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Major Correction Looms Over Stocks — Prepare Your Powder

Written by Sean McCloskey
Posted July 9, 2021

I’d be a bald-faced liar if I said I didn’t care whether you followed the trading and investment advice I give you every Friday in these pages.

But the truth is — whether you do or don’t take my advice — somewhere, someone else is, and they are raking in the cash.

It could be you. Like the reader who could have cashed in a 94% gain over the July Fourth holiday if they had followed my lead on some hot options activity. 

And not to rub it in, but here are some of our big wins so far this year (current open gains only as of 12:00 p.m on July 7) that I hope you have capitalized on:

  • Up 16% on VLO
  • Up 27% on CARR
  • Up 22% on NOC
  • Up 23% on MSFT
  • Up 34% on DELL
  • Up 15% on CZR
  • Up 17% on MGM
  • Up 37% on TSP

If not, I’m going to give you a wake-up call — a little tough love, if you will.

You’re here to make money, right? I mean, why else would you sign up for an investment newsletter? 

You have goals, right? You want to pay off those credit cards and finally be able to afford the things that always seem to be out of reach, yes?

Maybe instead, you want extra income to fund the retirement of your dreams... or maybe you just want the security of knowing you’ll pay off the mortgage a little earlier, all thanks to your last great investment. 

Again, this could easily be you. I’m going to show you how and help you along the way.

A Market Unlike Any Other We’ve Seen in Over a Decade

With numerous different sectors taking leadership month to month and week to week, we have been experiencing what I call a “perfect bull market” over the past seven months. This is essentially when every sector of the market is gaining and most folks are winning on their trades and investments, unlike more recent tech-heavy bull markets.

We have a lot of proof for this. The S&P and Nasdaq have both notched new record highs multiple times, and if you look at this heat map for sector performance over the past six months, you'll see there are winners across the board.

YTD Heat MapSource: FinViz.com

Editor's note: Except for Tesla, and I explain why in a telling report on driverless cars featured in Chris DeHaemer’s Bull and Bust Report

The one drawback of a perfect bull market is that while every sector is performing, with all this rotation in leadership, it’s much harder to identify which sector is next to outperform and even more difficult to time individual entry and exit points. Gains (or losses) could come from anywhere. That can make stock picking very difficult for some. You’d be surprised how many people lose money in a perfect bull market.

What’s the plan, you ask? 

The answer to that is a complicated one, especially considering this week’s rate action.

Overbaked GDP Projections?

This week in trading is turning out to be a very important one. There are a lot of crosscurrents right now, and the market is teetering on the edge of a big move. Whether that move is to the downside or upside is really hard to determine, and I think our chances at a big move to the upside right now are 50/50. 

Here’s why.

New record highs and the perfect bull where all sectors have performed well are strong indicators that the good times will continue. 

But in a rapid turn of events, the 10-year U.S. Treasury yield has cratered and broken down below the support level it held in its recent range.  

10 Year Treasury 6M

Many experts, myself included, saw this range as the “sweet spot” that allowed this perfect bull market to exist. But if rates continue to drop without hitting a clear and defined bottom soon, this bull run could stop dead in its tracks. 

This is due to the underlying connection between rates and GDP expectations. Typically, although not always, rates rise with GDP. They also decrease with GDP. If rates continue to fall, that could be a strong suggestion that the Q3 and Q4 GDP projections are way overbaked.

If that’s the case, a major market correction could be on the way this fall or winter, much like the correction of December 2018. 

Of course, there are other factors at play that may result in a different outcome for the second half of this year. I can’t ignore the impact that massive money printing has had on both rates and inflation, which in turn has often swayed stocks in a counterintuitive direction against the backdrop of the “Great Reopening.” 

If the recent drop in rates is more tied to Fed policy, we can use big tech trades as a hedge since they often thrive in low-rate and more volatile market environments. 

I hate to say it, but only time will tell which way markets will break in this tempestuous environment. 

My advice to readers is to cash in and take profits on your winners, and dump your losers before they become bigger losers. We'll think about how we’re going to redeploy that capital in a few weeks once we have more clarity on rates and real GDP.

To your wealth,

Sean McCloskey
Editor, Energy and Capital

follow basic@TheRL_McCloskey on Twitter

After spending 10 years in the consumer tech reporting and educational publishing industries, Sean has since redevoted himself to one of his original passions: identifying and cashing in on the most lucrative opportunities the market has to offer. As the former managing editor of multiple investment newsletters, he's covered virtually every sector of the market, ranging from energy and tech to gold and cannabis. Over the years, Sean has offered his followers the chance to score numerous triple-digit gains, and today he continues his mission to deliver followers the best chance to score big wins on Wall Street and beyond as an editor for Energy and Capital.

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