Another 'Make or Break' Time for Stocks

Join the thousands who watched Steve's 'Melt Up' event... Another 'make or break' time for stocks... What to watch this week... Politics, vaccines, and Big Tech... The key level in the S&P 500... We're inching closer to Election Day...

We'll start today with a reminder about our colleague Dr. Steve Sjuggerud's latest 'Melt Up' event...

More than 100,000 people signed up for the debut of Steve's event last Wednesday night.

During the broadcast, Steve detailed the latest developments about his "Melt Up" thesis... and talked about where he sees the stock market headed over the next year to 18 months.

His updated outlook might surprise longtime Digest readers... In brief, Steve noted that COVID-19 has changed a lot about the world over the past eight months or so – his predictions included. As he said during the Melt Up event...

While COVID-19 temporarily hit the pause button on the Melt Up, it also changed everything about the investing landscape. It created new risks and new opportunities and a new roadmap for what's to come.

We mentioned some of the details of Steve's thoughts last week...

Retail investor interest from the "Davey Day Traders" of the world is growing and growing. And now, Wall Street institutional investors are getting "less scared" of putting folks' cash back to work.

That's a recipe for stocks to continue to move higher and higher – and ultimately into the euphoric final stage of a Melt Up.

But there's a lot more to Steve's latest update than just that information... As we also wrote last week, for every Melt Up, there is a "Melt Down." And you want to know exactly when each is happening to make the most money you can and protect your wealth.

If you haven't checked out Steve's event yet to hear everything he said, don't delay... The free replay will only be available for a few more days. Click here to watch right now.

We suggest you listen to Steve before it's too late... and get in on the recommendations that he shares. Because as we'll explain today, this week looks like another "make or break" moment for stocks...

We say 'another' because it was only about two months ago that we felt similarly...

Specifically, we're talking about the feeling that the broader stock market is about to go in a new direction – in the short term, at least.

Back in August, all the major indexes were hitting new highs after only going up since their March lows... And we were hearing a few "shoeshine boy" stories, meaning a lot of everyday folks were excited about stocks.

When this happens, of course, it tells contrarian investors like us to be careful.

Stocks then pulled back in September – scaring those same kind of "stocks only go up" believers. In fact, the tech-heavy Nasdaq Composite Index dropped 10% in just three days.

Today, the major indexes are generally right back where they were near the end of August. And again – according to several of our editors – the next week or two could mark a key inflection point in market direction...

You can see that based on technical indicators alone. But of course, Election Day next Tuesday also looms large for investors... though our colleague Dan Ferris described its historical impact (or lack thereof) masterfully in last Friday's Digest.

We're not predicting another 10% correction tomorrow. We're simply telling you that a few of our experts believe we're reaching a point where stocks could go either way from here...

And this was before what we saw today – the worst day since September for the major U.S. indexes. Each index finished down at least 1.6%, with the Dow Jones Industrial Average falling the furthest (about 2.3%).

With all this in mind, here's what you should watch throughout the rest of this week...

This morning, Stansberry NewsWire analyst Mark Putrino pointed out the key technical level in the benchmark S&P 500 Index to keep an eye on – and he was very confident about it...

The market is about to decide which way to go.

We expected the bull to take a break. "The current rally should take a pause when the SPDR S&P 500 Fund (SPY) gets to around $355 a share," we told you on October 13.

And we were right... The high trade before the recent consolidation was $354.02.

Now we're about to get a new message.

If you ask us, this clear-headed, numbers-driven approach is the beauty of technical analysis. This is a great example of why I mentioned it in Thursday's Digest as one of the tools that every investor should understand. As Mark continued earlier today...

Markets usually send us a signal before they establish a new trend. They don't just materialize out of thin air.

If the market is about to trend lower, the signal is the break of a support level or an uptrend line. When a rally is about to get started, the opposite happens. Either a resistance level or a downtrend line breaks.

Both of these events show a change in the supply and demand dynamics.

A "support" level at its core represents a price at which there are more buyers than sellers of a particular asset. Similarly, "resistance" marks a price where there have proven to be more sellers than buyers in the past.

Mark is specifically watching SPY – the exchange-traded fund ("ETF") that tracks the S&P 500 – for a key signal this week.

