There are plenty of reasons to be cautious as we head towards the finish line of 2020. Despite the uncertainty, prepare now to take advantage of a potentially strong year end rally.
If you doubt we’ll see a nice rally, it’s understandable. After suffering through the worst quarter on record, the economy bounced back and had the best one ever. Now the economy is showing signs of weakness.
Meanwhile, the pandemic is re-surging around the globe and absolutely hammering the US. The presidential election is still unsettled. The uncertainty is weighing on the nerves of investors, and the longer it plays out, the greater the chance we’ll see a rise in fear and market volatility.
Yet, with all the apparent roadblocks in front of us, it’s important to remember that the markets are forward-looking. They are looking past the short-term disruptions, and you can see this in the the technical condition.
Yes, we should have a strong year end rally
Currently, the market sentiment is moderately bullish. Indicators show a bit of hesitancy due to the factors listed above. A “wall of worry” is up, and some traders are waiting it out. How long will they have to wait? Who knows. I am not a market timer, and I will not try to predict a date.
Now let’s look at the technical indicators. The VIX, breadth, new highs/lows, put/call ratio and the SPX 500 chart are showing us a different story. The set up is bullish here. (Most traders lose money in a situation like this because they don’t trust the indicators. Market data doesn’t lie.)
Take it from me: The technicals show a good opportunity to make money from the long side before 2020 is over. As difficult as this year has been, it’s time to take the plunge and prepare for a strong year end rally. I think we deserve it.
