Fall is approaching, when my most loyal subscribers are to be found taking transcontinental railroad journeys, crossing the Atlantic in a first class suite on the Queen Mary 2, or getting the early jump on the Caribbean beaches.
What better time to spend your trading profits than after all the kids have gone back to school, the summer vacation destination crush has subsided, and travel deals abound.
It’s an empty nester’s paradise.
Trading in the stock market is reflecting as much, with an increasingly narrowing range since the S&P 500 hit a new all time high in mid-July.
Is it really August already?
It’s as if through some weird, Rod Serling type time flip, June became August, when we usually get our half year low, thanks to the ill conceived Brexit.
Welcome to the misplaced summer market.
I say all this, because the longer the market moves sideways, the more investors get nervous and start bailing on their overweight cash positions.
Call it FOMO: the Fear of Missing Out.
The perma bears are always out there in force (it sells more newsletters), and with the memories of the 2008 crash still fresh and painful, the fears of a sudden market meltdown are constant and ever present.
In the minds of many newly gun-shy traders, the next 1,000 point flash crash is only an opening away.
Only a short position in the Japanese yen (FXY) seems to be working today, which followers of my Trade Alert Service have in abundance.
In fact, nothing could be further from the truth.
What we are seeing unfold here is not the PRICE correction that people are used to, but a TIME correction, where the averages move sideways for a while.
Eventually, the moving averages catch up, and it is off to the races once again.
The reality is that there is a far greater risk of an impending market MELT UP IN STOCK PRICES than a melt down. But to understand why, we must delve further into history, and then the fundamentals.
For a start, many investors have not believed in this bull market for a nanosecond from the very beginning. They have been pouring their new cash into the bond market instead. The ultra low yields prove my point.
Some 95% of active managers are underperforming their benchmark indexes this year, the lowest level since 1997, compared to only 76% in a normal year.
Therefore, this stock market has “CHASE” written all over it.
Too many managers have only four months left to make their years, lest they spend 2017 driving a taxi for Uber and handing out free bottles of water, or subleasing their homes through Airbnb.
The rest of 2016 will be one giant “beta” (outperformance) chase.
You can’t blame these guys for being scared. My late mentor, Morgan Stanley’s money management guru Barton Biggs, taught me that bull markets climb a never-ending wall of worry.
And what a wall it has been.
Worry has certainly been in abundance this year, what with China confusing at best, ISIS on the loose, Syria exploding, Iraq falling to pieces, the contentious presidential elections looming, oil in free fall again, the worst summer fires in decades, flaccid economic growth, and even a rampaging Donald Trump.
We also have to be concerned that my former Berkeley professor, Fed governor Janet Yellen, is going to unsheathe a giant sword and start hacking away at bond prices, as she has already done with quantitative easing (I’ve been watching Game of Thrones too much).
Let me give you a little personal insight here into the thinking of Janet Yellen. It’s all about the jobs. Any hints about rate rises have been head fakes, especially when they come from a small, anti QE Fed minority.
When in doubt, Janet is all about easy money, until proven otherwise. Until then, think lower rates for longer, even on the heels of the blockbuster 255,000 July nonfarm payroll.
So I think we have a nice set up here going into Q4. It could be a Q4 2015 lite– a gain of 5% in a cloud of dust.
The sector leaders will be the usual suspects, big technology names, health care, and biotech (IBB). Banks (BAC), (JPM), (KBE) will get a steroid shot as the new value plays.
To add some spice to your portfolio (perhaps at the cost of some sleepless nights), you can dally in some big momentum names, like Tesla (TSLA), Netflix (NFLX), Lennar Housing (LEN), and Facebook (FB).