The Weekend Edition is pulled from the daily Stansberry Digest.
It was a tough couple of days for investors...
On Wednesday, the broad U.S. markets suffered their worst one-day decline since February's "volatility panic." The tech-heavy Nasdaq led the decline with a 4% loss, while the Dow Jones Industrial Average and the S&P 500 both dropped more than 3%.
The sell-off continued Thursday as all three major U.S. indexes closed sharply lower again. The S&P 500 fell 2.1%... the Dow fell 2.1%... and the Nasdaq fell "just" 1.3%.
So we weren't surprised to hear from concerned readers like Bhanu S., who asked...
Dear Dr. Sjuggerud, based on the latest market actions, do you still believe your research and analysis of a market melt-up in the coming weeks/months? Are you changing your position due to how the market is behaving now and the Fed's aggressive rate hike plan? Is a market melt-up still possible after 10 years of massive bull run? I would like to know your latest position on the melt-up theory. Thanks.
We asked Steve for his thoughts on the market's recent action...
In short, he isn't changing his tune. He still believes we're going to see a "Melt Up" in stocks before this historic bull market finally ends. Here's what Steve told us...
The Dow lost almost 1,400 points in two days... It's hard to sugarcoat that.
But you have to keep in mind that stock markets have corrections. (Corrections are typically defined as a fall of 10% from new highs.)
During the last great Melt Up in stocks – the dot-com boom of the late 1990s – the Nasdaq actually saw five declines of roughly 10% during its final push higher... And they all happened within the last 12 months of that Melt Up.
These falls were quick. They all happened in a month or less. But they were still painful. You had to question if staying on board was the right move all five times.
Corrections are normal – even in the Melt Up phase of a stock market boom. So yes, it has been a terrible couple of days... But no, a correction (or two, or more) does not signal the end of the Melt Up.
Still, Thursday's decline pushed the S&P 500 below its 200-day moving average ("DMA") for the first time since April...
The 200-DMA is considered a rough gauge of the market's long-term trend. During bull markets, stocks tend to spend most of their time trading above the 200-DMA. During bear markets, they spend most of their time trading below it.
The S&P 500 tested this level three different times following February's volatility panic, but the index never broke solidly below it. In fact, outside of a few days early this year and two days during the "Brexit" panic in June 2016, the S&P 500 has not broken below this level in a meaningful way since the broad-market correction in early 2016.
Seeing stocks fall back below this level is concerning...
But it's no reason to panic. It could simply be another "false" breakdown like those we've seen several times over the past couple years.
Yesterday, stocks rebounded strongly off their lows. As you can see in the following chart, the S&P 500 bounced back to its 200-DMA...
Next, take a look at the bottom of this chart... It shows the S&P 500's relative strength index ("RSI"). This is a simple momentum indicator with values ranging from 0 to 100.
Values below 30 indicate an asset is "oversold" and may be due for a rally. Values above 70 indicate an asset is "overbought" and may be due for a correction, or at least a pause.
As you can see, stocks dipped into extremely oversold territory on Thursday. This is also a bullish sign.
As always, though, no single indicator is foolproof...
We could still see further downside in the near term. And either way, as Steve noted earlier, history suggests sharp bouts of volatility like this could become more frequent as the Melt Up plays out...
If you're going to stay invested for the Melt Up, you must be prepared for more volatility...
Of course, for most investors, this is easier said than done. You're likely to panic and sell too early... or worse, hang on too long.
That's why we're preparing a special event this month...
On Wednesday, October 24, Steve will sit down with some of the biggest names in finance – in front of a live studio audience – to discuss exactly what you should do with your money during the final stage of this long bull market.
We guarantee this event will be unlike anything you've seen from us before. Whether you're currently leaning bullish or bearish, you don't want to miss it. You'll even get the name and ticker symbol of one of Steve's favorite Melt Up recommendations – a stock that he believes could soar as much as 1,000% in the coming months – just for tuning in. Reserve your spot for free by clicking here.
Regards,
Justin Brill
Editor's note: We hope you'll join Steve for our special broadcast event on October 24 at 8 p.m. Eastern time. Not only will he share his up-to-the-minute thoughts on the market, he'll also share a major prediction on-air for the first time. You'll even get one of his favorite Melt Up recommendations that could soar 1,000% in the months ahead, absolutely free, just for tuning in. Click here to save your seat.
