In this blog post, I will lay out my thesis that the stock market is set to rally strongly into the end of the year. There are a few reasons that have led me to this conclusion. First and foremost, we need to look at FED policy. Jerome Powell has been signaling that inflation is cooling and more rate cuts are possible. The old trading aphorism "don't fight the FED" comes to mind here. Typically, lower interest rates help growth stocks as it is easier for these companies to borrow money. While many may still have concerns about a recession, a rallying stock market tells us all we need to know.
When we look at the major indices, we can see that the S&P 500 is closing in on a new high. In addition, the Nasdaq 100 and Russell 2000 are both setting up in bullish cup and handle patterns. IWO, a good bellwether of growth stocks, is also setting up bullishly in a similar fashion. This is all very good news since strong market rallies are characterized by broad participation. When we see these different indices all telling the same story, it gives us conviction that the rally is for real. In addition, the NYSE advance-decline line continues to make new highs, assuring us that breadth remains strong.
From a sentiment perspective, I've noticed many on Twitter and YouTube predicting a major market crash. From a contrition point of view, I really love to see those type of posts and videos pop up as charts form bullish setups. The reason is simple. If money is on the sidelines, it will eventually find its' way into an upward market and thus send prices even higher.
Seasonality is also in our favor as the fourth quarter is usually a strong period for the market. While I would never trade purely on this, it is something that I do keep in the back of my mind.
Finally, I am noticing individual stocks like NVidia acting really well. This is great to see as money flowing into growth names is a sign that fund managers are looking to deploy their money into the market.
Risk right. Sit tight.
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Full Disclosure: I currently own NVDA, IWM, and SPY.
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