Growth Stock Wire
TradeKing All-Star Commentator
Jeff Clark encourages investors to consider whether these volatile markets represent a buying opportunity
Forget about the panic. Forget about the gut-wrenching, portfolio-busting decline last week and in recent days. We believe now may be the time to buy stocks you like for the long-term.
I know it seems like an outrageous outlook – especially coming from someone who has preached caution for most of the year. But the market's recent decline may be more than just a buying opportunity. What if this is Christmas in August for stock buyers? We believe recent declines may well have set up the potential for double-digit gains through year's end.
Let me explain...
The theory is, stocks go up in anticipation of Big Government stimulating the economy as we head into the election year. Whether you agree with the premise or not, Steve's statistics back up the theory. Seven decades of data tell us stocks go up in the third year of a presidential cycle. Even in 1987 – the year of the big crash – stocks closed higher on the year. Obviously, there's no guarantee of this trend continuing in future, but it's very possible.
As you may recall, we kicked off 2011 to plenty of talking heads cheering about how this would be a wonderful year for stocks because it was the third year of a presidential cycle.
I even conceded stocks would close higher
on December 31, 2011 than they did on January 1, 2011 – though I was worried about what they might do in between.
Of course, no one is talking about the theory now... just about how everyone has turned bearish. If you count yourself among the contrarians, as I do, this may be the right time to buy.
Think about this. If stocks follow the historic pattern and close up on the year by just 1%, that's a 9% gain over the next five months. If stocks eke out the meager 4% gain they achieved during the 1987 crash year, that's a 13% return from current levels.
But if stocks can generate the average 22% return during the third year of a presidential cycle... well then, like I said... it could possibly be Christmas in August.
Again, statistics aren't ironclad guarantees - but they do suggest probabilities worth taking seriously. I've been cautious to bearish for most of the year. But I'm bullish now, and betting on potential big gains through the end of the year.
Best regards and good trading,
Veteran trader Jeff Clark is author of Growth Stock Wire, a daily read providing investors with a pre-market briefing on opportunities in the global stock, currency, and commodity markets.
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Jeff Clark / Growth Stock Wire holds no positions in any securities mentioned in this post.
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