Have you ever wondered why seasonal trading trends take hold around the holidays? In November, the bears go into hibernation and the bulls charge forward. It’s a documented phenomenon.
When the SPX 500 is up 20% or more for the year through October, it will increase another 5% or so in November and December. Think I’m exaggerating? I’m not. This pattern is well established. Now, the sample size is not very big, but it is large enough to instill confidence.
This is where we find ourselves in 2019. The bulls are poised to close out the year strong. Let’s take a look at a couple of indicators for a fuller picture.
Seasonal trading trends are in our favor
Sentiment has been bearish lately. It is just turning bullish, yet the markets are up significantly. What gives? A big wall of worry is up among many investors. That may sound bad, but it’s not. It means some traders are sitting on the sidelines right now. As sentiment improves, they will jump into the market – usually all at once. This will push markets higher.
Volatility is low and often hovers at muted levels this time of year. History shows that a low VIX around the holidays results in shallow corrections. That doesn’t mean we won’t see pullbacks. If we do, they likely won’t cause much damage. (Minor pullbacks could be nice buying opportunities, so keep that in mind.)
Contrast where we are today with 2018. Markets took a turn south in early October 2018 as the Fed continued on their hawkish path of a tighter monetary policy. Once the markets went into a tailspin, there was no way out. December was a month that every trader and investor would like to forget.
We have a different setup this year, though it doesn’t mean you can sit back and relax. Breaking news could blow up the markets, as could jittery investors and traders.
With that said, as long as the trends are pointing up, dip buyers will step forward to buy shallow drops. This will likely improve sentiment. My forecast: we are likely to see several new highs across the board into the end of the year.
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