|Written by Rob Goldman|
Now that the Q3 earnings reporting season is coming to a close in the next few days, it is time to predict what the market, key categories, and sectors will do for the balance of the year. The good news is that we can predict what will happen almost on a weekly basis for the next 6-7 weeks, since the calendar works like clockwork this time of year. The better news is that a rally in small caps is in the offing and will continue into next year after being left in the dust the past 2 years. Click one of the buttons below to see what will happen before it happens.
PREDICTING STOCKS’ FUTURE MOVES
Just like coaches in collegiate and professional sports outsmart themselves by getting too cute or straying off course, investors are prone to the same disastrous mistakes. As long as one recognizes that stocks you thought for sure would do well can collapse and the poor ones can do well, then a key part of the mental process of investing is in place. You know you can’t always be right. And the more you complicate or try to time your efforts without a plan the more difficult it is to achieve success.
Frankly, it’s just part of the KISS method (keep it simple, stupid.) And one simple but very important cog in successful investing is to let the calendar be your friend—especially this time of year.
About 80 days ago, the world was coming to an end with the way stock prices collapsed. Yet, recently stocks hit a new high, helped in part by a better than average or at least better than expected Q3 earnings season. Now that we just have a few days left and an interest rate rise is in the offing next month, we can predict, with a fair degree of certainty, what will transpire over the next few weeks and what segments will be in focus by institutions, the financial media, investment banks, and retail investors.
We have seen some selling and profit-taking this week and, with the exception of (mainly) small stock reporting days whereby stocks move in tandem with financial results performance, look for equities to be more in the red than the green as we enter a dead period. Beyond this week, this is what we see and what you can do to stay ahead of the game.
Once we get past this mid-point of November, the fun begins because it becomes a 6 week mad dash to year end for equities and equity players. Three things will be jam-packed over a period of ten days. First, some management teams will be attending conferences or conducting roadshow meetings with institutions. This is all about solidifying forecasts and sentiment about the stocks in question for next year.
Second, all kinds of retailer and holiday season sales will come into focus and opportunistic investors establish short term positions (90 days or less) in key stocks. Third, a streamlining and review of all positions, along with asset class and sector weighting by institutions begin. The move of the market engine begins to accelerate and it becomes palpable for investors that the train will soon leave the station. Therefore, everyone has to be ready for its departure lest it leave them behind. What started as modest selling mid-month turns into modest buying, if the Black Friday sales period is solid, which we believe it will be, which will create a load of short term opportunities. For some, year-end selling of losing positions may commence.
The December Calendar
The mad rush ensues. Company execs make their last conference and roadshow trips of the year. Investment banks scramble to complete IPOs and secondary offerings before year-end. Institutions sell this year’s losers, and begin the traditional year-end window dressing of position ownership of stocks that are in favor now, and represent turnaround or good valuation/growth plays next year. Essentially, what worked in 2015 may not next year and what failed in 2015 may work in 2016, particularly early on.
Interest rate talk will loom large as we enter December. While a rise in rates usually portends stock declines, we believe such a move is both necessary and will have a rather tepid and short term downside effect. Recaps and reviews of the holiday season along with future forecasts of trends trickle out into the market and in the media. By the time we reach mid-month, small caps and microcaps that had a bad year but are in transition are under accumulation and jump on weak volume as the sellers have abated. Thus, the beginning of the January Effect occurs with a year-end rally in small caps which have underperformed for 2 years. So, in December, prepare yourself to buy stocks in transition or those reaching an inflection point next year.
As for us, our publishing schedule is very busy in the weeks ahead. In November alone, we will be introducing 2 new editions of Cannabis Stock Report, a new issue of The 30-30 Report, 2-3 new emerging growth stock ideas, and our 5th Annual Thanksgiving Treats and Turkeys Report. Plus, we plan to publish an update or two. For December, in addition to new issues of our premium products, company updates, and of course the Guide, we will publish our annual predictions for next year. Stay tuned...
The Stock Market Today
Don’t Forget About China
Two events have come out of China in the last couple of weeks that could have an impact on markets in both the short and long term. The big story was last week the Communist Party announced that it would change the country’s one child law that has been in effect since 1979. In March, two children will be permitted. Not only is this a human rights victory that will change the country’s demographics, it should have a long term on the nation’s growth and GDP. The question for us is how to play this in the markets. Look for stocks or ETF with exposure to Chinese discretionary and consumer staple spending. The Chinese ‘baby boom’ could reap some nice green over the next several years.
In minor news, the Chinese government arrested four people including the high profile fund manager Xu Xiang on the suspicion of market manipulation per the MarketWatch story below.
This could signal a general effort by the Chinese government to combat fraud which could give investors more overall confidence in the Chinese markets. We think it is ironic that Chinese government has the gall to accuse someone of fraud and manipulation since it perfected these practices. This is truly a disadvantage of a one party system. We think this is mere window dressing but should at least offer some short term stability.
Great info, insights, and hard-hitting stories make up this week’s Say What? feature...
Not really used much but interesting insight.
The New York Times
A bit optimistic, but I’ll take it.
Investor’s Business Daily
On the heels of last week’s thoughts...
Just the Stats!
AAII Sentiment Survey (figures rounded)
Interesting diversion of sentiment this week. Blogger pros became more tepid on stocks, no doubt after solid earnings and as we enter the dead period we alluded to earlier while retail investors were largely unchanged. Frankly, we are leaning toward Neutral as well, even if it is just for a spell.
Have a great week!
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