Tags: last | market | rally | 2019

Prepare for One Last Major Market Rally

brown arrow headed higher amid increasingly large green bars and graph of rising activity

By    |   Friday, 07 December 2018 11:20 AM

I get it. It’s been a tough year. Most investors, following a buy-and-hold model, or buying a market index, have now spent nearly all of 2018 just to see the markets trade sideways.

That’d be easier to sit through if the overall sideways trend hadn’t been so violent. The past month has seen more 1 percent moves in the market than all of 2016 and 2017 combined. And this year has seen more 2-4 percent moves in than there were at all in 2016 (a handful) and 2017 (zero).

Why’s the market so fearful? There are a few reasons, like the ongoing “trade war” with China. And that’ll remain a concern. But there’s also a yield curve inversion—a technical sign that money is starting to shy away from aggressive behavior. Without boring you on the bond market, the bottom line is that it’s one of the highest likely indicators that a recession will occur 12-18 months out.

Knowing that simple fact, it’s easy to be fearful of markets now.

But if history is any guide, we’re setting up for a monster rally going into 2019. The last two times the yield curves inverted, in 1999 and 2006, stocks made their best profits yet before giving up a major rally.

While I doubt this time is any different, we may muddle through with a smaller correction. That’s because this market rally was incubated during a period of historic-low interest rates and record-high government intervention in the financial sector. We don’t know entirely how it will play out—but by following history as a guide, the recent market fears will have to first give way to insatiable greed.

So prepare for one last hurrah in the markets.

Now’s the time to load up on long call options on overly beaten down tech names. Or, at this point, with the stock market still near correction territory, more conventional names as well. That’s why I’ve been making sure my subscribers are in great companies that have been heavily beaten down from a wide variety of sectors from stodgy blue chips like ExxonMobil (XOM) and to Home Depot (HD) to oversold tech giants like Nvidia (NVDA).

This is likely one last chance to make massive profits on the long side for the next few years, and I’d hate to see it go to waste.

But it’s also okay to think about the downside too. Because there will be downsides, and chances are now high that they’ll start to show as early as late 2019. And if I’m wrong and we’re looking at a bigger market pullback now, knowing what defensive moves to make now will put you far ahead of the game for anyone waiting for an official bear market – a 20 percent drop from all-time highs—to start.

The easiest way to get defensive is to simply take your profits off the table and put them in cash. Yawn-inducing, boring cash. I was just cutting my teeth as a teenager when the tech bubble blew up, but when the Great Recession came in 2008, I was in 40 percent cash.

It wasn’t because I had really put all the pieces tougher. I knew real estate prices were overly priced relative to cash flows and affordability. But what I really knew at the time was that I couldn’t find enough stock bargains that I felt confident about. That view flipped entirely in 2009.

I’m not saying this to brag. Nobody sounds intelligent talking about leaving cash on the table when the markets are surging. But if this year has been any indication, markets can trade flat while many stocks have their own corrections—or even deep bear markets.

If cash isn’t to your liking, there’s always gold. It’s a hunk of metal that generates no cash flows and just sits there doing nothing. Investors like things that do nothing when everything else is in a panic. It’s also a good hedge against unexpected inflation, which we could certainly get. I don’t see gold as high a priority as cash, but gold acts as insurance in ways cash doesn’t—which is why I recommend folks own a little bit and treat it as insurance.

Finally, for a very contrarian take on things right now, I’m starting to get attracted to the cryptocurrency space again. Last year’s bubble is still making new lows in 2018—but in many cases some of the big names are now down 75-80 percent, about the same as the tech stock wipeout of 2000.

In this space, the gold standard is Bitcoin—and it’s still getting wider implementation as a currency, despite the massive price decline. I’m also starting to accumulate Ethereum, Litecoin, and Ripple. But these are all incredibly speculative and may decline far further—so while I’m optimistic, I’m not throwing a crazy amount of money in. 

If decades of investing have taught me anything, the craziest trades are often profitable ones—and by a wide margin. Cryptocurrencies are a new asset class since the Great Recession, and we’re not entirely sure how that will play out in a major market correction. I’ll be on the front lines of that to report back.

Bottom line: Expect the market to make a huge rally in the coming months—but beware a correction after that. There’s plenty of time to prepare both on the long side, and by increasing your stake in defensive places along the way.

Andrew Packer is a Senior Financial Editor with Newsmax Media. He currently writes the Insider Hotline investment advisory, serves as investment director for the Financial Braintrust, and writes the monthly newsletter Crisis Point Investor.

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If history is any guide, we’re setting up for a monster rally going into 2019. The last two times the yield curves inverted, in 1999 and 2006, stocks made their best profits yet before giving up a major rally.
last, market, rally, 2019
Friday, 07 December 2018 11:20 AM
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