Sometimes It Doesn’t Matter

The strong consensus in the financial world is that you don’t take a view on the direction of the overall stock market.

Advisors, pundits, the media, and academics repeatedly say that it is impossible to time the stock market.

Speak to professionals who MAKE MONEY in the stock market, though, and the view is more nuanced.

In the long term, you absolutely should have a view. It is going UP!

Betting on the US economy and stock market over future decades is the single best financial bet you can make with your money.

In the intermediate term – over six months to a few years – it can be more difficult to have a view, but it is essential to have one. Knowing whether you are in a BULL or BEAR market will greatly impact your TRADING strategies.

Over this time frame, the trend is your best indicator. The moving averages are a good judge of the environment. Later this week, we will write about how they can be used to define the type of market you are trading in at any given time.

 It is the most difficult time to predict the stock market's direction in the short term. Statistically, it is essentially a coin flip whether the stock market is up or down on any given day or week.

Over my three-decade career, though, we have refined a method for determining when you can get some insight into short-term trading.

We use a combination of technical, sentiment, seasonal, and other indicators, which also change and evolve over time.

Most of the time (75%+), we do NOT have an opinion on what will happen in the stock market in the next few weeks.

That has been the case most of the time over 2024. When we started HX Research in February, we felt strongly we were in a BULL market upward trend but didn't have a solid short-term view.

Beginning in mid-July, though, we began to have a clearer view of the stock market.

We made a big call on July 17 to “take your profits” and that paid off as the stock market got slammed in early August. We then took advantage of that sell-off and aggressively added risk to our TRADING strategies.

This paid off, and we had our best month of the year!

In recent weeks, we have become cautious again about the market. We DO think that "V" bottoms can happen in stocks, but they usually consolidate afterward, and the market can be pretty volatile.

We also were still respectful of seasonality and time of year. Just like you wouldn't go out in the middle of January in Maine without a jacket, we think you should respect the month of September in your trading.

In the last week, though, we have seen a number of our concerns begin to be reflected in the stock market.

For the last few weeks, we have been discussing the sentiment indicators, and those have now come down to levels where they are neither overly bullish nor overly bearish. The updated weekly AAII Bullish Sentiment percentage from the weekly AAII Investor Sentiment survey…

The Bullish Sentiment percentage is the green line, and you can see a significant drop in this most recent week. This is the biggest drop in quite some time and the lowest it has been for months.

We also got several important “catalysts” out of the way.

The August jobs number was lower than expected, but only by a little. This was enough to cause short-term volatility but did not really change the stock market narrative.

The first Presidential election debate between Donald Trump and Kamala Harris is also done.

We think it is similar to the jobs report. Perhaps the initial market sentiment was that it was bad for the market, as the "consensus" (although not strong) view is that Kamala did better.

We honestly don’t care. Who wins will not matter. We wrote about this on Friday; you can read that note here.

We also think that we are very unlikely to see any major changes in the polls.

Unless something incredible or catastrophic happens, we know who the candidates are and their “positions.”

My view is that the polls will remain pretty much right where they are through Election Night—a coin flip. We will only know the result the next day, making this a non-factor in the stock market at this point.

What does all this mean?

It means everything is NORMAL.

Right now, we don't have a strong view of the near-term moves in the stock market.

It is clear to us that we are in a well-established uptrend. Our friend J.C. Parets of All Star Charts recently pointed out that ALL ELEVEN of the S&P 500's sectors are currently in an uptrend. This is defined by the 50-day trading above the 200-day moving average.

We think the upward trend persists, and the stock market ends the year higher. September is usually choppy, and November/December is usually great.

We think that a lot of the overexuberance has been shaken out of the market.

We also think that much of the "noise" around data points has been behind us for a while.

Focus on your opportunities and focus on your PROCESS.