Why the Stock Market Has an Upward Bias Through Year-End
Friday’s movement in the stock market is indicative of what to expect through year-end. Any “partially good news” is going to see large rallies. There’s a major political 5-part reason for this.
1. The year finishing in positive ground is a major victory for the Obama Administration. The spin is so strong that all means available will be used to push prices higher.
2. Should the market close higher for the year, Obama has the ability to deflect (and mis-direct) the message about the economy.
3. You’ll start hearing …
“When I came into office your 401k was devastated by the Republicans. Through TARP and my other economic initiatives, I’m proud to tell you that the majority of your 401k plans have grown for three consecutive years”.
“They increased in value in 2009, they increased in value in 2010, and they increased in value in 2011. I’ve protected and have grown your retirement money.”
“My mission for the next four years is to continue to protect your money (from the evils of Wall Street) by initiating further fairness/growth plans like I’ve done since I’ve taken office”.
4. This message will resonate, especially with the majority that base their decisions on sound bites, simple messages, and class warfare (“good versus bad”, “billionaires (all 500 of them in the U.S.) versus the rest”, “the top 1% versus the 99%”. This message will bring votes and the Obama re-election people know this.
5. Look at the big one-day rallies this year. Most have occurred on holidays/traditionally low volume days. If you’re going to manipulate prices, those are the days to do it. There will be ample low volume holiday related opportunities to do this again over the next seven weeks.
As you can tell from my recent writings and above, there is a behavioral finance principle found here. When you combine behavioral finance with the statistics (and often the statistics already reflect the behavior), it allows you construct “special situation” opportunities to combine with your models. Currently, with so many ETFs hovering near the 200-day (and some having closed above) the buy signals may be even more pertinent than normal, especially if Europe gets under control, and the Super Committee can release an acceptable plan (two very big ifs). But if this does occur, there’s a large built-in political incentive for this administration to see higher stock and index prices by year-end (for most of us this is the definition of cognitive dissonance). There’s also a built-in incentive for the mutual fund industry to see higher prices.
The above is from Larry Connors’ Daily Battle Plan.
To learn more about the Daily Battle Plan, click here for more information.
Larry Connors is founder of TradingMarkets.com