It is time to be positive

I guess hardly anyone is positive at the moment regarding the stock market. Indeed we have just experienced the worst Oct not seen in years and the stock market is still very knee-jerking without being able to stand firmly for a few days. While I think the chance is high that S&P will re-challenge its 50 DMA in the days ahead, it is also a high likelihood that it will come back down hard to retest its recent lows around 2600. With this kind of highly volatile gyration happening now, how in the hell I could be feeling positive, you may ask! Well, there are two positives that I can offer you to think about. First, after the short term shakeup, ideally with another low retest, most of the folks who are still hanging there with a slight hope of immediately coming out of the woods will likely be killed by totally giving up and throwing in the towel, sort of speaking. This is the moment the real bottom is created and a new rally will start. I’m still expecting a sizable year end rally will come to the fruit after this unbearable water torture is completed. Maybe just a week or two to go through this! Then more importantly we are likely going into a very well established historical pattern for a strong stock market in 2019. This is not something coming from my dream. It is a pattern backed up by 70 years of data with a very consistent trend. Let’s called it the Presidential Cycle.    

Below is the data summarized by the folks at paststat.com, which shows the S&P 6 months performance from the end of September through the end of March, after each midterm election into the 3^rd year of the Presidential Cycle. Can you see anything jumping out? Pretty easy to understand, right?

Since 1950 and regardless which party held the President position, all the Presidential Cycles except one came out with a positive return for S&P. So the winning rate is astonishingly at 94%. While the results varied each cycle, the mean return was quite impressive at 15% over this 6 month period. The only negative return was almost nothing at less than 1%. Could this time be different? It is always possible but I really don’t think so. Actually I think the odds are very good for an even stronger return this time. As bad as it feels like at the moment for the stock market, it has actually created a lower base from which a stronger rebound is more likely, statistically speaking. Then the midterm election with a divided Congress is also something usually good for the market. As I said, the market likes gridlock as it has less chance for big surprises. Then comes with the final point I’m sure not many people will agree. I think we may be going to witness a last leg up for the 10 year bull run, or called Melt-Up phase which typically finishes a bull market by a violent up-run with a great deal of people chasing highs due to FOMO! It may sound ridiculous for the time being but I believe it quite convincingly that it may come in the next 1-2 years before an epic bear market starts! Of course you don’t need to believe me and just stay at the sidelines to watch. But I think you will eventually kick yourself by not participating in this last chance of a Melt-Up. 😵😵