Sjug Weighs In on Today's Big Moves
The stomach-churning volatility continues... Sjug weighs in on today's big moves... A bullish signal from the VIX... Last call for Steve's 'Melt Up' event...
It was another volatile day for U.S. stocks...
All three major market indexes – the Dow Jones Industrial Average, S&P 500 Index, and Nasdaq Composite Index – opened sharply lower.
The tech-heavy Nasdaq led the morning's decline, plunging nearly 3%. The S&P fell more than 2%. And the Dow shed more than 500 points – or almost 2.2% – at its worst.
Of course, if you weren't watching, you'd likely never know it... The market reversed shortly thereafter and rallied the rest of the day. All three indexes closed down slightly.
Regular Digest readers know these kinds of wild swings are likely to continue...
As Steve Sjuggerud has explained, history shows volatility is likely to increase substantially as the final "inning" of this bull market plays out. If you're going to stay invested for the "Melt Up," you must be prepared for this.
But again, we'll remind you that nothing we've seen to date has changed Steve's Melt Up thesis. He remains as bullish as ever.
Still, we know these big swings can be unsettling...
And they feel all the more jarring after the unusually calm markets we've experienced for most of the past two years. So we asked Steve to share a few thoughts on the recent market action. He sent along the following note for Digest readers today...
These days, when stocks fall, investors worry whether this is the "big one" – the next major decline of 30%, 40%, or even 50%. The scars from 2008 cut deep. And I understand why folks are scared.
I take a different view, though...
First, as we've explained time and again, remember that corrections are normal, even during a Melt Up. We saw five corrections of roughly 10% during the final 12 months of the last great Melt Up.
We've had a couple this time around, too. Don't be surprised if we have more. A 10% fall doesn't mean the "big one" is happening... That's normal.
When these corrections happen, Steve doesn't get scared... he gets excited. More from his e-mail...
Today, I'm ecstatic. That's because I didn't believe we'd get another great buying opportunity in this Melt Up... But here we are.
My good friend Jason Goepfert is one of the best in the world at tracking investor sentiment through his excellent SentimenTrader website. According to him, the "dumb money" hasn't been this scared since February 2016.
After that February 2016 extreme, stocks soared 14% over the following two months.
We saw something similar this past April. Fund managers were running for the exits. And stock prices bottomed out in April, hitting their lows for the year.
It was scary for investors. But I told my readers that we had gotten a golden chance to buy. The benchmark S&P 500 Index rose 13% in less than six months.
Today's buying opportunity is like February 2016, or like this past April. I know it's scary. But I urge you to take advantage of it.
Tomorrow night's special broadcast is designed to help you do just that...
Steve will be sharing all the latest details on his Melt Up thesis, including how you can safely make the biggest gains possible over the final months of this bull market. You'll even get one of his top Melt Up recommendations absolutely free just for showing up.
It all starts tomorrow night at 8 p.m. Eastern time. Click here to learn more and reserve your spot before it's too late.
In the meantime, Steve isn't the only Stansberry Research editor who believes the recent sell-off is a buying opportunity...
Last week, we shared research from our colleagues Ben Morris and Drew McConnell that suggested stocks could rebound to new highs within months. As of today, Ten Stock Trader editor Greg Diamond is getting bullish, too.
Why?
It has to do with a certain signal he's been tracking on the CBOE Volatility Index ("VIX"), otherwise known as the market's "fear gauge." As Greg explained in an update to his Ten Stock Trader subscribers last Friday (emphasis added)...
Futures are slightly higher this morning on the back of Chinese stimulus and the somewhat-optimistic view of trade discussions between the U.S. and China at the G-20 meeting next month.
With options expiration today, I'm expecting continued volatility. And there is still the possibility of one last move lower to test support in the S&P 500 near 2,700, but if that happens, watch the Volatility Index ("VIX").
The last sharp move lower in the beginning of the year saw the S&P 500 bottom on February 9. Stocks made new lows, but the VIX – which tracks volatility on the S&P 500 – made LOWER HIGHS, signaling a potential bottom.
Should we test new lows in the days ahead, I'm expecting a similar relationship to develop this time around: lower highs on the VIX when (and if) the S&P makes new lows. This would trigger a great risk-to-reward setup for longs.
Greg was correct...
As you can see in the following chart, that's exactly what has happened so far. Today, the S&P 500 fell to a new low below last Thursday's low... However, the VIX remained well below last week's high...
Again, this same divergence signaled the bottom of the broad market correction back in February. It's still early, but Greg believes there's now a great chance that the major indexes have bottomed once again, and the bull market is set to resume.
New 52-week highs (as of 10/22/18): none.
In today's mailbag: The "Melt Up" skepticism continues... and a reader is confused about trailing stops. As always, send your questions, comments, and concerns to feedback@stansberryresearch.com.
"Melt Up??? Are you sane??" – Paid-up subscriber Donald R.
"You better be right!!!!!" – Paid-up subscriber Lawrence R.
"Steve I will say this. I don't know if you're right, but you've got big cajones!" – Paid-up subscriber Peter G.
"My TradeStops alerts are telling me to exit a number of positions many of which I own at a profit. I purchased my subscription based on your recommendation of the product and because I believe that you are correct that emotion is very often the enemy of rational investment selling decisions.
"My dilemma is: do I sell as recommended by TradeStops in anticipation of a deeper pullback or possible protracted bear market, or buy in to Dr. Steve's Sjuggerud's 'melt up' optimism for the near future." – Paid-up subscriber John K.
Brill comment: As always, we're prohibited from providing individual investment advice. We'll also remind you that our analysts sometimes recommend different trailing stops than those suggested by TradeStops, so be sure to refer to the guidance you received on each particular recommendation.
That said, the simple answer is that you don't have to choose one or the other. Similar to Doc Eifrig's advice on allocating your portfolio today, we suggest you do both.
In other words, we always recommend that you stick to your stops as a matter of discipline. But there's no reason you can't also invest in new opportunities – including Steve's Melt Up recommendations, if you so choose – so long as you continue to manage your risk appropriately.
Regards,
Justin Brill
Baltimore, Maryland
October 23, 2018