The 'Melt Up' Is Officially Underway
Sjug's big announcement... Some good news and some bad news... The 'Melt Up' is officially underway... Moving closer to a bear-market warning... Steve did what?!...
Last Friday, our colleague Steve Sjuggerud made a big announcement...
As longtime Digest readers know, "Sjug" has been incredibly bullish on U.S. stocks for years.
He was among the first analysts anywhere to turn bullish back in early 2009... And he's one of the few who has remained consistently (and correctly) bullish ever since.
In short, no one has "called" this bull market better than Steve. And for years, he has predicted we would see an explosive final rally – what he called the "Melt Up" – before it ended.
That remains the case today...
Despite the sharp correction in February and the elevated volatility since, Steve has not changed his outlook. He has continued to point to the market's healthy "vital signs" as evidence that the bull market would continue.
Still, the last few months haven't been easy. Several of Steve's favorite Melt Up positions have hit their stop losses, and some folks are again beginning to worry that the bull market is over.
If you're among them, we have some good news... Steve says it's official: He now has clear evidence that the final stage of the Melt Up is underway. As he explained in the latest issue of True Wealth, out last Friday...
I can now say this without hesitation. The Melt Up I've been waiting on... the Melt Up that will propel U.S. stocks to fantastic heights... is officially here. It's officially underway...
Despite a choppy market, the Melt Up is undisputedly here. I can prove it, very simply... But before I do, let's recall what the Melt Up is...
The Melt Up is the final push of a bull market. It's when the leading companies of this near decade long boom REALLY take off... and propel the overall market dramatically higher.
As Steve reminded readers, the last real Melt Up in U.S. stocks happened during the dot-com bubble in the late 1990s...
And there was an important "tell" in the broad market as it began in earnest. More from the issue...
The entire market had soared through the '90s. The old fuddy-duddy companies made huge gains right alongside the exciting new Internet stocks. But that changed as the bull market neared its end and the Melt Up took over.
Just take a look at the chart below. It shows the last 12 months of the 1990s bull market. And you can see that the fuddy-duddy companies (the Dow Jones Industrial Average) stopped keeping up with the exciting tech companies (the Nasdaq Composite Index.) Take a look...
The Dow basically went nowhere for the final 12 months of this stock market Melt Up, while tech stocks soared triple digits.
Steve noted that the divergence between high-flying tech stocks and the rest of the market signaled the Melt Up had officially begun...
And now, for the first time in this bull market, Steve says it's happening again...
Until now, boring stocks and exciting tech stocks had soared together. The tide of recent years has lifted all ships. You can see it in the chart below...
From late 2016 to early 2018, the old fuddy-duddy stocks have tracked nearly perfectly with the exciting tech sector. Heck, these boring businesses even outperformed for a good chunk of that time. But you might notice that the chart above ends in April. That's because things have changed in recent months. We've seen a major shift in performance.
The exciting tech stocks are finally crushing the boring fuddy-duddy businesses. Take a look...
This is a first... and it's big news. Since early April, the Nasdaq has dramatically outperformed the Dow. And it's hit new all-time highs along the way.
Again, this is exactly what happened in the late 1990s...
It's what signaled the final stage of the Melt Up was underway... just before tech stocks soared triple digits in just 12 months. And Steve believes it's an equally bullish sign again today...
This is it. We've been waiting and wondering. But this is our signal. The Melt Up is officially underway. The final stage of this bull market is likely to play out over the next 12 to 18 months as a result.
The takeaway is obvious. We want to own U.S. stocks right now. Specifically, we want to own exciting U.S. tech stocks – particularly ones that have the most to gain from the new economy of social media "ecosystems"...
It's great news that the Melt Up is FINALLY here. It's the next progression in our script. And it means we're entering a fantastic window to make money.
Steve also issued a warning, however...
In short, while he expects good times ahead in the coming months, he reminded readers that the good times won't last forever. In particular, he noted one of the most reliable "bear-market predictors" is moving closer to a major inflection point...
Last November, I shared one of the most important pieces of work I've ever written in True Wealth. I answered the question everyone in the investment world was asking... When will the next bear market begin?
The answer back then, was "not yet." And that's still my answer today. But we're getting darn close to that changing... And it's happening faster than I expected.
As you might guess, Steve was referring to the U.S. Treasury "yield curve" we've been following over the past several months. As he explained...
As a refresher, you need to watch one simple number if you want to know when this bull market will end. You don't need to follow advanced economic data or company earnings. None of that matters.
All you need to watch are interest rates. Specifically, the "spread" between long-term and short-term interest rates. I say this because this spread has correctly identified every major stock market peak of the last 40 years. When the spread falls below zero, look out. Tough times are ahead.
To get specific, we're looking at interest rates on 10-year and two-year government bonds. The spread is the yield on 10-year bonds minus the yield on two-year bonds. This spread tells us a lot. That's because the market controls longer-term interest rates... but the Federal Reserve controls short-term interest rates.
This spread has been an incredibly accurate indicator for both stocks and the economy in recent decades...
In fact, a negative – or "inverted" – spread has occurred prior to every major bear market over the past 40 years. And we could soon see another. More from Steve...
Here's the chart I used to show it in November...
Last fall, my advice was not to worry. We weren't there yet. And the spread likely wouldn't go negative for a couple of years.
Fast forward to today, and the picture is much different. The spread has crashed in recent months. And we're now darn close to going negative. Take a look...
We're now dangerously close to a negative reading. That's a bad sign for the long term. It means the countdown to the bull market peak could be upon us soon.
To be clear, this is no reason to panic...
