Time to buy the dip for the year-end rally

US Stock Fundamental Weekly Forecast: Bullish

  • For traders who have adopted the “buy the dip” mentality, now that the November options expiry is in the rearview mirror, the alarm bells may have sounded.
  • Seasonality studies dating back 20 years show that the last two weeks of November, coupled with the start of December, mark the time of year when US stock markets tend to rally most aggressively..
  • the IG Customer Opinion Indexsuggests thatUS equities have a short-term bullish bias.

US stocks week in review

It was a mixed week for US equity markets, a typical event at this time of year. The US S&P 500 added only +0.35%, while the tech-heavy US Nasdaq 100 gained +2.36% and the US small-cap focused Russell 2000 lost -2.80% . While November has been the best month of the year for US equities in recent memory, it turns out that the middle two weeks of the month tend to produce sideways/consolidating price action.

Seasonality favors an immediate rise in US stock markets

For traders who have adopted the “buy the dip” mentality, now that the November options expiry is in the rearview mirror, the alarm bells may have sounded.

The week of Thanksgiving in the United States as well as the week following have historically produced robust gains for US stock markets, in what is the start of the familiar period known as “Santa’s Gathering”.

Seasonality studies dating back 20 years show that the last two weeks of November, coupled with the start of December, marks the time of year when U.S. stock markets tend to rally most aggressively, according to data collected on EquityClock. .com.

US S&P 500 Seasonality: DAILY TIMETABLE (20-year average) (CHART 1)

US Equity Fundamental Weekly Forecast: Time to buy the dip for year-end rally

Source: EquityClock.com

US Nasdaq 100 seasonality: DAILY TIMETABLE (20-year average) (CHART 2)

US Equity Fundamental Weekly Forecast: Time to buy the dip for year-end rally

Source: EquityClock.com

US Russell 2000 Seasonality: DAILY TIMETABLE (average over 20 years) (CHART 3)

US Equity Fundamental Weekly Forecast: Time to buy the dip for year-end rally

Source: EquityClock.com

With US real GDP tracking above +8% annualized in 4Q’21 according to the Atlanta Fed’s GDPNow growth tracker, along with a still robust corporate earnings environment according to forecasts published in the latest series of earnings reports, there is good reason to believe that the next stage higher for US stock markets is just around the corner.

Economic calendar week ahead

It’s no surprise that the truncated Thanksgiving holiday week will see a reduced economic calendar. Importantly, US equity markets are closed on Thursday, while Friday will see a limited session with markets closing at 13 EST/18 GMT.

– On Monday, November 22, the October US National Chicago Fed Activity Index will be released before the stock markets open, while October US Existing Home Sales will be released. made public 30 minutes after the start of trading.

– On Tuesday, November 23, the November US Markit Manufacturing PMI Flash will be released 15 minutes after the cash stock open.

– On Wednesday, November 24, there is a deluge of data as rating agencies are subsequently closed in recognition of the Thanksgiving holiday. Ahead of the equity opening, weekly U.S. MBA mortgage claims and weekly U.S. unemployment claims numbers will be released, as will the October U.S. Durable Goods Orders report, the second estimate of the US GDP for the 3rd quarter 21 and the US trade balance for October.

US S&P 500 PRICE VERSUS NET COT NON-TRADE POSITIONING: DAILY TIMETABLE (November 2020 to November 2021) (CHART 4)

US Equity Fundamental Weekly Forecast: Time to buy the dip for year-end rally

Then a look positioning in the futures market. According to CFTC TOC data, for the week ended November 16, speculators increases their net long positions in US S&P 500 futures at 110,617 contracts, against 100,245 report-long vsoncontracts held the previous week. The futures market is holding near the 52-week highs set three weeks ago.

CUSTOMER SENTIMENT INDEX IG: US S&P 500 PRICE PREDICTION (November 19, 2021) (CHART 5)

US Equity Fundamental Weekly Forecast: Time to buy the dip for year-end rally

US 500: Retail trader data shows 38.47% of traders are net long with a ratio of short to long traders of 1.60 to 1. The number of net long traders is 1.34% lower than yesterday and 2.31% lower than last week, while the number of net-short traders is 1.24% higher than yesterday and 5.55% higher than last week .

We generally take a contrarian view of crowd sentiment, and the fact that traders are net short suggests that US 500 prices may continue to rise.

Traders are even sharper than yesterday and last week, and the combination of current sentiment and recent shifts gives us a stronger contrarian bullish US 500 trading bias.

— Written by Christopher Vecchio, CFA, Senior Strategist

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