A Moment of Truth for the Markets
A moment of truth for the markets... 'Time cycles' are warning of more volatility ahead... An update on Doc's correction call... Don't miss your chance to try Doc's powerful strategy for yourself...
Kudos to our colleague Greg Diamond, technical analyst for the Stansberry NewsWire...
Regular Digest readers may recall that Greg has been warning for months that this spring would be an important – and potentially volatile – period for the markets.
Greg based this call largely on the study of "time cycle" analysis, a type of technical analysis developed by trading legend W.D. Gann in the early 20th century.
The details of this approach are beyond the scope of the Digest. In short, Gann discovered that markets move in cycles, and significant turning points – tops and bottoms – tend to occur at predictable time intervals.
Greg's own cycle analysis suggested this spring – between March and May – was likely to mark one of these turning points. As he explained in the September 6 Digest...
Over a 26-month period from March 2009 to May 2011, the market more than doubled. It then fell about 30% over the next few months before ripping higher...
We are now in the late stages of a bull market – the so-called "Melt Up," as my colleague Steve Sjuggerud likes to say. But time cycles are often symmetrical. And as you can see on the following chart, the second highlighted move is remarkably similar to the first so far.
As Greg noted, if this symmetry remained, this latest move would peak in early 2018, and then turn lower into the spring. And while he couldn't say if this period would mark a significant top, or a bottom as it did in 2011, he warned that it could get a little rough. More from that Digest...
Does this mean we're expecting a crash? No.
But considering the market hasn't had a 10%-plus correction in some time, a healthy correction wouldn't be a surprise. And it will feel much worse, since investors have gotten used to super-low volatility.
The key will be how the correction unfolds. As long as the long-term uptrend remains intact, it could be the next great catalyst for the Melt Up going forward.
Greg's call was prescient...
All three major U.S. stock indexes peaked in late January, and then lost 10% or more over the next couple weeks.
Since then, stocks have rebounded significantly. Many stocks – including the tech-heavy Nasdaq Composite Index – have already returned to new highs.
So is that it for the correction? Is the next leg of the rally already underway? Not necessarily. As Greg explained in a private e-mail this morning...
Well, here we are. We're now in the spring 2018 time cycle I've been highlighting for months.
As you can see from the chart I shared last fall, when the first cycle top concluded in 2011, it lasted three to five months. Should that be the case this time around – and I believe it will – that will take us right into May.
I'll be keeping a close eye on the long-term moving averages of the major indexes – mainly the 200-day moving average. Prices attempted (but failed) to break these important levels back in February. Combining the time cycle with major technical support levels (price) will be my guide over the next couple of months.
I'll have more confidence in the setup once this time cycle ends. For now, I'm very confident that more volatility lies ahead.
Interested readers can get real-time updates of Greg's market analysis throughout the day – for free – on the Stansberry NewsWire. If you're not already a NewsWire subscriber, click here to sign up now.
Of course, Greg wasn't the only Stansberry Research analyst who predicted the recent correction...
Heading into 2018, Retirement Trader editor Dr. David "Doc" Eifrig was as bearish as he had been in years.
Doc predicted we would see a significant decline of 12%-15% during the first few months of the year. But as we explained in the January 26 Digest – the exact day the S&P 500 peaked – he also said this was no reason to worry...
Doc doesn't recommend trying to trade around this move. He believes timing the exact top and bottom will be next to impossible. And like Steve, Doc believes it will be a correction in an ongoing bull market, rather than the start of a larger selloff. He notes larger declines and crashes typically occur during periods of economic weakness. And for now, the economy remains strong.
Instead, he recommends simply keeping some extra cash on hand to take advantage of the buying opportunities that are likely to arise. So long as you're holding a properly diversified portfolio, he says there's no reason to worry.
So what is Doc thinking now?
He shared some perspective on the recent decline with his Retirement Trader subscribers last week...
I was on the trading desk at Goldman Sachs on October 19, 1987... now known as Black Monday.
The Dow Jones Industrial Average dropped 23% in a single day. It's still the worst market day in history. And the worst day since then was only a week later, when the market dropped 8%.
We spent our days and nights at Goldman that panicked week, trying to keep the world's markets stable and, of course, make money. At one point, we watched futures on Japan's Nikkei stock index drop below 10,000, only to see it shoot back up to 18,000 moments later...
If you can remember days like those... then you know what we saw last month was just a brisk market correction.
Of course, as Doc noted, saying 'it could always be worse' isn't exactly comforting advice...
And many folks felt real panic as stocks plunged last month. But Doc reminded readers that this correction was really nothing out of the ordinary...
February was the worst month for stocks in two years. And its 3.9% loss broke a 15-month winning streak... a new record.
Let's take a breather though... A drop of 3.9% in a month is normal – it's what stocks do, and usually at least once a year. We looked back 40 years and found 52 months (out of 480) that saw declines of 3.9% or larger – about 11% of the time. Stocks have posted negative gains about 42% of months.
(Of course, that leaves you with gains 58% of the time, putting the odds in your favor.)
Doc also reminded readers that you don't have to sit there and get 'smacked in the face' by a correction...
