Sjug's Latest Thoughts on the 'Melt Up'
Sjug's latest thoughts on the 'Melt Up'... 'I urge you not to panic'... Better odds than you'll ever get in Las Vegas... Checking in on the 'line in the sand' for stocks...
We'll begin today with a note on the 'Melt Up'...
Last Friday, our colleague Steve Sjuggerud sent an urgent update to his True Wealth Systems subscribers. Because he knows many Digest readers have been following his Melt Up thesis as well, he agreed to let us share a portion of his note here today.
First, Steve addressed the "elephant in the room" – the recent volatility in many of his favorite Melt Up stocks, and the flood of worried e-mails he has received as a result. As he wrote...
"Steve, what in the world is happening to your 'Melt Up' stocks?"
Our Melt Up Millionaire portfolio launched three weeks ago. And we've gotten a mountain of feedback about it.
At first, it was glowing praise... The average return across our nine recommendations was up more than 14% one week in. Now, the tone is sheer panic (mixed in with some hate and vitriol)...
Meanwhile, as of [Thursday's] close, the average gain in our nine positions is still positive, while the tech-heavy Nasdaq has lost money.
We're up 26%... 18%... and 15% on [on our three best performers] as of [Thursday's] close. The three biggest losers [are] each down between 7% and 14%.
As Steve noted, this kind of performance – having some stocks up so much and some down so much – may seem like 'madness'...
But he reminded readers it's no mistake. Rather, it's by design. More from his update...
Remember, I designed the Melt Up portfolio to get the very most out of the Melt Up... I believe U.S. stocks are primed to soar. And new-economy tech stocks will be the biggest winners.
Two of our three biggest losers are [funds] that are triple leveraged... In short, when the market turns higher, these funds will soar. But they'll move down – a lot – when the market falls. And the market has fallen lately.
Even with the current downtrend in the Nasdaq, we've been able to outperform.
Still, based on the feedback we've received, many folks have clearly become worried. So Steve also shared one of the most important lessons he has learned during his 25-plus-year career in the markets. As he explained...
Moments of extreme fear are the best buying opportunities.
Once you learn to equate fear with the feeling of opportunity, you'll finally be free to make a fortune in all of your investing endeavors.
It's a hard threshold to cross. It's hard to learn and even harder to implement.
Steve then shared a personal example to show how this works in the 'real world'...
As he explained, he felt that same incredible feeling of fear himself in late 2008 and early 2009...
Investment bank Lehman Brothers had collapsed, bringing down insurance giant AIG, and it felt like the financial world was about to end. It felt terrible. But I knew that the right thing to do was to substitute the feeling of fear with the feeling of opportunity.
I was terrified... so I bought stocks with greater conviction than I ever have in my life. It's the only time in my life that I not only invested all of my financial assets... but I took out a home-equity loan to get even more exposure to stocks.
I personally bought a hedge fund (among other investments) that ended up soaring by triple digits after fees within 13 months. I sold it, paid off the home-equity loan in full, and let the rest ride.
I recognized my great fear. And I knew that the correct, rational action was to buy... not to succumb to the fear. So I bought, even though it made my stomach drop.
However, Steve also noted that he wasn't a "madman." Even though he was incredibly bullish on stocks at that time, he still followed proper risk-management principles. And he reminded readers of the importance of doing so today...
I had stop losses on my trades. We follow the same rules today in our Melt Up portfolio. We aren't going to chase the market down to zero.
With the typical stop loss on our portfolio set at 35%, and our typical upside expectation of 100%-plus, our trades have about three times the potential reward as the risk we're taking. That's better odds than you'll ever get in Las Vegas...
I still believe we're going to see a massive Melt Up in U.S. stocks. And we're positioned to capture the incredible gains that can come from it.
I urge you not to panic. I know it's easier said than done... But instead of letting fear take over, take this opportunity to cross the threshold of becoming a great investor and realize that fear often translates into a great buying opportunity.
Steve isn't the only Stansberry analyst who recently shared an important market update...
Last week, we noted that our colleague Greg Diamond – editor of our short-term trading advisory, Ten Stock Trader – had identified a potential "line in the sand" for stocks.
In short, Greg expected the broad market – as represented by the S&P 500 Index – to find "support" at one of two price levels: 2,685 and 2,655. So long as these levels held, he believed the recent rally to continue and carry stocks higher into year-end.
On the other hand, if these levels were breached to the downside, the last big level of support is 2,600, just below October's intraday low. If stocks
Fortunately, these support levels held last week...
