Here are the reasons I am expecting continued strength into the end of the year.
1) The big institutions are back! Since they control the market, it’s important to analyze what they are doing, and they came back last week with strong volume. The main reason was they interpreted the Federal Reserve is done with their current rate-hiking cycle. That doesn’t mean the Fed will cut rates anytime soon, but it does mean stability for the markets. In other words, we are unlikely to see higher rates into year-end.
2) Sentiment. I look at many different sentiment measures and they are all near the low end of their bullish ranges. For example, the NAAIM Exposure Index was at its lowest level since the October 2022 lows. I can’t believe that a normal 10% correction over the past three months created just as much fear as a nine-month bear market in 2022. Either way, all this bearishness is good because the market tends to fool the majority.
3) Seasonality. November and December are historically two of the strongest months of the year. This is important because so many seasonal statistics (both bullish and bearish) have played out very well this year.
4) Technicals. We completed a rare Zweig Breadth Thrust last week. Here is the definition from Investopedia. It is basically when stocks move from a very oversold condition to a position of strong momentum in 10 days. Bottom line, this bodes well for the market over the next 6 to 12 months. Here are the statistics provided by Ryan Detrick, Chief Market Strategist at the Carson Group, LLC.
Over the short-term, I wouldn’t be surprised to see the market digest some of its recent gains on light volume. If this happens, it could set us up for further strength into year-end. As always, have a plan, know your timeframe, and stick to your own investment objectives.
I can be reached at: jfahmy@zorcapital.com.
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