You can do much better using options. For example, Doc's favorite Retirement Trader strategy of selling "covered calls" can buffer your losses during a decline. As he explained...
Remember, with a covered call, we buy the shares and then sell a call (known as "selling, to open").
Selling that call earns us an option premium that lowers the cost of our position – our "cost basis" – and our risk. For instance, if we buy a stock for $50 and sell a call for $2, our real "cost" is $48 per share.
If the $50 stock falls to $49.50, $49, $48.50... a regular shareholder would be losing money with every tick lower. As an option seller, we're still profitable all the way down to $48.
But this strategy doesn't just protect your downside during market declines...
It can dramatically improve your upside as well. Remember, as stocks fall, volatility rises.
Investors are willing to pay more for portfolio "insurance." This means Doc's Retirement Trader strategy works even better – generating higher payouts with less risk – during periods of market turmoil. More from the issue...
Historically, we can also see it in our returns. Over our 10-year history selling options with Retirement Trader, we tend to earn higher returns when the VIX is higher. You can see it in this chart of all our winning positions. The "cloud" tends to trend up and to the right. As the VIX gets higher on the horizontal axis, our returns get higher on the vertical axis.
With that as our focus, we make average annualized gains of 16% with our covered-call method (and about the same for selling puts). That's enough to double your trading account in four and a half years.
It's no wonder Doc has earned an 'A+' or 'A++' every year since 2010 in the annual Report Card...
We can't pretend we're surprised by it. His track record is incredible – a 95% success rate on each series of closed positions is unheard of in our industry.
And best of all, you don't have to be an options-trading expert to follow Doc's trades. In fact, if you joined us for Doc's educational webinar last week, you know he walked one of our young colleagues through her first-ever options trade, live on camera... and she successfully collected $210 in just three minutes.
But if you've been on the fence about trying Doc's research for yourself, we urge you to act quickly. Until tomorrow, Thursday, March 15 at midnight Eastern time, Doc has agreed to let us take $1,000 off the normal price of Retirement Trader... PLUS throw in a bonus year absolutely free. Learn more about this incredible offer before it comes offline right here.
New 52-week highs (as of 3/13/18): MarketAxess (MKTX) and Monsanto (MON).
In today's mailbag, high praise from a longtime subscriber... and feedback on the legal marijuana boom continues to roll in. As always, send your letters to feedback@stansberryresearch.com.
"Dear Porter, I wanted to tell you how much I appreciate the quality of the writing in your newsletters. Across your entire platform really. The word usage, lack of errors/misspellings, and clear communication style reinforces the quality of your publications. I have noticed a deterioration in newspapers – even the WSJ – written performance. I want to tell you it is still important and that the investment necessary to get it right is worth it. Thanks!" – Paid-up subscriber Joe Snyder
"In reply to Larry Jones' comment, 'Marijuana is simply an entry level drug that's helping destroy our nation's moral fabric,' I ask one simple question: Mr. Jones, can you PLEASE show me the research that confirms your thesis? And if you want to really convince me, show me the research that confirms pot is worse than alcohol in any way, shape or form.
"If you can do that, I'll change my mind (because the fact would have changed) and start supporting its prohibition. If you can't, maybe it's YOU that should change your mind?" – Paid-up subscriber Carl
"It's hard to believe someone would cancel their subscription merely on the fact that you recommended a marijuana company. It doesn't take much to find fault in nearly any company. Since the legalization of marijuana here in Colorado, we don't have any more problems than other states that haven't legalized marijuana. If Mr. Jones wants to find entry level drugs, he should look to some of the drug manufacturers, it is common knowledge that prescription drugs have a much greater addiction than marijuana. In addition, deaths by prescription drugs are far more common than deaths by marijuana." – Paid-up subscriber Bob Greene
"Kudos to Stansberry Research publications. I often read the mailbag, sometimes for grins, sometimes for sentiment. An investment or speculation is simply that. When I see letters based upon opinions, I think back to my 30 plus years of investing as well as my 35 plus years of being a physician and realize that 'truth is relative' in medicine as well as investing. Do I believe that cigarettes are a danger to your health? Absolutely! Do I believe that excess alcohol is a danger to your health? Absolutely! Do I believe that individuals should make that important decision for themselves? Absolutely! If a patient understands the risks involved then they should make that decision, not someone else. It is that simple.
"If you take the other side of that argument, then every decision that might impact your health should be taken from you. You are 2% overweight so you cannot buy donuts at Krispy Kreme. You had high blood pressure at your last check up, so salt is not allowed for you to purchase at your local grocery store.
"Yes, these are extreme examples and you can argue the validity of their medical merits but you get where I am going. Everyone and I do mean everyone, should be able to decide what course they would like to take with their lives. Anything less than that, removes a joy of life that is essential in making a choice.
"This is a very long-winded response to anyone who wants to impart their moral choices to a simple investment. Investments are investments. They are legal. They do have risk. Let everyone and anyone, willing to make that choice, do it. No judgement is necessary as their choices do not impact yours. And finally, yes, I do believe legal marijuana is coming so if you want to invest in it, then invest in it. Do I use it? No, it is my choice." – Paid-up subscriber Mitchell F.
Regards,
Justin Brill
Baltimore, Maryland
March 14, 2018