What to Expect in the New Year
The pre-holiday slowdown arrives... Is the 'Santa Claus Rally' next?... Investors are dangerously complacent... What to expect in the new year...
The weeks leading up to and following Christmas tend to be among the slowest of the year...
Trading volumes typically slow to a trickle as firms finalize year-end results and many folks take time away from the markets.
They also tend to have a strong bullish bias...
In fact, stocks rise so often during the final five trading days of December and the first two trading days of January, traders have dubbed this action the "Santa Claus Rally."
According to the Stock Trader's Almanac, the S&P 500 has averaged a gain of 1.4% over these seven days since 1950.
Going back even further, the Dow Jones Industrial Average has risen more than 75% of the time during these days – for an average gain of 1% – since 1896. This compares with average gains of just 0.1% (and was higher just 55% of the time) over all other seven-day periods in the past 120 years, according to financial-news website MarketWatch.
Will Santa come this year?
As always, we have no crystal ball. But the recent "Trump Trade" rally has been powerful... and the Dow Jones Industrials is within spitting distance of a big, round number.
Given the usual bullish seasonality, we won't be surprised to see "Dow 20,000" headlines over the holidays.
But we don't expect the celebration to last long...
Regular Digest readers know we expect the post-election rally in stocks – and the plunge in bonds – to fizzle, at least in the short term.
These trends are getting extremely stretched, and several measures of investor sentiment have reached levels that often precede a reversal.
As our colleague Steve Sjuggerud noted yesterday, U.S. stocks are getting "overly loved" by investors... And the evidence continues to mount.
This morning, the Volatility Index – the market's so-called "fear gauge" – plunged to a new 14-month low. It's currently trading just above multi-year lows, suggesting investors are even more complacent than they were at last year's market peak...
Meanwhile, investors are more bearish on bonds (meaning they expect interest rates to keep rising) than ever before.
Again, this is the opposite of what we saw back in July when investors were extremely bullish on bonds and were betting on lower rates.
Of course, rates bottomed shortly after and have moved mostly higher ever since.
We can't predict what will set off a reversal...
It could be new questions about Trump's administration... worries about rising interest rates... troubles in the Italian banking system... or something totally off the radar today. But history is clear...
When the market is set up for a reversal, sooner or later a reason will appear. We expect to see one in the new year.
Again, for now, we continue to recommend staying long, but staying "hedged"...
For most folks, this means balancing your long positions with an appropriate mix of cash, precious metals, and select short sales (or small positions in cheap put options as we've recommended in Stansberry's Big Trade). And as always, be sure to use good risk-management strategies like proper position sizing and trailing stops.
Traders can also consider betting on a rebound rally in U.S. Treasury bonds or precious metals.
New 52-week highs (as of 12/20/16): Automatic Data Processing (ADP), American Financial (AFG), American Express (AXP), Black Stone Minerals (BSM), CONE Midstream Partners (CNNX), CommScope (COMM), iShares Select Dividend Fund (DVY), WisdomTree Japan Hedged SmallCap Equity Fund (DXJS), ProShares UltraShort Euro Fund (EUO), Cedar Fair (FUN), ProShares Ultra Telecommunications Fund (LTL), PNC Financial Warrants (PNC-WT), Travelers (TRV), and W.R. Berkley (WRB).
The overwhelming response to Porter's Friday Digest continues... Let us hear from you at feedback@stansberryresearch.com.
"Excellent! I'm very excited about the new portfolios! I've been a subscriber for years and try to follow four or five different products. My results have been mediocre, and I understand Peter G's sentiments. Asset allocation has been a big problem and I'm often not in the best recommendations. With so many products I can't buy everything. What I have noticed is that I'm getting better over time but it has been a long slow process of many setbacks and hard knocks. Gold has been very disappointing after soaring so high but my net result is about break even and I'm not sure if I should trim my allocation in that area. So, my pledge for 2017 is to follow your comprehensive portfolio advice to the letter. Whether I do well or not, I believe you genuinely want your subscribers to succeed and that's appreciated. Thanks to you and the great team you've assembled." – Paid-up subscriber Todd
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"I can't believe that Porter would give so much ink to somebody who obviously embraces the 'loser mentality' known as the blame game. These people blame others for every failure that they experience in life... Doesn't matter if it's in investing, relationships, child rearing, sports... It's always someone else's fault. Until we take ownership of every happening in our life, we are doomed to failure." – Paid-up subscriber John S.
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"I think this is a fantastic idea and speaks volumes about the character of Porter and his company. I could not be more proud of belonging to an organization that places such a high value on helping the investor become a better investor." – Paid-up subscriber B.B.
"This is what I have been looking for – something that hits all concerns from folks I trust – that being Stansberry. I run two businesses here in Texas... kids, wife, church, Mentor at the SBA, etc. Not a lot of time to go thru all of the research. Thus, my results have been less than stellar. Looking forward to your new service. Thanks for your efforts." – Paid-up subscriber R.B.
"Delighted to hear about this new product, as asset allocation is something I have not mastered... I also still have trouble with adhering to trailing stops. Even with membership to TradeStops, discipline is the issue." – Paid-up subscriber Mary M.
"Porter, being someone with limited time to achieve daily professional and personal objectives, the Stansberry Portfolio Solutions sounds like the perfect product for me. From your explanation, it sounds like a solution that will provide a streamlined approach to implement the volume of research completed by your team.
"I'm an Alliance member and I enjoy reading the various newsletters and research information offered, but this is very time consuming in an effort to stay current with the volume of research presented. I obviously cannot take action on every idea presented by your team and struggle with how best to implement the research information presented to achieve sufficient diversification, in conjunction with risk management, within my portfolio.
