Should You Be Buying a Santa Rally?

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ASX - Australian Stock Market - Santa Rally
Should You Be Buying a Santa Rally?

We are cautious about buying into the optimism of a strong rebound in economic growth next year.

Those are the words of JP Morgan Global Asset Management strategist Kerry Craig.

He’s specifically talking about the Aussie market.

Mr Craig is not alone in being cautious.

AMP’s head of investment Shane Oliver also expects slower growth in 2020.

He’s not all doomy. Apparently, he’s a tad optimistic about the second half of 2020.

Shane says he expects the Aussie market to hover around 7,000 by the end of next year. Two points on this…

No one will remember or care what his forecast was by the time late-2020 rolls around. His forecast is worthless. It’s a wild guess.

And anyway, I’m not sure if 7,000 is an ‘optimistic’ outlook at all…

I mean, has he seen where the market is today? His forecast implies less than 5% growth for 2020.

Just compare that to the 18.6% gains this year so far!

You need to be headstrong

A measly 5% would definitely be a change of pace for new investors who experienced their first bull run this year.

There’s more to it than that though…

As you may know, I’ve been hypothesising multiple scenarios which could play out next year.

I recorded two videos for you on this. You can view them here and here.

It centres on the Grand Cycle. Callum talks about this a lot and invests in stocks using it.

Anyway…

This cycle has an excellent history of warning of potential recessions to come.

Between 2019 and 2021, your Profit Watch crew will be on alert for potential cracks.

Of course, you may be wondering…‘Is it really that simple?’.

While I’d like to say yes, that would be anything but the truth.

There is plenty of variables we need to take into consideration.

One of the biggest is Mr Trump. Next year is a US election year and that could throw up potential ‘problems’ with any forecasts…

Trump will do everything to sustain easy monetary policy and a buoyant economy.

He does want to be reelected. That’s for sure.

These potential cracks will become clear as we progress into next year.

Is Santa really coming to town?

Moving on…

Let’s talk about the fabled Santa rally. My friend Terence runs a trading serviced called Time Trader. He wrote about this recently.

He’s done some research on the Santa rally. He says it has more to do with the ‘time’ element of the market…than it does with Santa coming to town.

I tend to agree with him here.

Why am I telling you about it?

Mainstream media ‘experts’ are saying that the Santa rally is still to come.

And I don’t want you to buy into this hype.

It could be more dangerous than not.

The Santa rally may happen into the end of December.

But I’m very concerned about what may occur during January and March.

That’s just around the corner!

I’ve personally penciled in my calendar to be on alert for potential volatility in the markets during that time. More specifically, US markets.

This is the first time I’ve publicly stated an actual time frame using what’s known as a Gann methodology. But as we get a bit closer, you may be wise to ensure you stick to your trading rules.

As you know, the US can occasionally cause our markets to rattle.

So, when I see headlines of an approaching Santa rally, it makes me wonder ‘who’s really driving this idea?’ It may not be in your interest.

This chart may just protect you

I’ve attached a chart below for you to see a potential scenario in the Aussie market over the next two months.

Source: Optuma

Think of this as a kind of roadmap. Be more concerned with ‘time’ than with the ‘price’ aspect. Green is up and yellow is down.

It may not play out like this…but it’s what I’m watching for.

How to use this roadmap? You can use this time to track your favorite stocks and build your watchlist. You may get a chance to buy them cheaper in January than December.

If you are already in the market, just stick diligently to your rules. A potential January crunch could be on the cards.

Your rules won’t just protect your portfolio. It will also protect your psychology.

Both of those are incredibly important to protect.

Until next time,

Jonathan Evans Signature

Jonathan Evans,
Analyst, Profit Watch

PS: I recorded a video with Shae recently. She expects gold to perform well in 2020. If volatility does come to the market, gold could be a great contrarian play. If you didn’t see that video, click here.