Historically the period from mid-November to the end of December has been kind to stocks. If we throw in January, stocks have been up since 1950 almost every year except for primarily the bear markets of 2002 and 2008. The year 2002 was the worst while the 2008 bear period which you can see in the chart below, was not. In fact from mid-November to the end of December the market ended fairly flat.
Bear S&P Chart 2008 – Mid-November to Jan 31
vive la différence
The difference between 2002 and 2008 with 2015 is stark. Today unemployment is falling to levels not seen since the 1970’s. Housing has recovered in most markets and the Federal Reserve has been incredibly accommodating. With interest rates set to rise for the first time since 2006 by probably a quarter of a percent, the economy at present is far different from the 2002 and 2008 periods in stock market history. This is a period of nervousness but in general, the outlook for the economy is still robust and the GDP number and housing numbers on Tuesday show the economy is doing fairly well.
Downing Of A Russian Jet Fighter
This brings us to the downing of the Russian jet fighter on Tuesday. While European indexes sold off by roughly 2% on the news, North American markets pulled back and then moved higher. Most investors realize that the chance of a war with Russia is slim to none at this point in history. While there will be some fallout from the incident, it should not be a major event and investors realized this and bought back into stocks. They took advantage of the morning dip. This is a bullish sign, not bearish.
Problems and More Problems
Prior to the downing of the Russian jet fighter, there have been many other issues from the Paris Attacks to repeated economic doom and gloom reports out of China, to the collapse of oil prices. The US dollar is soaring, gold is collapsing, commodities have been hammered.
Through it all the market has seen one major pullback in August which for the present anyway, seems to have ejected the most nervous of investors. That leaves behind stronger investors who may have more capital, more trading experience, more stamina and most of all, believe that the rally over the next several months will indeed happen, including the so-called Santa Claus rally.
The Beauty of Strategies That Combine Options and Stocks
Periods such as the present, are why the strategies I developed in the 1970’s and have tweaked continuously over the years, combine options with stocks. They provide protection as well as profit potential and are especially important for the retail and smaller investor. The strategies I use put in place a level of protection with every single trade so that while profits can be made, there is a degree of protection to keep the focus on capital preservation.
While smaller investors do not have the huge sums of capital of the larger investors or the computer algorithms to assist us in our trading, we can use strategies that provide flexibility that the larger investors cannot take advantage of, due to the sheer size of their portfolios.
Bad News Equals Good Opportunities
The past several weeks of bad news continues to build profits in my portfolios as I keep taking advantage of dips, like Tuesday’s morning dip. This tells me that the market has reached a point where the bad news that causes dips are being used by traders to pick through stocks and seek out profit-making opportunities. Bad news then has started to equal good opportunities. That is similar to the old saying of “climbing a wall of worry”.
Next Month – Santa Comes Calling
At present I am in the market and continuing each day to watch for opportunities such as the morning dip today. I have no way of judging with any degree of accuracy whether the markets will move to brand new highs but I do believe the downside remains limited for now.
Events like those we have seen over the past few weeks have failed to push stocks back into a correction. That tells me Santa is probably going to be loading up his sleigh again this year and I plan to be ready for his arrival.
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Disclaimer: There are risks involved in all investment strategies and investors can and do lose capital. Trade at your own risk. Stocks, options and investing are risky and can result in considerable losses. None of the strategies, stocks or information discussed and presented are financial or trading advice or recommendations. Everything presented and discussed are the author’s own trade ideas and opinions which the author may or may not enter into. The author assumes no liability for topics, ideas, errors, omissions, content and external links and trades done or not done. The author may or may not enter the trades mentioned. Some positions in mentioned stocks may already be held or are being adjusted.
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