What this early warning sign is saying about the ‘Melt Up’ today

From Dr. Steve Sjuggerud, Editor, True Wealth:

The financial sector is one we’re watching closely.

Financials are one of our leading indicators that let us know how the market is doing. They could help give us early warning signs of a market reversal.

Today, they’re showing no signs of weakening. Instead, financials are hitting new 52-week highs.

Not only is that good for the overall market, but it also means 2018 could be another big year for the financial sector. We could see 13% upside this year, based on history.

Here are the details…

The financial sector had a big year in 2017… up 20%.

That’s not surprising, given the “Melt Up” that we’re in right now. Regular readers are familiar with our Melt Up idea – it’s when the biggest gains are made in the market, right before the “Melt Down.” And those big gains include financial stocks.

The sector shows no signs of slowing down. Instead, it’s hitting new 52-week highs…

New highs, of course, are a good thing.

We always want to buy what’s in an uptrend. Markets that are going up, tend to keep going up. So buying what’s already rising is a smart idea.

The chart above shows the recent rally in financial stocks. The sector just hit a new 52-week high, and history says that more gains are likely as a result.

For the past 27 years, buying financial stocks after they hit a 52-week high has led to solid outperformance. You can see the full details here…

Since 1991, The financial sector has returned 10% a year. It has been a strong performer for nearly three decades.

Still, as the financial crisis taught us, the sector can have some ups and downs. And you can outperform that solid “normal” return by focusing on new 52-week highs.

Buying after the sector hit a 52-week high led to 6% returns in six months and an even better 13% return over the next year.

That might not seem like a huge outperformance… But three percentage points higher is a respectable return in the investing world. And given the Melt Up phase of today’s market, we wouldn’t be surprised if financials do even better than that this year.

Again, financial stocks had a great 2017. And they’re starting 2018 off strong, too. The sector recently hit a 52-week high. And history says the rally should continue from here. That’s good for the sector and for the overall market.

Good investing,

Steve

Crux note: Stocks have gone up for more than eight years now. It’s no surprise that many investors are worried about a top in the market today. But according to Steve, there’s still plenty of money to be made in the stock market. He explains why there’s no reason to worry (yet) right here.

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