The dominoes keep tumbling and I think we’re now set up for one of those extremely volatile market melt ups through early January.
First, on Wednesday, the Federal Reserve removed a big worry hanging over the stock market when it announced that it would begin reducing its $120 billion monthly purchase of Treasuries and mortgage backed assets by $15 billion a month beginning this month. That removed concerns that the taper would be aggressive and worries over timing. $15 billion a month is about what the financial markets had expected and now there’s a schedule that investors and traders can price in.
Second, today, Friday, the Bureau of Labor Statistics announced that the economy had added a strong 531,000 jobs in October. That’s a relief after there weak 194,000 jobs added in September and it removes worries that the economy is about to hit a big pot hole.Next report isn’t until early December and that’s ages in market thinking.
Third, with those two uncertainties now behind us, the normal season trends are free to assert themselves. Which means up with the January effect rally (which begins in November), up with the fourth quarter/holiday sales rally, up with the Santa rally. Well, you get the idea.
You’ll note that none of these factors really says anything about the economy or the stock market in 2022. Earnings growth is projected to slow markedly and inflation, already running hot, could get hotter and set off a new round of worries about when the Federal Reserve will raise interest rates.
But hey, 2022 is almost two months away. And the leaves plenty of time for an end of the year rally that will take record stock prices to new records.
Couple of things to note about market melt-up rallies.
They are momentum events.
So you’ll see everybody piling into any stock that’s going up in the hope that a high price will become an even higher price. The market as a whole may only climb modestly day by day, but the gains in individual stocks in a market melt up are staggering. Yesterday, November 4, Nvidia (NVDA) closed up 14.44% on some very vague hopes that the company would gain from the Meta-verse that the company that was once Facebook and others are flacking. Biotech Sangamo (SGMO)gained better than 19% on news that it would report favorable results from an initial 4-person Phase 1/2 clinical trial at the American Society of Hematology conference on December 12. Stocks with momentum can be counted on to keep climbing on that momentum as long as the story driving the stock remains in place. Ford Motor (F) already up 112% in 2021 gained another 3.70% yesterday November 4. Today MGM Resorts International (MGM), a stock that has been scorching the track, gained another 6.27%.
And you’ll see everybody fleeing any stock that seems to have broken momentum. There’s no real long term conviction behind this rally, just a fear of missing out. With the knowledge that this kind of blow off doesn’t run for very long, no one wants to sit in any stock that doesn’t look like it will go up in the short term. Moderna (MRNA), for example, a huge momentum favorite on its COVID-19 vaccine plunge 19% on forecasts for the third quarter than pointed to lower sales. If weakness appears SELL is the motto for this kind of market.
One of the consequences of this melt up market characteristic is that it will actually create long-term buy on the dip opportunities like those I wrote about in my last Special Report: 4 Strategies and 14 Picks for Best Buy on the Dip Stocks for subscribers to my JubakAm.com site. I know it seems odds, peculiar and maybe just plain nuts but we actually stand a better chance of seeing more big buy on the dip dips in this melt up market than in a more slowing rising market.
Also note that while this market is climbing and while individual stocks are soaring, investors and traders aren’t exactly relaxed and worry free. The VIX, the CBOE S&P 500 Volatility Index (VIX), which is used by investors and traders to hedge risk, has been climbing as the same folks who are betting big on Nvidia or ShakeShack (SHAK), up 16.44% today, are buying options and futures just in case the market heads suddenly south. These folks, at least, know that if this melt up melts down the damage to the downside will be considerable. Today, the VIX gained another 5.96% to 16.36 after picking up 5.10% yesterday to 15.87.
Gold too, which has been dead, is showing signs of life. The VanEck Vectors Gold Miners ETF (GDX) closed up 3.09% today and the junior gold miners ETF (GDXJ) finished ahead 3.27%. Think somebodies might be using gold to hedge?
Next week I’m going to do a full Special Report on my subscription site JubakAm.com on how to invest and trade in a market melt up. That Special Report will begin appearing on Tuesday. And you’ll get a 20% off offer on a subscription in your email if you’ve joined up to receive alerts on JubakPicks.com.