You see, SPY has trended lower for the past two weeks. But over the past week, it has formed a "support" level around $342 per share...

According to Mark, if SPY breaks this support around $342 per share, the downtrend will continue. But "if the red downtrend line is broken, meaning the price on the chart gets above it, we could be on the verge of a meaningful move higher."

SPY closed at $339.39 per share today – or in other words, below $342. But as longtime readers know, one day does not make a trend... We'll watch what happens in the next several days.

Then there's the potential catalysts...

These are the news items that you'll likely see the mainstream media attribute to any particular stock performance on a particular day, like the headline... "Stocks shoot higher (or lower) on XYZ."

This week, several Big Tech companies – which take up a lot of the market cap of the major indexes – will report their latest earnings. Microsoft (MSFT) is coming tomorrow... and Apple (AAPL) will follow on Thursday. Surely antitrust discussion will come up on analyst calls.

Vaccine news also looms... Stimulus negotiations are in a stalemate, with both Democrats and the White House saying a deal can get done if the other side "wants it to" (which is never a good sign)... And COVID-19 cases nationwide are back in the headlines.

Already today, like in March, airline and cruise line stocks – like American Airlines (AAL) and Royal Caribbean Cruises (RCL) – sold off in response to concerns about fewer people traveling in the near future. American Airlines plunged 6% today, while Royal Caribbean dropped 10%.

On Friday, we'll learn the official U.S. gross domestic product ("GDP") report for the third quarter of this year. Estimates are high... The Atlanta Fed is projecting 35% growth. All kinds of people will take credit for the recovery (when it's really "we the people" who should get it).

And finally, next Tuesday, we'll find out the election results – er, maybe.

If you're a short-term trader, these are the times that get you excited...

As Ten Stock Trader editor Greg Diamond wrote in his Weekly Market Outlook this morning...

There is no doubt risk is rising in the market with major earnings coming out and a market-moving event with the election next week. We have the levels to watch and will execute should any of these levels come into play.

Regardless of what happens, we are prepared ahead of time to handle the risk and profit from the volatility.

Like Mark, Greg said he's looking at the 3,400 level as support for the S&P 500. Greg believes the index will ultimately make new highs... But with the election coming in a week, he's being cautious with putting on new trades just yet.

This is risk management at its finest...

Greg said he's ready to pounce if he sees a pullback to support levels. And he told subscribers to watch a few specific prices of individual stocks like Microsoft, Apple, and Netflix (NFLX) that would mark "screaming buy" opportunities. However, he stressed that it's not time to make those bets just yet.

Greg is also looking to see if today's "lows" hold. As he wrote in an update around midday today...

Given the election/stimulus/earnings/virus catalysts, there is certainly a lot to consider, but the positive scenario is today marks a low and we see a big rally.

Long-term investors will want to think in broader terms...

If you know your time horizon and reasons for being invested in the first place, as we wrote last week, even a big event like a presidential election represents a type of "news of the day" item that can do more harm than good to your portfolio if you let it.

Of course, we're curious people...

We want to know what federal and state policies the politicians are dreaming up for us now... and the chances of more stimulus eating away the value of a U.S. dollar... and how much more debt we're kicking down the road... and if (and how long) we'll need to look at alternative investments to generate a decent "safe" yield... and the list goes on.

But we also don't want to pull the plug entirely on our long-term investments or go "all in" on stocks based on a single news item... no matter how big it might feel.

Reacting to a single day's stock market performance – even as concerning as a 3% drop the week before Election Day may seem – isn't the best use of a time for a long-term investor.

On this point, let's make one thing crystal clear...

In the context of Steve's Melt Up thesis, the fuel for an unimaginable run higher – rock-bottom interest rates and widespread "easy money" policies – is still very much in place... the same as it was last week or two months ago.

And volatility – like the kind we saw in September and are seeing again today – is part of the equation. As Steve wrote in last Tuesday's Digest, a Melt Up is never a smooth run higher.

It's not like how it feels driving on a newly paved interstate highway. A Melt Up is more like traveling a road that is constantly under construction in different places, maybe with a few bumps along the way... but it leads you toward your destination anyway.

