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Two Key Indicators That Just Guaranteed a Year End Rally

Matt Nesto
Two Key Indicators That Just Guaranteed a Year End Rally

With just over two months to go and benchmark equity indexes all up 20 to 30 percent year to date, many investors are worrying that it may be time to lock-in those gains, lest the holidays be ruined by an unwanted market retreat.

But before you bail out, you should listen to what one hot-handed strategist is saying about the next couple months, and why there are at least two key reasons to stay long right now.

1) Low Volatility

According to Ryan Detrick, senior technical strategist at Schaefer's Investment Research, not only has the most-watched measure of market fear just been whipsawed around during the budget showdown in Washington, but this particular hedging technique has just gotten too popular, in part due to the ease and availability of ETFs.

"We think the Vix (^VIX, VXX) just panicked two weeks ago," Detrick says in the attached video, "and we think that was a very big overall buy signal." Not only is he looking for another year or two of continued low volatility, which he defines as less than $20-$25, but he thinks there's a contrarian call to be made now too.

"So many people are hedging and the crowd is rarely right," he says. "With all that negativity, we still think there could be several months of this rally (to) continue to the end of the year."

2) Seasonality: November & December Are Great Months

It's no secret that stocks like to finish the year on an up note. Detrick says that is particularly true when the market has a 10-month tailwind behind it, like we do this year.

"Everyone says, 'well, we're up a lot,' but we looked at when the Dow (^DJI) is up the first three quarters of the year, like this year, November and December are actually stronger, up twice the average," Detrick says. He points to historic gains of about one percent in November, and two percent in December.

"That's double their average returns," he reiterates.

Taken together, Detrick says so with the Vix low and seasonality in our favor "we're still riding this trend for a higher stock market into the end of the year."