It’s one of the most profitable things you can understand about the market…
Sometimes, traders are pouring their money into risky speculations. Other times, they’re pulling that money out.
And by staying on the right side of these trends, you set yourself up for big gains.
Over the past month, the markets have wavered between “risk on” and “risk off” behavior.
Tech stocks and other particularly speculative names led the market higher for a couple years, then stalled out for the last quarter or so.
But the mood has changed… Speculation is in the air again. We know this because a few key areas of the market have all been soaring lately…
Look how the tech-heavy Nasdaq Composite Index has rocketed up through June and July…
Electric-car darling Tesla (TSLA) has popped off its May lows (though it is still well below its January highs when it traded for an absurd 26 times sales)…
And the poster child of optimistic speculation, bitcoin, has been rallying too.
Some analysts will attribute part of the bitcoin rally to investors covering their short positions. But other news is sending the cryptocurrency higher… and that’s the speculation that e-commerce giant Amazon (AMZN) may be venturing into cryptos soon.
An Amazon job posting, published online recently, was searching for a “Digital Currency and Blockchain Product Lead.” It’s just another major company getting into the space.
Earlier this year, bitcoin was cut in half. But it jumped 40% from its lows through the end of July.
For now, growth and speculation looks like the order of the day. And as my colleague Steve has noted many times, that’s what you should expect in a market Melt Up.
Folks are all hitting the buy button at the same time, causing stocks to rise… and the new highs attract new buyers. You’ll often hear folks say that new highs lead to more new highs… and it’s typically true. At least until there are no new buyers left.
This rally in growth and speculation tells me that there might be new highs ahead.
But it’s important to stress that nothing goes in a straight line forever. Even if the markets end the year higher than where they are now, there will be plenty of bumps along the way.
We saw that a little more than two weeks ago, when the Dow Jones Industrial Average fell 700 points. In fact, the Dow fell by at least 200 points on four occasions last month.
We’re overdue for a market correction. The S&P 500 Index has yet to fall by more than 5% since late last year. And as I always say, market corrections are just a normal part of the cycle.
So even though speculation is thick in the air, and it’s tempting to go “all in,” always remember there are going to be periods of volatility as this Melt Up continues.
By all means, continue to speculate and profit. But do so safely. Never put all your chips in one basket. There are still plenty of threats to this bull market… from high inflation readings to a new coronavirus variant to high market valuations.
Enjoy this Melt Up… but don’t get complacent.
Here’s to our health, wealth, and a great retirement,
— Dr. David Eifrig
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Source: Daily Wealth