Why the stock market could head higher into the Presidential election
article saying that even though the coronavirus numbers might get worse, it doesn’t mean that the stock market has to go lower. I followed it up with an article in mid-April titled: “The market might be forecasting a faster recovery than we expect.”
What gave me the conviction to write those articles was the price action of the market and its leading stocks. The big institutions control the market and interpreting what they are doing on a regular basis is far more powerful than listening to the news every day.
Currently, the price action is telling me the stock market will head higher into the Presidential election for the following reasons:
Here are some counterpoints. I am always flexible with my approach to the markets. One of my favorite quotes from hedge fund legend Stanley Druckenmiller is: “Probably one of my greatest assets over the last 30 years is that I’m open-minded and I can change my mind very quickly.” In other words, if any of the above points change, such as distribution building up or the leaders breaking down, then I will shift to a more defensive posture for clients.
Another challenge is the increasing bullishness in many sentiment measures. My feeling is the market will occasionally “shake out” this exuberance with pullbacks along the way. Since the March lows, the market has seen several short-term pullbacks of 5-8% and this pattern is likely to continue just to keep the bulls in check. That is why it is so important to know your timeframe. If you are a shorter-term trader, one way to deal with this pattern is to take profits into strength and have some cash available for the inevitable pullbacks. If you are a longer-term investor and you have strong entry points on your investments, then you have to be patient and sit through some volatility along the way. Again, these are decisions that need to be made based on your own investment objectives and risk tolerance.
my website.)” data-reactid=”47″>Similar to the articles I wrote in late March and early April, I am mainly making this call based on the price action of the market and its leading stocks. The large institutions — mutual funds, hedge funds, pension funds, etc. — control the market and interpreting what they do on a regular basis is very important. (If you are looking for help with this type of market education, you can find more at my website.)
The bottom line is the trend is higher into the election and I’m going to stick with it until the market tells me otherwise.
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