Our diversification strategy is paying off… Gold is zigging while stocks zag… How our master trader made 1,000% in the 2008 bear market… In the mailbag: “The Marijuana Miracle, Hallelujah”…
In today’s dispatch, an insight you won’t hear from the talking heads on TV.
It’s about how to make money hand over fist in a bear market. And the best part is that it involves making just one simple change to how you invest.
But first, a look back at how some of our past advice is playing out…
In our October 8 dispatch, we began warning you that the bull market on Wall Street was topping out.
And we showed you why that was a great time to buy gold.
We hope you got the memo.
Since then, the S&P 500 is down about 9%. Gold bullion is up about 5%.
And gold stocks – measured by the VanEck Vectors Gold Miners ETF (GDX) – are up about 9%.
Last Monday, stocks rallied on hopes that President Trump and President Xi Jinping of China had reached a “truce” in their brewing trade war.
Then came Trump’s “I am a Tariff Man” tweet. Investors got the jitters again. And stocks dropped hard.
The S&P 500 ended the week down 4.6%. The Dow dropped 4.5%.
And recent market leaders, or “generals” – the tech-heavy Nasdaq and the small-cap Russell 2000 – got whacked even harder.
The Nasdaq plunged 4.9%. And the Russell 2000 plummeted 5.6%.
And as we’ve been showing you, when the market generals start to beat a retreat… it’s a sign the market is topping out.
As Legacy Research cofounder Bill Bonner has been telling readers for decades, gold is “disaster insurance.” It’s what you want to own in a market meltdown.
That was the case in the last crash. From October 2007 to March 2009, the S&P 500 plummeted 57%. Gold rose 25%.
If you owned gold in your portfolio, it helped offset losses on your stocks.
And we saw something similar – albeit on a much smaller scale – last week. As the S&P 500 slid 4.6%, gold rose 2.4%.
Gold is zigging while stocks zag… and helping protect your downside in the stock market selloff.
If you want to know where the stock market is headed over the short term, Jeff is your man.
Unlike most of the analysts here at Legacy Research, Jeff is a trader, not an investor.
He doesn’t focus on “fundamentals” such as price-to-earnings ratios… company balance sheets… or where the economy is headed.
Instead, he looks at market patterns that tend to repeat over time.
And right now, what he’s seeing tells him that the stock market is morphing from bull to bear. As Jeff told readers of his Market Minute e-letter on Friday…
The stock market is changing character. It’s more volatile – swinging from oversold to overbought and back again. Investor sentiment flip-flops between bullish and bearish almost every week. And traditional seasonal patterns – which played out with remarkable regularity over the past 10 years – are no longer reliable.
For example, Thanksgiving week, which is normally bullish, turned out to be bearish this year. But by the end of the week, conditions were so oversold and investor sentiment (a contrary indicator) was so overwhelmingly bearish that a bounce looked like a good possibility. […]
This action feels quite similar to the action in late 2007. In other words, I think we’re transitioning from a bull market to a bear market.
That sounds bleak. But it doesn’t need to be. To a trader like Jeff, it spells opportunity.
When you boil it down, the difference between traders and investors is the time they spend holding each position.
For a long-term investor such as colleague Chris Mayer, who heads up our Bonner Private Portfolio advisory, the ideal holding time for a stock is forever.
As Chris likes to say, if he is forced to sell a stock, it’s in some way a failure. He prefers to hold forever, letting the power of compounding work its magic.
But for a trader such as Jeff, a typical holding time may be a matter of days… even hours.
Traders aren’t committed to a stock… or stock market index… going up.
Because they take shorter-term positions, they can profit on the upside or the downside as market turbulence goes into overdrive.
Put another way, what’s important for traders is not the direction of the moves in stocks… but how dramatic those moves are.
And the more dramatic, the better.
If you stretch it too far in one direction… it snaps back.
That’s how Jeff approaches trading stocks. He’s on the lookout for extreme conditions – either overbought or oversold – where the proverbial rubber band is as stretched as possible.
Then, he bets on prices snapping back.
And the more extreme the move, the more confident Jeff is that the proverbial rubber band will snap back. As he puts it…
As a trader, I’m looking forward to the transition from bull market to bear market. It means more extreme conditions. It means bigger and faster moves. It means more chances to make quick trades.
It’s why Jeff looks back on 2008 – a dire year for most long-term investors – with fondness. Jeff again…
It wasn’t because I made a lot of money shorting stocks. I didn’t. In fact, most of the trades I made were on the long side of the market.
But I took advantage of extreme conditions. I traded in and out of positions within a few days, and sometimes within just a few hours. And I set up a trading plan every day based on the potential setups I uncovered as I reviewed the previous day’s chart patterns.
In fact, 2008 was the most profitable year Jeff has ever had. As most investors were losing their shirts, he booked an annual gain of more than 1,000%.
And he did it by piggybacking off the jump in stock market volatility – waiting for the market to make extreme moves… and then betting on a snapback.
As he’s been telling his readers, when the next bear market hits – and it’s a “when,” not an “if” – it means the chance to make 2008-like gains.
That’s why, if you haven’t already, we urge you to sign up for Market Minute, Jeff’s daily trading e-letter.
Each day, you’ll hear from Jeff on the short-term setups he’s spotted… and how you can take advantage of them in your own portfolio.
And with the possibility of a bear market starting soon, there’s never been a better moment to start learning about how to protect yourself – and even profit – with some short-term trades.
If you haven’t already, sign up for free here.
Last Tuesday, in our ongoing debate around pot legalization, Legacy Research cofounder Doug Casey stirred controversy by saying ALL drugs should be legal. As he put it:
Your primary possession is your own body. If you don’t own it, and don’t have a right to do whatever you want with it, then you in fact have no rights at all.
And it’s got your fellow readers thinking…
Quite frankly, I think Doug Casey’s opinion is screwed up, on the single argument that there are way too many people who will abuse weed and move to more dangerous drugs, which results in increased health care expenses that the hard-working taxpayer has to pick up.
– Jeff R.
I contend that alcohol (I have been there) and tobacco (I have also been there) are much more dangerous practices than marijuana ever was or will be. The social problems caused by them have been atrocious. But tremendous profits were being made by the manufacturers.
Now, big money is finally pushing back on the pharmaceutical companies… and I say Hallelujah. But watch out – it won’t be long before the pharmaceuticals start buying into the Marijuana Miracle… and we can be sure that won’t be to the public’s benefit.
Happily, I learned a long time ago to only put into MY body things which enhance good health, not euphoria.
– George G.
Here is the difference between a drunk driver and a driver high on pot. The drunk driver will run the stop sign. The high driver will stop and wait for it to turn green.
– Art M.
I’m with Doug. Liberty requires that people have the right to live the life they want to live… whether it is good for them or not. I find it hard to relate to people that would choose to use force to have people live as they see fit. “It is not good for them” is not a good enough reason to use force on another person. People eat bad things. Are you going to lock them up also?
– Harry W.
Is it none of anyone else’s business what substances you put into your own body, like Doug claims? Or do your personal choices become society’s problem?
Let us know at [email protected].
December 10, 2018