As I talked about last time, we’re in an interesting part of the year, a very interesting cycle and that includes the election. So I wanted to dive in a little deeper and talk about what we discussed last time.
Remember, we want to remember a few basic things.
The first one…
The gridlock trade is on. This is nothing new. In fact, since 1945, there are six different scenarios for the way in which the legislative branch and the executive branch can be combined: split Congress versus unified Congress, Democratic President, Republican President, and again split or unified Congress. In addition to showing you the six different scenarios, this graphic also highlights the two outperforming bullish scenarios in the market for the S&P annualized since 1945…
The two best scenarios to be long stocks are Republican Congress + Republican executive branch AND a split Congress + Democratic executive branch. The latter is what the market’s realizing right now based on the current count that we have for the US election results.
Now if you remember, we’re currently in a distribution market trend. What that means Gang, is that we’re more likely to bounce off the floor and stall at the ceiling and go back and forth… but we always want to respect the trend that was. That means we’ll favor the over sold buys. These are the buys that trigger as the market trades down to the floor of the range (to the support of the range).
What’s the mean for positioning yourself for 2021, Gang?
We still very much have to use a stock picker type approach in this environment. Because again, the broader averages are still choppy. So it makes sense to crack those indices open — think about sector, think about stock. That means watchlist building, stock picking is going to be the way in which we navigate through this choppy market and into 2021 (and maybe beyond the start of 2021).
Before we can start to bet on the tides again and look at betting on ALL the boats, we have to focus on individual boats within individual sectors.