By Justin Brill

Saturday, August 12, 2017

As you've likely heard, tensions with North Korea took a turn for the worse this week...

On Monday, the country's state-run media warned the U.S. it would "pay dearly" for imposing a new round of U.N. sanctions over the weekend.

On Tuesday, the Washington Post reported that the country may have already developed a small nuclear weapon that could reach the U.S. And President Trump had apparently heard enough. As Bloomberg reported...

President Donald Trump ratcheted up his rhetoric against North Korea to an unprecedented level Tuesday, warning Kim Jong Un's regime will face a devastating military strike if it continues threatening the U.S.

"North Korea best not make any more threats to the United States," Trump told reporters in Bedminster, New Jersey. "They will be met with fire, fury and, frankly, power the likes of which this world has never seen before."

It was unclear exactly what Trump had in mind. It also wasn't clear whether this was a planned statement or simply another off-the-cuff remark.

Regardless, the markets took notice...

Traditional safe havens like U.S. Treasury bonds rallied this. Gold and silver – our favorite "chaos hedges" – were up sharply. And the Volatility Index (VIX) – the market's so-called "fear gauge" – surged higher.

Is this the start of the first meaningful correction in nearly two years?

Or simply another speed bump on the way to new highs? Unfortunately, it's too soon to be certain. But regular readers know we believe it's simply a matter of time before a correction arrives. As Porter noted in the August 4 Digest...

How much longer can this go on? No one knows. But for the first time since 2010, we're now hitting levels on our complacency indicator that suggest a market correction is imminent...

This indicator hasn't warned about every correction. (It correctly warned about seven of the last 10.) But it hasn't produced any "false positives," either. In other words, while it doesn't spot every correction before it arrives, when it has told us that a correction is coming, the correction always does. (To be perfectly accurate, one of the resulting corrections only saw a decline of 8.4%. All of the others were in excess of 10%.)

You can see the key threshold level in the chart above. Drops in measures of fear below this level (30) always indicate a correction or bear market within 12 months. We don't know if the warning signal we're getting now means that the "big one" is imminent, or if we are only going to see a "small" correction. But we know something is coming. We know it's coming soon.

While we're prepared for a correction in the near term, we've also discussed why we believe the Melt Up will continue. In short, we don't yet see the telltale signs that accompany the end of a speculative boom...

Valuations are stretched, but not outrageous... investors are far from euphoric... and the market's "vital signs" remain healthy today.

And yet, we know many readers still aren't convinced.

We understand... Putting those arguments aside, this bull market is certainly getting "long in the tooth." It has already run for more than eight years – making it the second-longest bull market in history – and the major U.S. indexes are up hundreds of percent from their financial crisis lows.

How much longer can the rally reasonably go on? Is Steve Sjuggerud's "Dow 50,000" prediction even possible... or is it just a clever marketing gimmick?

If you're among the skeptics, the following chart is for you. It compares today's bull market with the longest bull market in history. And it suggests Steve's forecast isn't as far-fetched as it may have initially appeared...

As you can see, despite its impressive run, the current bull market is dwarfed in both length and total return... From its post-crash low in December 1987 through the dot-com peak in March 2000, the S&P 500 Index rose nearly 600%. That's more than two times the return of this bull market so far.

You can also see that the two bull markets have followed a remarkably similar trajectory so far. This suggests significant gains could remain ahead.

For example, when compared with the timeline of the 1987-2000 bull market, today would fall in late April 1996. As the folks at Bespoke Investment Group pointed out this week, warnings about "excesses" in the stock market were starting to appear at this time. But it was still seven more months before then-Fed Chairman Alan Greenspan's "irrational exuberance" speech in December 1996... and four more years before the bull market finally peaked.

Of course, we aren't saying the current bull market will continue to follow this path. There are no certainties in the market. But it shows that Steve's Dow 50,000 prediction – representing a 100%-plus rally from today's levels – isn't just possible... It has happened before. And again, this was just the blue-chip S&P 500... The tech-heavy Nasdaq Composite Index more than tripled over the same period.

In other words, if you still aren't positioned to take advantage of this possibility, you could miss out on the biggest gains of this entire bull market. Click here to learn more.

Regards,

Justin Brill

Is Steve's 'Dow 50,000' Prediction Just a Clever Marketing Gimmick?

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