- Fundstrat reports that the stock market is likely to have bottomed this week, and could see a 15% rally.
- The firm highlighted positive seasonal trends going into the fourth quarter as well as low investor sentiment.
- Fundstrat stated, “Risk/reward definitely favors betting upon an above-average bounce during the ‘Bear Killer” month of October.”
The stock market is likely to have reached its bottom this week, and should rally by up to 15% going into the new year. Fundstrat’sIn a Monday note, Mark Newton, technical strategist, told clients.
Positive seasonal trends are what give rise to the bullishness of Newton. Investor sentiment is lowStrong market performance so far this Week
Based on historical data, strong stock market performance is expected in the fourth quarter of mid-term elections years. Newton reports that the average stock market gain for October is 1.0% in mid-term elections years, as opposed to 0.3% in all years.
And investors are no longer as bullish on stocks like they used to be amid the near-25% decline in the S&P 500. It can be used as a contrarian indicator to indicate a bottom when sentiment is at its highest. The weekly AAII Investor Survey has begun to These bearish extremes have been flashed in the last few weeksThe survey recorded its fourth-most bearish reading ever, and the CNN Fear and Greed IndexCurrently in “Fear” territory
Newton stated, “I bet that markets will rise between now and year end. Monday’s bounce should allow for this week’s trading low to occur with any downside likely being limited given the rampant pessimism in market conditions.”
He stated, “Overall, I think the risk/reward favors betting upon an above-average bounce during the ‘Bear Killer’ month October.”
Newton was referring to the fact, S&P 500It has had nine major bottoms in October since 1932. This is far more than any other month.
He believes the S&P 500 could rally as much as 15% into year-end, which would put the index just over the 4,200 level based on Monday’s closing price. According to the technical analyst, any dips in the S&P 500 between now and year end “should be buyable.”
