Don’t Buck the Bull. Ride This Melt-up While it Lasts!

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Volatile Stock Market - Bull and Bear Markets
The Great Humiliator Revealed: The Stock Market

There’s no time to call flip flops.

But I’ve decided to bury my thesis. I don’t think we’ll see a big pullback in the first quarter.

Saying that’s dangerous. Anything could happen.

But the markets are currently backed by the biggest bank there is — the Federal Reserve.

That’s the bank of cheap money and its gushing into Wall Street. This could continue until April. Maybe even longer.

Of course, you won’t see a penny of that. Not unless you’re willing to invest in the stock market…

What’s driving the markets

That’s not the only thing driving the markets, though.

If China upholds its end of the agreement. They may be about to wire US$200 billion in return for US goods. Over the next two years, that is.

If Washington upholds their end of the deal, tariffs on $120 billion will be reduced.

Did we just enter utopia for the stock markets?

Maybe…maybe not.

I tell you I’m not buying it. Not buying this fictitious story, that is.

Both the Aussie and US markets are in all-time highs. As a trader, you’d call this blue sky.

That means there’s nothing above it that could prevent the market from rising further.

It’s a really bullish sign. And that means we’re potentially in for a freakish melt-up.

One that will dwarf what we saw last year!

This chart is bullish

Take a look here, I’ve got a chart to show you.

Port Phillip Publishing

Source: TradingView

[Click to open in a new window]

What you’re looking at above is a chart of the XAO for a one-year period.

The XAO is the blue line and the gold line is the Dow Jones.

Two charts are overlaid on a single chart so you can see the difference.

Both markets have moved into new all-time highs. Which now means over the last 12 months markets have risen around 20%. That’s quite the move!

If what you’re experiencing right now is the final melt-up, then you could well see a 15% move of rising asset prices. Nothing’s ever certain here, though.

It’s just one of the reasons why you shouldn’t be bucking the bull.

Here’s how to stress test the market

But don’t get complacent.

Julian Beaumont said something that could give you the shivers.

Once we had Brexit and the trade deal, people are looking up and seeing that there are not that many negatives.

Julian is the chief investment officer at Bennelong Australian Equity Partners.

Golly-gosh.

When euphoric sentiment hints the market, then you know it’s time to cash up.

How do you know when we’re getting to that point?

Here’s a simple hack…

You can gauge market sentiment by doing the mates test.

(If you have no friends, this will be hard to do.)

But let’s just say you’ve got a full neighbourhood.

It’s just a simple question you ask yourself. ‘How many people around me are jumping into stocks?’

And if you answered very little. Then this market has a bit more to run. But if you answered every one, then buckle up.

In December 2017, the conversation was nothing but bitcoin. That was a tell-tale sign.

Whether we have three, six or even 12 months left. You can use the mate test as your guide.

It may just turn out to be an easier way for you to make sense of the markets.

Until next time,

Jonathan Evans Signature

Jonathan Evans,
Analyst, Profit Watch