Date: December 17, 2020

News Quieting – Volatility to Follow

As we typically see this time of year, the news flow is quieting down and the markets have been even quieter. This trend is supposed to be in place for the rest of the year. The markets may have a day or two where they hit a pocket of air, much like you experience when flying, but overall, the trend is to see a mild drift higher. As I have written about for more than a month, any and all weakness can be bought until proven otherwise. Of course, it was so much easier to be loading up into Halloween when I was pounding the table on a bottom before the election. That was the last period where indicators pointed to a low.

Now, things have definitely changed a lot since then when the media was laughingly blaming COVID for the decline in stocks. My readers saw right through that and knew it was all about election jitters that could be bought. Today, with a COVID vaccine being distributed, the election behind us and uber dove, Janet Yellen, to run Treasury, all I am hearing about is a singular path higher for stocks. In other words, few are concerned about any downside. When the masses are focused on one thing, the opposite usually happens.

One thing is for sure, epic greed and euphoria remain firmly entrenched in the markets. That is not something to celebrate. Sooner or later, rally late comers will be punished by a short, sharp plunge. Before you ask about timing this, I will answer that sentiment is not a great timing tool. It puts us on guard and in the range, but the majority of the time, stocks power even higher before correcting. And remember, the foundation for the stock market remains very solid. That’s why I keep saying that a short, sharp plunge is coming, but to buy any and all weakness until proven otherwise. Large declines and bear markets USUALLY do not begin with this set up.


Paul Schatz, President, Heritage Capital