Don’t be fooled by January’s stock bounce… Why stocks have their best days during bear markets… How to avoid getting smacked by the bear claw… In the mailbag: “Who is the government to moralize for us?”
Sounds bizarre. But that’s what happened to master trader Jeff Clark.
To refresh your memory of how dark those days were… In 2008, the S&P 500 plummeted 38%.
Here’s a sample of front-page news as the worst of the crisis unfolded…
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“Mounting Fears Shake World Markets as Banking Giants Rush to Raise Capital” (Wall Street Journal, September 18)
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“Markets in Disarray as Lending Locks Up” (Washington Post, September 18)
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“Vast Bailouts by U.S. Proposed in Bid to Stem Economic Crisis” (The New York Times, September 19)
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“Bailout Rejected, Markets Plunge, Forcing New Scramble to Solve Crisis” (Wall Street Journal, September 30)
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“U.S. Forces Nine Major Banks to Accept Partial Nationalization” (Washington Post, October 14)
It was a frightening time to be an investor.
Stricken with panic at the thought of losing their nest eggs, most folks were yanking their money out of the stock market as fast as they could.
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He placed his first trade when he was just 18 years old.
By the time 2008 rolled around, he’d already been in the trenches during the 1987 crash, which took the S&P 500 down 23% in a single day. And he’d watched as the dot-com bubble popped in 2000.
He knew that bear markets play out different to how most people think. And he knew you could make a lot of money in them… if you have the right strategy.
So instead of panicking, he set about putting to use what he’d learned in the 26 years since that first trade… and making money for readers of his trading newsletter at the time, Stansberry Research’s Short Report.
As the worst of the crisis raged… and fears mounted that the world was facing another Great Depression… his subscribers had the chance to make cumulative gains of 1,700% that year.
We kid you not. Here’s what Porter Stansberry, the publisher of the Short Report, wrote on January 29, 2009…
Jeff’s trading this year in The S&A Short Report was nothing short of heroic. He made 52 recommendations – all of them short-term trades. Out of these, 42 made money. A win rate of more than 80% in options trading is ridiculous. The average return of every trade was a bit more than 31%.
That’s outrageous when you understand the short duration of these trades and the turnover in the portfolio. How outrageous? The cumulative total return was greater than 1,700%. And yes, our legal department has reviewed this track record – it’s real.
And that’s not even the craziest part. Most of those gains came from betting on rising, not falling stock prices.
Think about that for a moment…
In the second-worst selloff in stocks in history, Jeff’s subscribers were not only avoiding the pain that most long-term investors were experiencing. They were having a blow-out year.
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Jeff recently told his readers he intends to do the same in the bear market he sees coming in 2019. And one of his readers asked…
Why on earth would you even consider recommending buying any stock in a market you describe as bearish? After all, if the market is going to fall this year, then most stocks are going to fall with it.
It’s a great question: If Jeff believes we’re headed into a bear market, isn’t betting on rising stock prices a potentially ruinous mistake?
This seems logical. But it misses a much overlooked reality. Here’s Jeff…
Bear markets aren’t just straight shots down for stock prices. Far from it. I remember 2008 well. One of my best-performing strategies was to wait until stocks got horribly oversold in a bear market decline and then buy in anticipation of the fierce rebound rally that follows.
The benefits of this approach are obvious to anyone who had the courage to buy into the historic decline we experienced just before Christmas. The S&P 500 has rallied 285 points off its Christmas Eve low. That’s a 12% gain in less than a month.
When you stretch a rubber band far enough… it snaps back violently.
That’s why we see so many big upswings during bear markets. Stocks sell off viciously (the rubber band gets stretched)… then they shoot higher (the rubber band snaps back).
And the numbers back it up…
According to investment management firm Gluskin Sheff, 21 of the 25 best single-day gains for the S&P 500 happened during bear markets.
And the top 12 single-day gains for the index happened during bear markets, too.
As Jeff explained it to us…
If you can buy into a position at 6:35 a.m. and sell out at a profit by 8:30 a.m., what the hell are you sticking around for?
That’s the secret to making a lot of money in a bear market – shortening your timeframes. That’s why I love being a trader. You can make a lot of money in a bear market by buying stocks in the right conditions.
Granted, you won’t be able to buy at the absolute bottom of a bear market decline. And you’re not going to sell at the top of a rebound rally. But capturing half – even one-third – of that move is a fabulous short-term gain.
That’s how, in 2008, I was regularly closing out triple-digit winners – riding those explosive rebounds higher. I’d catch these wicked rebounds off the lows. And they’d often happen in a day… or a matter of days.
They can be brutal if you’re not prepared.
As Jeff says, bear market rallies coax investors back into the stock market… just in time to smack them over the head with another swipe of the bear claw.
But if you’re a trader, you can profit from the upswings… and sit on the sidelines as stocks plunge again.
And 2019 is gearing up to be the perfect year to follow the same playbook. Jeff again…
As I’ve told my readers, I believe the bear has been in charge since the start of January. That’s when the S&P 500 dropped below a trend line I use as the “line in the sand” between a bull market and bear market. If I’m right, my readers will have the chance to capture similar gains as we get further into 2019.
Tomorrow, Jeff will talk about why he uses options contracts to reduce his risk on each trade… how he knows when to sell for maximum gains and minimum losses… and why he never trades with more than 10% of his liquid wealth.
So look out for that in these pages at 5 p.m. ET.
When it comes to drug legalization, regular Daily Cut readers know there’s no shortage of opinions… Including this recent note from reader Mark W.:
People have the moral right to do whatever they want to their own bodies and they also have the moral obligation to take care of the consequences – whether it be damage to themselves or others. It is simply a symptom of our societal sickness that a growing percentage of the population doesn’t understand that.
But is discussing legalization a waste of time? At least one of your fellow readers thinks so…
This debate on drugs is puerile. If you want to take drugs, you will take drugs. They are freely available right now, albeit not legally and the quality may be questionable. About the fireman racing to a fire high on LSD, if he is an addict, it won’t make any difference whether drugs are legal or not. They can be acquired.
If all drugs were decriminalized, think of the benefits: no more gangs because their source of income would be destroyed. No more “War on Drugs” that costs you and me billions every year. The count of prison inmates would probably go down 50%, saving billions more. And a tax on legal drugs should swell the government’s coffers… Although they will probably just spend more anyway. Besides, who is the government to moralize for us?
– Nigel S.
I agree with Mark. The only problem I have with this is that many folks are irresponsible. They would do unto others without the moral obligation to make things right. It comes down to moral vs. legal. Right now, I don’t believe that people are taking the moral responsibility to look after their own freedom. Morality cannot be legislated. It’s a responsibility each person must assume for themselves and their families.
Unfortunately, taking freedom for granted, as the vast majority of people do, has led to complacency, and in this world of technological wonder, that may no longer foster a philosophy that includes unalienable human rights.
– James J.
Meanwhile, another reader took offense to our claim that most Americans don’t give a damn about the growth of the Surveillance Society…
You are severely mistaken. Most folks don’t submit to surveillance, we just don’t have any damn choice. If I had the choice right now, I would go out and put out every one of those cameras I could find. It is unlawful for them to be doing this surveillance. The Constitution of the United States, Fourth through Seventh Amendments, makes it very clear that our privacy is being violated. It’s got to stop.
– Robert J.
Are you worried about the rise of Surveillance Societies around the world? Maybe you’re taking steps to protect your wealth in the next bear market? Tell us about it at feedback@legacyresearch.com.
Regards,
Chris Lowe
January 23, 2019
Berlin, Germany