What you can do amid all this dot-com era déjà vu

Markets Sink, Then Surge (Again). Volatility Soars (Again). Is There a Message Here?

In January, the S&P 500 jumped almost 6% and all the averages hit new record highs. Then a few days later, the wheels came off.Talk about déjà vu all over again!

The Dow Industrials plunged 666 points on Feb. 2, then a whopping 1,175 points on Feb. 5. After a bounce of several hundred points, the Dow plunged more than 1,000 points again on Feb. 8. Volatility, as measured by the CBOE Volatility Index, surged 56% the first week of that month and 68% the second.

It took a little while, but markets eventually settled down. Then, in July and August of this year, the S&P rallied slightly more than 6% and all the averages hit new record highs ... again. And a few days later the wheels came off ... again.

The Dow plunged 831 points on Oct. 10, and another 545 points on Oct. 11. The Russell 2000 Index gave up every penny of the gains it had made since May. And the VIX jumped 44% in just one week, hitting an eight-month high.

Then yesterday, just like we saw in between the big sell offs back in early 2018, the Dow mounted a counter-trend move — managing to soar roughly 500 points on an intraday basis.

  • Meanwhile, when the averages got hid hard last week, the benchmark Philadelphia Semiconductor Index (SOX) gapped down below technical support, putting it dangerously close to completing a 2000-style topping pattern.
  • The Financial Select Sector SPDR Fund (XLF, Rated “B-”) fell to an 11-month low, putting it dangerously close to completing a 2007-style topping pattern.
  • Meanwhile, the otherwise left-for-dead VanEck Vectors Gold Miners ETF (GDX, Rated “C-”) surged almost 10% in a month, completing an inverse head-and-shoulders bottoming pattern in the process.

So, what is the message of the markets here? Is this just garden-variety October trading? Or a sign that we’re fast approaching the final days of the “Uber Bubble”?

That’s what I’m now calling what was previously dubbed an “Everything Bubble." After all, the word “uber” means “being a superlative example of its kind or class” and “to an extreme or excessive degree,” according to Merriam-Webster.

The record surge in a widespread list of assets clearly qualifies!

Plus, the valuation of Uber the company and the way investors are treating it — and other radically overhyped and over-owned public and private tech firms — makes it the perfect case study of the phenomenon.

The simple answer is, it’s too early to say. I have my suspicions and concerns, and I always prefer to err on the side of caution. That’s why I’ve been recommending for months now that investors keep a larger reserve of cash on hand … that they consider hedging their portfolios with things like inverse ETFs … and that they stick with only the highest-rated stocks, as determined by our Weiss Ratings system.

Just know that the kind of increasing volatility and manic swings that we’ve now seen TWICE in just a span of a few months is new. It’s different from what we saw in the few years leading up to January 2018.

This very well could be a harbinger of something more to come. So, I recommend you at least make the adjustments I outlined above as a precautionary step.

Until next time,

Mike Larson

About the Income & Dividend Analyst

In an era of high-risk exuberance, Mike Larson stands out as a leader in conservative investment strategies that outperform the market overall. Using the safety-oriented Weiss Ratings as a guide, he has a proven history of guiding investors to stocks and ETFs that provide asset protection, consistent dividends and excellent growth.

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