"Keep up the good work and the new product ideas to assist your subscribers with being successful long term investors." – Paid-up Stansberry Alliance member Bill W.
"Hurray, hurray, hurray for Porter and Stansberry Research!!! I can hardly wait until January... In our case, this Portfolio Solution is likely to be the greatest value you could possibly offer us. You see, after watching over half of our family's savings disappear in 2008, I pledged to my wife and daughter that I would educate myself so as to be fully competent to directly manage our wealth and never again delegate such responsibility to any third party.
"Stansberry Research is just one of the many resources that I have since utilized to educate myself. I am pleased to advise you, and routinely tell others, that Stansberry has been the best out of all, in helping me fulfill my pledge. However, while my commitment of time, effort and intentions have all been genuine, I am embarrassed to admit that my competency in utilizing all of the wonderful tools you have provided is still rather dubious. I feel as though my portfolio still looks like it was put together by a surgeon using a hammer and chisel rather than a scalpel.
"Yes we have some gold and silver positions, some distressed bonds, some long puts with 2018 expirations, a few blue chips, even for the first time ever in my life a couple of short stock positions and, a good portion of cash. I just don't feel as though it is quite 'there yet'... Knowing that I will finally be able to 'get there' in 2017 is a wonderful Holiday surprise! Our best regards to you all for a joyous Holiday Season..." – Paid-up subscriber Dan Wall
"Porter, I love the idea! While we all must take responsibility for our own investment decisions (and hence results), there are many of us who lack the time and interest to put the level of energy into these decisions that they require – particularly at volatile times like those we live in. Sounds like a bit of a cop out, but not all of us have the same zeal for monitoring changing financial landscapes, corporate developments etc., as your team or many of your subscribers. That said, I continue to want to learn – just at my pace.
"What I have sought for some time is assistance with tracking and understanding these developments – as well as some 'inside-baseball' analysis from those acutely familiar with the financial markets. With this type of information, I feel comfortable making decisions that will work for me within the range of risk tolerance I have. This service sounds like it hits the mark. Looking forward to more details." – Paid-up subscriber Kevin M.
"Porter – Boom! Exactly what I need. Thank you & Merry Christmas!" – Paid-up subscriber Kevin L.
"Porter, I've been reading your team's e-mails for 5+ years. I was a Flex member, but this month joined the Alliance – and only had the money to join because of the success I've had from reading and following your team's advice. Results: 3 Accounts managed by me YTD: +34.4, +16.4, +16.1... 2 Accounts managed by a paid professional YTD: +4.9, +4.9
"You are correct in your letter – 'Mr. Snarky' isn't following your advice, using TradeStops, investing in high-quality companies, and using options for additional income. Thank you for the fine work! I can retire when I want because of the investment advice from your team." – Paid-up Stansberry Alliance member Tom A.
"Porter, interesting Digest... The guy who complains daily to you boils down to one thing. ALLOCATION OF PORTFOLIO FUNDS. Greed will cloud a person's mind. My own funds I allocated 20% of my total portfolio in overall precious metals positions. Some I have sold for gains, some for losses. I still own some positions that are under water. I'm not going to complain because I'm not convinced the gold story is over with yet. I have 10% in bonds, the ones you have recommended in Credit Opportunities and they are all doing great. Then you came out with the dirty thirty. I liked this idea and invested 6% of my portfolio in sixteen of the positions, with diversification in all areas. I also have the Chinese stocks that Steve S. has recommended. Only 2% of my portfolio. The rest of my portfolio is in cash. I think you guys do a great job. I am also not convinced that Trump is a cure for all of our problems. Who knows? I think there is a damn good chance that gold is putting in a bottom here. It will be interesting to see! The guy is greedy and wants to make a killing... STUPID... he needs to get over it. Best wishes to you and your staff this holiday season! Keep plugging away and never give up." – Paid-up Stansberry Alliance member, Bill
"Porter, more evidence of following the full Stansberry advice... using the entire gamut of your services, proper position sizing, and tight trailing stops (via Trade Stops): As of today, I'm up YTD $80K in gold and $10K in silver... Also, up ~$27K in the aggregate on option trading, actually pretty easy in an up-market year. As you stated, 'shorts' are tougher in an up market, but I am still up about 3 grand this year in that category. Thanks Stansberry!!" – Paid-up Stansberry Alliance member R.L.
"Well, I know I am responsible for my decisions and the results. Overall in 2106 I did not do great. Some success... with some failures including not following several of my TradeStops. I certainly will be giving your new portfolio a good look... Paid Up Alliance member, and by far the best decision I have made in my investment life." – Paid-up Stansberry Alliance member R.S.
"Wow! This is the best idea you guys have come up with since I became a subscriber!" – Paid-up subscriber Eric Q.
"This portfolio program is exactly what I need. Exactly. I'd have to humbly admit that my bad investing habits are proving very hard to break. For instance, I have every intention of following my trailing stops – that is, until a favorite stock hits one... And I really don't mean to cherry pick from your newsletters – but dammed if that's not what I end up doing.
"I had to laugh at your description of Peter. He and I are not so different I think, with the one exception being I know who to blame for my investing failures. My investing is also largely thru my 401K brokerage account – and in there, options and shorts are off the table for me. However, the portfolio solution you are going to offer I can simply and wholly follow – no alternates, no side bets, no cherry picking. I'm really looking forward to getting it right." – Paid-up subscriber Nicholas J.
Regards,
Justin Brill
Baltimore, Maryland
December 21, 2016