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This Bull Market Is Near the 'End of the Deck'...

By Dr. Steve Sjuggerud
Monday, April 9, 2018

Can you beat the odds in Vegas? According to former MIT math professor Edward O. Thorp, yes – and he actually figured out how...
 
He literally wrote the book on it – Beat the Dealer – in the early 1960s. It became a New York Times bestseller. The book explains how to reliably win the game of blackjack.
 
"I certainly wasn't motivated by the hope of making big money," Thorp said in his excellent autobiography, A Man for All Markets.
 
"What drew me was the chance of doing something people thought wasn't possible, to be a bit prankish – the fun of just pulling it off."
 
So how do you beat the house in blackjack?
 
At the beginning of a game, you can't. You have no advantage.
 
However... once you get close to the end of the deck, it's a completely different story...
 
As you approach the end of a deck of cards, your chances of winning can increase. You can change your strategy toward the end of some games to improve your odds of winning.
 
Here's what's going on...
 
The game of blackjack is also called "twenty-one." That's because your goal is to get as close as possible to 21 points – without going over that amount. You do this by collecting cards with different point values.
 
Ed discovered that if a large number of "face" cards haven't yet been played in the deck, then your odds of winning change.
 
The face cards in blackjack are Jacks, Queens, and Kings. They are all worth 10 points. (Therefore, 10s also count as face cards.)
 
Normally, if you have a total of 16 points in your hand, you would ask the dealer for another card. However, if a large number of face cards have not been played, then toward the end of the game, you are better off NOT asking for another card if you have 16.
 
Meanwhile, the dealer will ALWAYS take another card when he has 16 (and your buddies probably will, too).
 
Ed figured out that the odds of winning slightly tilt in your favor toward the end of the game. And that's when you need to increase your bets the most.
 
I tell you this because we have a similar situation in the financial markets today...
 
In normal times, you can't beat the market. You have no advantage.
 
But something extraordinary often happens late in the game. As you approach the end of the deck, your chances of winning can increase.
 
Likewise, as you approach the end of a great bull market in any asset, a cycle of higher and higher prices can get underway.
 
Whether it's the housing market a dozen years ago, the dot-com boom nearly 20 years ago, or, to a lesser extent, bitcoin in late 2017... the situation changes late in the game. Something changes in investors, and they push prices higher in a way that doesn't normally happen. A self-fulfilling boom kicks in.
 
Since 2009, stock prices have been going up. It is one of the greatest stock market booms in history. But we still haven't reached THAT moment – the moment where the game changes.
 
However, when it comes to this bull market, we are approaching the end of the deck. We have counted cards along the way. And now it's time. The game is changing.
 
I call this final phase the "Melt Up." And it means big gains in a relatively short period of time are possible.
 
So where will the biggest gains happen?
 
They typically happen in the highest-volatility stocks. That usually means tech stocks, biotech stocks, and more volatile foreign markets.
 
These are what's been beaten up in the recent market decline. But it's also where we'll see the biggest gains when the Melt Up comes roaring back.
 
Today, we're near the end of the game for this bull market. That gives us an advantage. We have a chance to earn big gains in a short period of time as a result. Don't miss it.
 
Good investing,
 
Steve




Further Reading:

Catch up on Steve's latest essays about this long bull market and the situation in stocks today:
 

Market Notes


NEW HIGHS OF NOTE LAST WEEK
 
Burlington Stores (BURL)... discount "one-stop shop"
Abercrombie & Fitch (ANF)... "bad to less bad" in retail
American Eagle Outfitters (AEO)... "bad to less bad" in retail
Urban Outfitters (URBN)... "bad to less bad" in retail
Columbia Sportswear (COLM)... outdoor apparel and products
Lululemon Athletica (LULU)... innovative apparel
Tailored Brands (TLRD)... men's apparel
Guess (GES)... clothing and accessories
Estée Lauder (EL)... cosmetics
Tapestry (TPR)... luxury purses
Ruth's Hospitality (RUTH)... steak dinners
Bloomin' Brands (BLMN)... steak dinners
Texas Roadhouse (TXRH)... steak dinners
Boston Beer (SAM)... beer
Callaway Golf (ELY)... golf equipment
Southern Copper (SCCO)... copper
Northrop Grumman (NOC)... "offense" contractor
Ecolab (ECL)... sanitation technology
Medifast (MED)... weight-loss products

NEW LOWS OF NOTE LAST WEEK
 
GoPro (GPRO)... "cocktail party" stock
Kraft Heinz (KHC)... ketchup, cheese, and more
Walgreens Boots Alliance (WBA)... drugstores
Merck (MRK)... Big Pharma
Weatherford (WFT)... oilfield services

premium teaser

A biotech company with a monopoly drug in the making...
 
For the biggest upside, we want to own more volatile stocks as the "Melt Up" gets back underway. And my colleague Dave Lashmet has found a biotechnology company with a cutting-edge drug...
 

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