And even after today's decline, stocks remain above all three. As Greg explained in his Weekly Market Update this morning, this is a positive sign...
The S&P 500 looks to be forming a major bottom. As I outlined last week, only a decline below 2,600 would likely trigger the start of a much larger correction.
The S&P 500 held and rallied from the important support level I highlighted last week – 2,685. This is a significant step for the market to find a bottom.
Ideally, that support level will hold again this week, and the market will form a base from which bulls can take back control. However, as I highlighted on Friday, the S&P could take one last sharp move lower to the 2,655 level before turning higher into the end of the year. Either way, 2,655 or 2,685 will support my analysis for a market bottom.
Again, only a break below 2,600 will change my bullish outlook... If we are incorrect and a much larger correction is on the horizon, our losses will be manageable and will allow us to fight another day – a key to risk management and longevity in the investing world.
Investors have plenty to be worried about, but as the old saying goes, bull markets climb a wall of worry.
So what should you do with this information?
As we've discussed, Greg's Ten Stock Trader is primarily focused on short-term trades lasting only a few days to a couple of weeks. Typically, much of his analysis may not be relevant to longer-term investors.
However, if you're among those who are "spooked" about the market today, these levels – particularly the "line in the sand" at 2,600 – are worth keeping an eye on. If stocks continue to fall below here, we'll recommend getting much more defensive.
The Stansberry Digest Stock of the Week
Each Monday in the Stock of the Week, we share a short article profiling one interesting stock.
Sometimes it may be an active recommendation plucked from the portfolio of one of our paid services. Other times, it may simply be a stock we find intriguing, and not necessarily one you should buy immediately. But in either case, we hope to give you greater insight into how we evaluate individual stocks as investment opportunities.
Click here to find this week's featured stock. And again, please let us know how you like it – or how we can make it more valuable – at feedback@stansberryresearch.com.
New 52-week highs (as of 11/16/18): CME Group (CME), Coca-Cola (KO), McDonald's (MCD), and Walgreens Boots Alliance (WBA).
The mailbag is overflowing with feedback on Steve's Friday Melt Up update. As always, send your notes to feedback@stansberryresearch.com.
"I found Steve Sjuggerud's article [Friday] on the
"You have been very thorough in warning us of the volatility. Although I don't have a large amount invested, I decided to sit back and enjoy the ride on this rollercoaster! You could not have been any clearer about what to expect! Reality is always more difficult than expectations. Thanks for taking the arrows!" – Paid-up subscriber Donald S.
"Steve: A timely message as the volatility is giving us all a bumpy ride. Personally, I don't look at my account daily, just too much noise. I allocated 10% both to the
"Thank you for taking
"I am so sorry that many subscribers are howling at you about the performance of some stocks in the
"I want to express my appreciation for Steve's reassurances today about the
"1. I predetermined how much money I was going to commit to the
"2. I invested about half the amount immediately. The day after and the Monday after the promotion, the positions were down a lot. One of the most helpful analogies for me on those days is the vision of the old 'Blue Light Special'. An item was on sale in the store at a deep discount. Now is the time to buy. (I'm almost tempted to buy a rotating blue light for my office to turn on when the market corrects.)
"My fear during the days of euphoria when the portfolio was up 13% was that I had missed the bottom and would not get a chance to invest the balance of money at the great prices I got at the start.
"3. That fear was short lived. During the recent correction, I have been able to complete my allocation of [several stocks] at 'Blue Light Special' prices. (By the way, these positions are still at 'Blue Light Special' prices.) I am now mostly invested with a few of the portfolio positions waiting for a 'Blue Light Special' day.
"4. The ability to consider 'Blue Light Special' days as opportunities to buy (as opposed to the end of the world) is rooted in the fact that Steve's recommendations are the product careful analysis with all of the indicators that he uses to monitor the situation available for all to see. If the indicators are still Green (which they are) then grab some positions while they are still on sale.
"5. Finally, (this is a future fear) the day will come when Steve says it is time to sell. This will perhaps be harder than a 'newbie' can imagine. Euphoria and Greed take over. I didn't listen when Steve said it was time to sell Silver at about $50/oz. (Now about $14.40) I was convinced that it would go higher (gut feeling = greed + no data). I keep a silver dollar on my desk and a small position of a silver ETF in my portfolio purchased at about $35/oz as a reminder.
"I fully expect a return of greater than 100% on my current investment in the
Regards,
Justin Brill
Baltimore, Maryland
November 19, 2018