For one, this spread has "widened" significantly to start the week. It jumped from just 0.29% on Friday to nearly 0.33% yesterday. This could be the start of at least a near-term reversal that delays "inversion" awhile longer.
But as Steve noted, even if this spread does go negative soon, it's usually not an immediate sell signal...
I don't want you to worry too much... The spread tends to go negative with plenty of warning before the stock market peaks. It's a leading indicator that gives us between six and 18 months before the bust begins. That fits in perfectly with our Melt Up thesis...
The Melt Up is officially here. This is the boom we've been waiting for. And this phase should last 12 to 18 months.
Along the way, the spread will go negative, warning us of the coming bust. We'll become more cautious when that happens... watching our stops closely and selling at the first sign of trouble.
This is a major progression for our investment script. But it doesn't force us to do anything differently right now. We want to stay long U.S. stocks, and tech stocks in particular.
One last thing...
This Melt Up news wasn't the only big announcement Steve shared with his True Wealth subscribers on Friday.
He also revealed a brand-new recommendation in one of the world's most controversial and volatile assets.
That's right... Steve is now bullish on bitcoin for the first time.
If you've been with us for long, you know this is a big deal. After all, Steve has been among the biggest skeptics of bitcoin and other cryptocurrencies.
But recently something has changed... and he now believes the potential upside is simply too great to ignore.
It wouldn't be fair to Steve's paid subscribers to share all the details here today, but you can get instant access to his full recommendation with a 100% risk-free subscription to True Wealth. Click here to learn more.
New 52-week highs (as of 7/23/18): AllianceBernstein (AB), Becton Dickinson (BDX), Facebook (FB), Fidelity Select Medical Tech and Devices Fund (FSMEX), ETFMG Prime Mobile Payments Fund (IPAY), Microsoft (MSFT), and ProShares Ultra Technology Fund (ROM).
In today's mailbag, one more subscriber shares his investment journey... while another buys bonds for the first time. Send your notes to feedback@stansberryresearch.com.
"Hello Porter: You asked for my story and how your work has helped or hurt me. Here goes... In the past I've been super aggressive with stock picks... high sales growth, high earnings projections, high ROE, new innovative product. I used to get an idea and go for the moon. Needless to say, with my timing of the market 2008 and my aggressive momentum approach, I was wiped out.
"I've subscribed to IBD in the past and piddled in stocks a little after the 2008 bust. I was introduced to chart reading, tech analysis... definitely not an expert. Therefore I became interested in double bottoms, resistance, breakouts on volume, uptrends, new highs tend to go higher, etc. I've never been a value guy (I've found them boring), but at this stage of my life I could probably use some boring.
"I've become enthralled with your investing strategies, especially your strategies as outlined in your Jubilee book. I've always wanted an economics degree, and I'm getting that by reading your work, listening to podcasts, etc. I'm having a blast because I'm learning a lot, and I needed you to help me invest in a drastically different way. I've subscribed as a lifetime Stansberry's Investment Advisory member and hope to add other lifetime memberships over time as I earn the cash (2 kids in college now – was thinking about getting college loans for kids to free up some cash thinking the jubilee might actually work in my favor in a few years... ha)
"I've been buying bullion for the past couple of years with every bit of savings I could muster. I cashed out my 401k when I thought Crooked Hillary was going to be POTUS and bought some rental houses. I thought this would be a much better investment if Hillary got in the White House. Thought the market would tank. (This is how I've bought bullion and helped pay for kids college).
"My plan now is to ride the melt up as far as it will take me, then short stocks at the top and also buy gold/silver mining stocks and call options. I'd also like to buy distressed bonds once I can save buy a [Stansberry's] Credit Opportunities subscription and save $50k in cash.
"After all of that excitement and the market loses half of its value or more, I am planning to purchase elite capital efficient stocks that grow their dividends and P&C stocks at a reasonable price and accumulate as many shares of these investments as possible for the next 20-30 years. I also plan to buy more rentals...
"So in summary, I use your work for your ideas and strategies. If I like your idea, I put it on my watch list. If I don't like the idea, I don't move on it. I make my own decisions and will not blame SIA for decisions that I make! I'm looking for something technically in the chart to determine my buy point (uptrend, at support, retraces back to the 50dma, new high on volume, cup and handle working up the right side of a base, etc). I'm hoping to beat your returns using this approach. We will see...
"Love your work. THANK YOU for your explanations. You have helped me understand concepts and terms that I had heard about but never understood. You ask very good questions in interviews. I'm thankful that you share your wisdom and your guest's wisdom with us every week. And finally, you crack me up. You're hilarious. I do enjoy your humorous comments at the beginning of podcasts.
"In case you haven't caught on, I'm a big fan. Also a fan of Kiz... by the way, my wife saw your company on his sleeve watching the Open." – Paid-up subscriber David D.
"Porter, today I bought a small bond position in one of your Stansberry's Credit Opportunities recommendations. It's the first time I've ever bought a bond. I've been wanting to subscribe to SCO for quite a while now and I finally bit the bullet. Now I'm a long-armer for life. It appears there are some good opportunities now but there will be incredible opportunity in the years to come. Without SCO I'd be lost in the bond market.
"I plan to accept your learning and 'stop buying stocks' from here on out. Well... at least until the bottom falls out. Then perhaps it'll be a good time again to 'buy stocks.' There are some exceptions though: Axis, Fairfax, W R Berkley, Travelers, DIS, HSY, AXP... but when I buy those I'm buying capital efficient BUSINESSES. Not stocks. There's a difference to me. Thanks yet again for all your learning." – Paid-up subscriber Matt V.
Regards,
Justin Brill
Baltimore, Maryland
July 24, 2018