The Next Leg of the ‘Melt Up’ Starts Now

I don’t get it…

There’s so much opportunity out there. So many reasons to get excited. And yet, most investors don’t see it. They’re not interested.

It’s not hard to blame them, though. We’ve had a rocky year, with big ups and big downs.

Despite that, stocks are still up in 2018. And the “smart money” is currently betting big on even higher prices.

The smart money are the folks we want to watch. Their bullishness means the next leg of the “Melt Up” is starting now.

And history says it could mean double-digit gains over the next year.

Let me explain…

You need to think like a contrarian to make the most money in the markets. You look at what the crowd is doing and expect the opposite to occur.

Most contrarian ideas focus on the “dumb money.” These are either retail investors or market speculators. Now, these investors aren’t actually stupid… But they’re the group of folks who tend to get it wrong when they all agree.

The smart money does the opposite…

These are the institutional investors, the folks who should usually get it right. They’re the ones we want to follow when they’re in agreement.

I’m telling you this because the smart money is making big bets in one of my favorite indicators right now – the Commitment of Traders (COT) report for the S&P 500 Index.

The COT report tells us what futures traders are doing with their money. Usually, we’d look at what the speculators are doing and make a contrarian bet. But the COT report shows us another set of data, too.

It tells us what hedgers – the smart money – are doing. And again, we want to follow these folks when they all agree.

Right now, the COT report shows that hedgers are extremely bullish on the S&P 500. It recently broke out to a bullish level we’ve only seen three other times since 2011. Take a look…

The smart money is bullish. The last time they were this excited to own stocks was in 2015, during another correction.

They actually hit a similar level twice in 2015… Both times were during stock market corrections. Before that, we saw a similar level during the 2011 pullback.

In all three cases, it was a fantastic time to buy. The table below shows the full returns following those bullish levels…

Stocks have performed fantastically for the past seven years… rising nearly 11% a year, without including dividends. But buying when the COT showed hedgers were bullish has led to much better returns…

These three periods led to 6% gains in three months, 9% gains in six months, and massive 17% gains over a year.

Most folks don’t want to hear this today. They’re still spooked from the February correction. But the smart money isn’t. Instead, the COT’s hedgers are more bullish than they’ve been in years.

This isn’t how markets peak… It’s how the next leg of the Melt Up begins. And it’s one more reason to be bullish on U.S. stocks right now.

Good investing,

Brett Eversole

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Source: Daily Wealth