By Dr. Steve Sjuggerud
The moment we’ve been waiting for has finally arrived…
We’re entering the final stages of one of the greatest bull markets of all time.
This is great news. You see, the biggest gains in stocks often happen during the last months of a bull market… what I call the Melt Up.
Stocks have been going up with barely a break for the past 10 years… This is the second-longest bull market in history.
And after all these years, you might think that the big gains are behind us. You might think that you missed out. But that’s not the case.
The Melt Up is finally here. And that means the biggest gains are still to come…
The Biggest Gains Happen During the Melt Up
The Melt Up is a powerful idea… But few investors truly understand it.
It’s based on a simple premise…
Stocks often have their biggest, most explosive gains at the ends of major bull markets.
In short, before the big “Melt Down” arrives, we have the big Melt Up.
It’s the final push higher before the bear market kicks in.
The most recent major example of this happened at the end of the 1990s bull market. The Nasdaq Composite Index soared more than 86% in 1999 alone. Now that was a Melt Up period.
Importantly, the Melt Up typically begins after a time of extreme fear.
In late 1998, stocks had fallen dramatically in the wake of the Asian Financial Crisis, and we hit a fear extreme. Then, stocks surprised everyone and soared higher – the Nasdaq rose 200% in 18 months during the dot-com bubble.
I can’t guarantee a massive move like that again, of course. But I do believe that the coming years could resemble the late 1990s.
We appear to be in the late innings of a great bull market… And as history shows, the fastest gains come in the final innings.
Why am I so confident?
There’s one major reason. To put it simply… stocks are acting a lot like they did back in the 1990s. Stocks fell dramatically late into that bull market… And then they soared dramatically to new all-time highs.
We’re making new highs today. And there are plenty of other similarities this time, too.
Let’s take a closer look at these Melt Up setup conditions this time around…
Stocks Hit a Fear Extreme… and Then Rise Dramatically
In the past couple years, we’ve seen four major pullbacks. And each major pullback led to major extremes in fear.
You can see them clearly by looking at the above chart of the S&P 500…
Stocks fell in late 2015, at the beginning of 2016, and again once more in February 2018. (We’ll get to the most recent fall in a minute.)
In all three of those cases, the short-term downside was 10%-plus. Those were the first 10%-plus declines in stocks since 2011. But that wasn’t the end.
2018 looked like it was back on track after February. But by the end of the year, stocks started a rollercoaster dive.
From the end of September to the end of December in 2018, stocks lost nearly 20%. It was a kick in the gut.
Investors had gotten used to consistent gains and easy money in the previous four years. But stocks showed a crack in their armor, and that caused a major spike in fear.
How do we define fear? It’s more challenging than you think – you’re trying to put a number on a human emotion.
We look at it in a variety of different ways, but the most common way to size up fear in the markets is through the Chicago Board Options Exchange Volatility Index (the “VIX”) – often referred to as the market’s “fear gauge.”
When stock prices move wildly, the VIX goes up. When stock prices aren’t volatile, the VIX moves down.
The VIX spiked during each of the recent falls. Generally, a VIX reading of more than 20 shows fear in the market.
In late 2015, the VIX rose above 40 – a level not seen since 2011.
The VIX nearly hit 30 again in February 2016.
In February 2018, after months of record-setting lows, the VIX spiked all the way to 37.
And December 2018’s correction produced similar results. The VIX peaked at 36 on Christmas Eve.
Take a look at the chart below…
This is exactly what we’re looking for. It’s exactly what happened before stocks melted up in the late 1990s.
Investors hit a patch of fear… stock prices fell… but then they recovered. They reached new all-time highs and continued to soar during the final stage of the bull market – the Melt Up.
Last December, investors were scared silly. That’s why, in January 2019, I made my biggest commitment to stocks… ever.
I invested more in stocks than I ever have before.
The last time I made a major commitment to stocks like this was back in late 2008…
Back then, I put all of my investable assets to work in stocks – and then some. I even took out a line of credit on my home and I invested it in the stock market.
Why was I so confident in 2008?
Because EVERYONE was scared. There was nobody left to sell.
And how did it work out?
I doubled my money in 13 months in one particular hedge fund. I cashed out of that fund, repaid the home equity line with the proceeds, and let the other investments ride. (I still own one private fund I bought back then.)
But in January 2019, I put far more money to work in stocks than I did in all of 2008 and 2009.
Why? Because the opportunity was similar to what I saw back then…
“I’m scared as hell,” one family friend told me at a holiday party over Christmas last year. “Trump, the trade war, the market gyrations… I’m getting OUT.”
I couldn’t say it at the party, but that “scared as hell” sentiment is what I live for as an investor.
When I see and hear that people are “scared as hell” – it’s game time. It doesn’t happen often. But when it does, you have to take advantage of it. I personally took advantage of it in…
• Late 2008 and early 2009 with stocks…
• 2011 with Florida real estate…
• And with gold stocks in the first half of 2016.
It had been a few years since I’ve “backed up the truck” to buy, like I did in those trades.
Until January 2019, I had been setting aside cash, waiting for the next “scared as hell” investment.
I didn’t know if it would appear in Asia, Russia, or Latin America… or in a bond market, a currency market, or a commodity. All I knew was I was ready to take advantage of that moment when it appeared.
So, I get it. It’s scary out there right now. It feels like the best days of this bull market are over… like it’s time to get out. But that’s the worst decision you could make.
We’re right on the edge of the Melt Up. We may never see another bull market like this one again in our lifetimes. So please, take advantage of it… The biggest gains are likely still ahead.