I can’t think of many who won’t party like it’s 1999 this year.
2020 will go down for many in history as the year we want to forget. And because most of us are at home this New Year’s, odds are you’ll drink twice as much. So to give you some value beyond stocks- we’re giving you a hangover helper.
Working on Wall Street was a wild ride. Here’s what we’ve learned and successfully employed after excessive partying:
- Hydrate with the 30 gulps rule: Before you go to bed, take 30 healthy gulps of water.
- Chase it with two Advil. Most importantly, eat some greasy calories with protein to help you soak up your sins… A bacon egg & cheese works wonders.
- Sleep it off
- Repeat if necessary
We hope that helps because ringing out 2020 this year should be epic. But chances are no New Year’s Eve party will come close to the stock market party since the March lows. For instance, the NASDAQ 100 ETF (QQQ) rose ~+85% since!
Those who follow MAPSignals got the invitation. Our oversold signal trigged just 2 days before that epic party started and we even came out and said in our research (on March 1st) that the market would bottom on Friday March 20th: we were off by a day as the market bottomed Monday March 23rd.
That kind of timing isn’t luck. Everything we do is based on data. That’s why on March 19th we said to send the marines. That’s how we roll and that’s how we’ll forecast what comes next.
At some point, all good parties must come to an end. And when markets are overbought for 4 weeks, it’s time to prepare a hangover helper. No one wants to feel the pain the morning after the party’s over.
Prepping ahead of time helps. This way you don’t have to fret when the time comes. And don’t worry: we’ll send out another portfolio party invite for the next rally setup.
With markets near or at all-time highs, we all feel a little tipsy. Here’s how to avoid a market hangover.
When Will Stocks Pullback?
Everyone has the same question: “when will stocks pullback?”
The market is cyclical. Rallies like March come from nowhere, like a phoenix rising from the ashes. It usually catches everyone off guard and most investors are left in disbelief.
As prices rise and news gets less bearish, disbelief turns to comfort. Eventually confidence comes. The rally becomes so strong that higher prices are almost a given. Then, investors are overconfident and the market becomes overbought. That’s where we are now.
Keeping this cycle in mind, now we know the party is close to over. But don’t fool yourself into thinking that a crash is coming. The next party could be only weeks or even a few days after this market rally finally stalls.
To answer when that happens, we combed our 30-year history of both live and lookback data. On 12/20/20 we delivered the following to our MAP readers.
This is a summary of all prior overbought periods, analyzing both their duration and forward returns. Using that framework we get the following:
We’ll go ahead and directly quote the report we wrote:
So, I will boldly go ahead and make the following predictions based on my 30 years of data crunching the averages we discussed above:
- The market went overbought on December 2nd
- The market will remain overbought until January 13th, 2021
- The Big Money Index will peak on Monday December 21st, 2020 at an S&P 500 level of 3731.56
- The S&P 500 will peak on January 18th, 2021 at a level of 3828.50
- The S&P 500 will then subsequently fall until Monday April 19th when it will trough at 3341.81
Now, those are very precise figures, and all based on the averages of decades of data. Time will tell if I will prove to be right, but one thing is for sure, history suggests a market peak is near.
So, as we start 2021 with a clean slate, let this guide be your market hangover helper. Time will tell if we are accurate or not, but one thing is sure: no market goes straight up forever. Prepping now can only ease the headache.
When stocks eventually do go on sale, you don’t want to be hungover. You want to be clear-headed.
Hangover Helper Bright Spots
In planning for the eventual pullback, keep in mind that we follow our data religiously. Look, this rally can continue longer than expected. We saw that this year, when the market stayed overbought for nearly 4 months. That’s why we’ll stay at the Big Money party until the Big Money Index starts to get loopy and falls.
When it does, we’ll be patiently waiting with our buy lists ready.
We see two bright spots ahead:
- High-quality reopen plays are a must-own. Many of these discretionary stocks are at highs. They stand to benefit from a return to normal with people freely moving about and spending. These were the dominant pre-COVID players. Think: travel, restaurants, retail & leisure spaces. Who is dying to go to the movies again? I am!
- Tech stocks will continue to thrive. Technological advances are here to stay regardless if you’re stuck working at home or back at the office. The digital landscape evolves at breakneck speeds. With any pullback, we’d look to pick entry points on best of breed. Areas of focus: digital advertising, clean energy, communications, and semiconductors.
There are “beast” stocks out there that have shot straight to the moon. Many of these types of names can be found on our latest MAP 50 report which is where the juice stocks live. We’re actually looking forward to the market headache that’s coming. Especially when we have the hangover helper.
Be Careful With Emotions
Everyone has their own investing plan. We choose to buy and hold outlier stocks for crazy long periods. It works.
We use pullbacks as opportunities to buy. We tune out the noise and zero-in on the numbers. That’s how you win over time.
It’s what’s helped us have market-beating performance. You can see some of our prior performance updates here. We’ve had a monster year and expect more of the same in 2021.
And that brings me back to emotions. There’s a lot of glee in the air. That tends to happen when brokerage accounts are moon bound. It feels good.
We actually spent some time on a new indicator that tracks emotions in investing. We’ll call it the “Feels Index.” This is how it looks overlaid against a price chart:
Be careful with emotions. It tends to kill a portfolio.
The Bottom Line: as we close out 2020 on a high note, don’t let your guard down. Signs point to a correction in the coming weeks and months. This is your hangover helper.
Happy New Year everyone!