while still growing, is decelerating. Manufacturing-activity growth in Europe slowed over 2018... China, the world's second-largest economy, grew at the slowest pace in almost three decades... while the once-hot U.S. housing and auto markets have sputtered as higher prices and rising interest rates squeeze potential buyers.
And on top of this, we've seen no real resolution to the U.S.-China trade war or a convincing end to the U.S. government shutdown.
These concerns should sound familiar to regular Digest readers...
We've been covering the realities of the ongoing trade war since the beginning. And we've been tracking several potential signs of weakness in the U.S. and global economies for months.
However, as Mike and Alan noted, bulls also have reasons for optimism today...
Resolutions to both [the trade war and the government shutdown] could be on the horizon and would lift the market.
More important, neither the U.S. – nor any other major part of the global economy – seems on the brink of a recession. The U.S. labor market remains strong with unemployment near all-time lows and wages last month posting their biggest full-year gain in a decade.
Throw in the Federal Reserve and its recent "dovish" reversal, and there are plenty of potential catalysts for a continued move higher in stocks.
So how do they recommend investing in this contradictory environment?...
Their general advice should also sound familiar to regular readers. As they wrote...
Given the fodder available to fuel both the bear and the bull cases, we feel it's more important than ever to narrow your investment focus to owning "the right stuff" – world-class companies with enviable profit margins and durable business models... And you should know why you own them so that you can be in an informed position to "buy the best and sell the rest" should the market dislocate again.
In other words, feel free to bet on a Melt Up with a small portion of your money, but keep the bulk of your equity portfolio in high-quality, capital-efficient companies trading at reasonable valuations.
Add in some extra cash, a little gold, and maybe a short sale or two, and you'll be positioned to do relatively well no matter what comes next.
We also encourage you to join our colleague Dr. Richard Smith for a special event next week...
During this "Bull vs. Bear Summit," you'll hear directly from a panel of experts from both sides of the debate, who will answer your biggest questions and share what they're personally doing with their own money right now.
You'll also see how Richard's proprietary TradeStops software can help you make more money with less risk in bull and bear markets alike.
This event is free to attend, and there are absolutely no obligations. You'll even receive a free copy of Richard's new report – "How to Know the Exact Day to Sell Any Stock You Own" – just for signing up. If you're interested, simply click here to reserve your spot right now.
New 52-week highs (as of 2/1/19): Kirkland Lake Gold (KL), Lundin Gold (TSX: LUG), and Procter & Gamble (PG).
In today's mailbag: Kudos from a longtime subscriber... a reader weighs in on the bull vs. bear debate... and another question about our Stock of the Week feature. As always, send your notes to feedback@stansberryresearch.com.
"I've subscribed to several Stansberry Research products over the years and finally settled on one of your lifetime membership products. Over these years, my investment skills have improved as a result of following your basic 'rules' like having a plan for exiting each position, position sizing, and using TradeStops tools to help overcome my emotions... But the greatest value I've derived from your products is the education. I now have a rational way to evaluate a potential investment, and I can take action that is divorced from emotion. As a result, the last 4 months I've stayed in the 'game' and avoided significant losses. Staying long in this volatile environment would be impossible without the learning that I've gained from your teaching and it's been a very good January! Thank you." – Paid-up subscriber Larry C.
"To answer the question about whether I'm a bull or bear... For the last several months I've been playing both sides of the market using different indicators and looking for extremes in the market. A couple weeks ago I became a bull in oil stocks and related indexes. Gold gave me the same bull signal several months ago. I had been playing the bear market in the SPY a while back, right now I'm getting mixed indicators in the SPY. I'll need to look at things over the weekend to see what's shakin for the upcoming week.
"One more thing... The TV series Nova did a show on the very thing [Mike Barrett was] talking about regarding statistics. They showed how Pascal and de Fermat came up with the answer to ending a game of chance early. I believe it aired last season." – Paid-up subscriber Robert G.
"Hello: Just wondering about the stock of the week feature. Has your firm stopped providing it? I haven't seen it for several weeks." – Paid-up subscriber Robert F.
Brill comment: Hi Robert, as we mentioned last week, you can find our latest Stock of the Week (published each Monday) – as well as the full archive of past issues – on the Stansberry Digest home page or right here.
Regards,
Justin Brill
Baltimore, Maryland
February 4, 2019