| Here's Why the Bull Market Isn't Over Yet | | By Dr. Steve Sjuggerud | | Monday, June 5, 2017 |
| Jeff Bezos lost $1.7 billion in a single day last month.
Mark Zuckerberg fared even worse… He lost $2 billion that same day.
What happened? It's simple… The stock market tanked.
The world's most famous stock market index (the Dow Jones Industrial Average) fell around 370 points on May 17. And it sent investors into a panic.
That's great news. Investors showed us their hands. They showed us they're nervous. And that fear ultimately means there's still plenty of upside potential in this market.
Let me explain…
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Last month's one-day fall was extreme. But Bezos and Zuckerberg can handle the losses…
Bezos is the founder of Amazon (AMZN) and the third-richest man in the world. Zuckerberg is the founder of Facebook (FB) and the world's fifth-richest man. Between the two of them, their net worth is close to $150 billion.
Even if they lose a couple billion dollars, they can still put food on the table.
Most investors, on the other hand, couldn't handle it… They got scared. "Panic-based trading" from individual investors hit a record that day.
In technical terms, the move was "two standard deviations beyond normal." In plain English, it was a panic.
The move wasn't that big on paper… That 370-point fall was less than a 2% loss. But it shocked folks… Trading has been so sleepy lately that investors panicked. You can see it in their trading activity…
My good friend Jason Goepfert at SentimenTrader reported that on that day, "There was a monster spike in [panic-based exchange-traded fund ("ETF")] volume, accounting for nearly 8% of NYSE volume, by far the largest ever."
Jason defines a "panic-based ETF" as one of two types of funds:
| 1. | An inverse ETF, or | | | | | 2. | A volatility-based ETF. |
In short, these funds typically perform well when stocks fall. So when investors fear big downside risk or major volatility ahead, they rush to these kinds of funds.
And that's exactly what they did last month… During the one-day fall, people traded panic-based ETFs in record amounts. This tells me that investors are twitchy… And they don't trust this bull market.
Now, you're probably wondering why we think this fear is a sign of upside potential.
Consider this… What do you think of when you picture the top of a market? I think of unbridled optimism. Market tops happen when investors are no longer scared.
As an example, think about the real estate boom a decade ago… How many people were scared at the peak?
Nobody was scared. Everyone believed that prices could never go down. Everyone believed that house prices could go up 10% or more every year – even when population growth was less than 1% per year.
At the peak, everyone who wanted to buy a house had already done it. No one was left to buy. And so there was nowhere left for prices to go – but down.
That's what a market peak feels like. Is that what it feels like to you now?
Investors are fearful and twitchy. We don't have that feeling of euphoria in the stock market at all. Last month taught us that investors are ready to sell at the first sign of trouble.
History also shows that we likely have more upside ahead. Jason has studied other similar moments of panic-based selling going back to 1928… And he found that after panics like Wednesday's, stocks are typically up two months later, with solid gains and a high winning percentage.
In short, last month's panic tells us we're not at a top. Instead, the current bull market has plenty of room to run higher. That's why my long-term advice on stocks hasn't changed.
We want to continue owning U.S. stocks now.
Good investing,
Steve
Editor's note: Investors tipped their hands last month. They showed us they still don't trust this bull market – and that means the top still isn't in sight. Steve believes the Dow will more than double to 50,000 before it all ends... And many individual stocks will absolutely soar. Click here to learn more. (This does not lead to a long video.) |
Further Reading:
"The last truly great boom in U.S. stocks was the dot-com bubble of 1999," Steve writes. "I expect this great boom in stocks will end in a similar way." One indicator was flashing warning signs in 1999. Today, it's telling us something else... Learn more here: What Does a Dying Bull Market Look Like? "Stocks and the economy don't work like most folks believe," Steve explains. Bull markets don't die of old age. And one key index with a surprising track record is showing more upside ahead in stocks... Read more here: This Economic Indicator Says the 'Melt Up' Will Continue. |
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NEW HIGHS OF NOTE LAST WEEK Boeing (BA)... world's largest maker of commercial jets Consolidated Edison (ED)... one of the country's largest utilities firms Chubb (CB)... "the world's greatest business" Baxter (BAX)... "one of the world's greatest tailwinds" Becton Dickinson (BDX)... "World Dominator" of needles and syringes Aetna (AET)... health insurance KLA-Tencor (KLAC)... computer chip "insurance" Nvidia (NVDA)... technology "picks and shovels" Microsoft (MSFT)... Windows, Office, Xbox Alphabet (GOOGL)... "FANG" stock Check Point Software (CHKP)... security software General Dynamics (GD)... "offense" contractor Northrop Grumman (NOC)... "offense" contractor Roper Technologies (ROP)... manufacturing Caterpillar (CAT)... construction equipment American Woodmark (AMWD)... kitchen and bath cabinets Zillow (Z)... house listings online Marriott (MAR)... hotels Wyndham Worldwide (WYN)... hotels and resorts MGM Resorts (MGM)... casinos and resorts Vail Resorts (MTN)... ski resorts Yum Brands (YUM)... Pizza Hut, Taco Bell, KFC McDonald's (MCD)... burgers and fries PepsiCo (PEP)... soda and snacks Pinnacle Foods (PF)... Hungry-Man, Duncan Hines, Aunt Jemima Dunkin' Brands (DNKN)... coffee and donuts Starbucks (SBUX)... coffee Philip Morris (PM)... Marlboro, Benson & Hedges, Parliament Reynolds American (RAI)... Camel, Newport, Grizzly
NEW LOWS OF NOTE LAST WEEK ExxonMobil (XOM)... Big Oil Schlumberger (SLB)... world's largest oilfield-services firm Fitbit (FIT)... "cocktail party" stock Michael Kors (KORS)... beware retail... "here be dragons" Fossil (FOSL)... watches Bed Bath & Beyond (BBBY)... home goods AMC Entertainment (AMC)... movie theaters Barnes & Noble (BKS)... bookstores |
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