What's going on with the stock market this week? Has the rally begun? (week 8)
Well we had quite the sell off, but is it time for the market to rally? I happen to think so. Despite my extremely negative attitude about the market 2 weeks ago, I think a few things have turned in our favor.
1 year chart of the S&P from yahoo
First, I think we saw the final WHOOSH, that everyone on cnbc has been talking about. That Christmas eve sell off where everyone who wanted to get out got out. Then we had a MASSIVE turn around in the DOW last week, where the dow was down 600 points and rallied back to finish the day up 300. That shows a strong buying power. Then just a day later we saw a 1000+ point rally in the DOW which was the largest single point gain...EVER. This shows even more appetite in the market for buying. I think we had some serious tax loss harvesting holding us back as well as a bunch of worry over the fed telling us to buckle up and take it.
That being said, I see a few catalysts in the beginning of the year. First, we are going into an under anticipated earnings season. I think this earnings season will surprise to the upside and help the market rally (especially tech). Second, I think we will see progress on the trade talks as both countries are now desiring a deal. Third, I think the simple turn of the calendar will help us as people will no longer be selling to harvest losses for taxes. Fourth, I think the market just got a bit too cheap. If you check our article about index PE's here you'll see that the S&P and DOW got to 15 and 14 forward PE ratio's which is historically quite low. Hard to not buy that ugly Christmas sweater when it's own sale... With those 4 catalysts we will wait and watch this earning season, as I think it holds the keys to a rally.
So as always, God Bless and may the odds be ever in your favor...
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