Macro-Market Must Knows As Investors Head Into Year-End

Welcome to another trading week!! In appreciation of all of our daily readers of content, we offer the following excerpts from our Weekly Research Report. (Subscription needed) Our weekly report is extremely detailed and has proven to help guide investors and traders during all types of market conditions with thoughtful insights and analysis, graphs, studies, and historical data/analogues. 

Research Report Excerpts #1

The market offered many teachings in 2020 and there will have to be much to learn going forward, as unprecedented circumstances lead to more unprecedented reactions to those circumstances. If we accept this as fact, we should also acknowledge how wrong it would be to defy history, which often rhymes. Unprecedented circumstantial reactions will still likely fall along the lines of typical human behaviors.

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The above-positioned graphic from Cullen Roche is the psychological framework for engaging the market we want investors to avoid. The dip buyers are the rewarded ones while the fearful sellers are the ones that are left behind.

Research Report Excerpts #2

One could easily make the argument that it was the most feeble 3 down days we’ve witnessed and they’d likely be correct! Nonetheless, in 2020, three down days in a row have typically led the market lower, as offered in the chart above and signified in the rectangles. The market’s momentum indicator is in the top panel. Having said that, 2020 is but a small sample size. I would be remiss if I didn’t also offer that over the last 5-year period, after a 3-day losing streak, the market was higher the next days some 90% of the time. **

At this point in the market’s rally, it’s perfectly normal to see some degree of profit-taking and turbulence. Let’s face it; the market has been overbought for an extended period of time now, but that doesn’t necessarily tell us when or by how much the market should/will consolidate some of its gains. Nonetheless, and as noted already, the market will not go higher in a straight line.

Research Report Excerpts #3

More broadly and technically speaking, the equal-weight S&P 500 (RSP) continues to outperform the cap-weight S&P 500 (SPY) since the March lows, indicating broad market participation and a healthy bull market. These are all the trappings of a new cyclical bull market, post a cyclical bear market, and in keeping with a longer-term secular bull market.

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