In other words, moves up and down are part of a Melt Up. As Steve wrote last week in the Digest, there will be times when the market puts your emotions to the test...

For example, the late-1990s Melt Up wasn't a one-way trip higher. Instead, it's proof that 10% corrections are common during Melt Ups.

We saw five pullbacks of roughly 10% in the Nasdaq during the final 18 months of that boom. The largest one led to a 13% decline before bouncing back. Take a look...

Thanks to hindsight, we know these corrections were just that... short-term falls before the next leg higher. So it's easy to brush them off as irrelevant today.

But I can assure you... It didn't feel like that in real time.

In the thick of corrections like that, doubt can start to set in... You can begin to question if the current correction is actually the next major bear market.

That is not the best way to spend your time, though, because a bear market does not happen in one or two days. As Steve continued...

Knowing that corrections are common will help you navigate the Melt Up. You'll know 'em when you see 'em. And you'll be less likely to jump ship during a correction and miss out on big gains.

Said another way, we'll see plenty of volatility along the way (and that means up or down) to the ultimate euphoric top where everyone and their Instacart delivery person will be talking about stocks and saying how much money they're making.

As Steve describes in his latest "State of the Melt Up" video, we're not quite there yet... but we're getting closer each day.

Make sure you're prepared...

That means having the proper asset allocation and the right investments in your portfolio for your time horizon and goals.

I'm talking about "hard assets" like real estate, "chaos hedges" like gold, and stocks of high-quality businesses that you can hold forever and that will do well for you no matter what happens next.

Our Director of Research Austin Root put this idea into much better words earlier this month in the latest issue for our Stansberry Portfolio Solutions subscribers. As Austin wrote...

We'll always invest in portfolio protection and crisis hedges, even if it costs us some performance at the very top. Your capital is too precious to take undue risks.

We'll make portfolio changes when a stop is triggered, when an investment story changes, or when we find a "higher and better use" for the funds... not because we feel obligated to switch things up.

And most importantly, we'll continue to focus on owning well-run, world-class companies with enduring competitive advantages, outsized growth opportunities, and capital-efficient businesses.

That approach guarantees you'll be ready for the next move in stocks, no matter if it's a Melt Up... a Melt Down... or something in between. And just as important, you'll be ready no matter when it happens.

How the U.S. Can Ban TikTok

Our colleague Jessica Stone speaks with Stewart Baker, a former member of the committee that decides whether deals with China pass a national security review. In their discussion, Baker suggests how the American government can ban TikTok. It has something to do with the Trading With the Enemy Act of 1917...

Click here to watch this video right now. For more free video content, subscribe to our Stansberry Research YouTube channel... and don't forget to follow us on Facebook, Instagram, and Twitter.

New 52-week highs (as of 10/23/20): Alibaba (BABA), Expeditors International of Washington (EXPD), Fidelity Select Medical Technology and Devices Portfolio (FSMEX), Rollins (ROL), Southern Copper (SCCO), TFI International (TFII), and Zebra Technologies (ZBRA).

In today's mailbag, feedback from a subscriber who first wrote to us a few weeks ago... and is now recovering from COVID-19. Do you have a question or comment? As always, send it to feedback@stansberryresearch.com.

"Hi Corey, Thank you for publishing my critical feedback regarding the reliability of what we call 'science.' I haven't been able to respond sooner due to a Covid infection. I should be 'through' with the infection part in another week, but have the beginning 'post viral syndrome:' exhaustion and headaches which may diminish with time.

"FYI: I was actually relieved to find out the diagnosis and realize I, meaning my 74 y/o body, mind, and spirit, weathered this at home, alone, without medications and without going to a hospital. The take-home for me, and hopefully for others, is that we were designed to be mostly self-healing." – Paid-up subscriber Peggy F.

Corey McLaughlin comment: Wow, first and foremost... we're so glad that you seem to be recovering from COVID-19, Peggy. What an amazing thing that you're "self-healing," given what you wrote to us the last time we spoke about this very idea.

And of course, we were happy to publish your original note. We love to share different opinions... and in case you missed it, your initial message started an interesting back-and-forth discussion (here and here over the next couple of days). We hope to hear more from you soon... and be well.

All the best,

Corey McLaughlin
Baltimore, Maryland
October 26, 2020