Yet ANOTHER Bullish Q4 Study

After my research on post-crash behavior was complete, I turned to stock market performance. With both August and September closing lower, I wondered if there was any trend for Q4. Over the past 35 years, there were only 6 occurrences and all led to a positive Q4 by an average of +10.86%! You can view the study here. http://investfortomorrowblog.com/archives/1936

With the help of my friend and colleague Dana Lyons, http://jlfmi.tumblr.com, I analyzed stock market returns since 1950 when the S&P 500 dropped at least 10% in 6 days, like we saw in August. The average results are below.

3 months later +5.6%
68% of the time returns positive

6 months later +12.5%
81% of the time returns positive

12 months later +21.4%
81% of the time returns positive

24 months later +37.5%
90% of the time returns positive

Three independent studies all conclude the same thing over the intermediate-term. The bull market and this rally are far from over and my longstanding target of at least 20,000 is achievable in 2016.

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Catching Their Breath

After a huge win for the bulls last week, stocks have become very short-term overbought. I don’t think the rally is over nor do I think any meaningful weakness will unfold. Rather, I think the bulls need a pause to refresh which can be accomplished by going sideways for a period of time or seeing a quick pullback. Either way, new highs should be up next and buying any weakness is the strategy until proven otherwise.

Am I certain that stocks will hesitate right here?

No, but that’s the preferred path to keep things healthy, especially into the Fed meeting this week. I am keenly watching gold as it held up very well in the face of a strong dollar last week. Gold has nicely digested the big rally from my sub $1100 target and could be setting up for a $100 move higher. “Could” is the operative word here, not “will” just yet.

Finally, as I mentioned before, strong high yield bond performance is essential for this rally to run right into 2016. So far, so good, but the junk sector needs to hang in during any stock market short bout of weakness.

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