If you aren't betting on a big year-end market rally, you should be. The force is with you.
More to the point, the force is with the market. It's an extraordinarily powerful force that investors don't see, and the financial press isn't writing about.
But it's here, and it's gathering speed like a hurricane crossing the warm waters of the Atlantic.
You don't want to get out of the way of this force of nature; you want to ride it all the way to the bank.
Here's where it's coming from, how it will pick up speed, and where it can land you (if you're smart)…
The Market's Self-Fulfilling Prophecy
The most powerful force driving the stock market is always momentum. There's nothing stronger. Momentum can turn profit-taking into a sell-off, and turn that sell-off into a crash in just a few days or over months and quarters.
Fortunately, it works to the upside too.
In a very real way, momentum is self-fulfilling. As the stock market goes higher, it generates its own momentum as investors come off the sidelines and portfolio managers apply idle cash, as well as sell other asset class investments like bonds, and put them to work in stocks. That's been the case all year, propelling the market up more than 15%, so far.
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For lots of good reasons, I think buying momentum will pick up in November and December.
Portfolio managers of all stripes are measured against the market. Whether you're invested in mutual funds or hedge funds, you want to know how you made out at the end of the year compared to what the market did for the year. If the market's up 15%, you expect your funds to be up at least that. But really, you expect them to be up more than the market because you're paying for active management.
Of course, money managers are measured against industry benchmarks like the S&P 500. They know that if they aren't beating their benchmark, then they'd better load up on the big-name winners before year-end to both raise their performance and show investors that they owned highfliers, even if they didn't own them most of the year.
The year-end buying of stocks that have outperformed is called window dressing.
This year the big outperformers are a narrow group of stocks, led by technology stocks that include Facebook Inc. (Nasdaq: FB), Amazon.com Inc. (Nasdaq: AMZN), Apple Inc. (Nasdaq: AAPL), Netflix Inc. (Nasdaq: NFLX), and Alphabet Inc. (Nasdaq: GOOGL) – the FANG stocks – as well as Microsoft Inc. (Nasdaq: MSFT). Other big movers include Boeing Co. (NYSE: BA), Visa Inc. (NYSE: V), Caterpillar Inc. (NYSE: CAT), and UnitedHealth Group Inc. (NYSE: UNH), which are in the Dow Jones Industrial Average along with Apple and Microsoft.
Portfolio managers are going to be doing a lot of year-end window-dressing with these names.
But what makes this year so special is that the big movers are high-priced and huge capitalization stocks…
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
He helped develop what has become known as the Volatility Index (VIX) - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of 10X Trader, Shah presents his legion of subscribers with the chance to earn ten times their money on trade after trade.
Shah is also the proud founding editor of The Money Zone, where after eight years of development and 11 years of backtesting he has found the edge over stocks, giving his members the opportunity to rake in potential double, triple, or even quadruple-digit profits weekly with just a few quick steps.
Shah is a frequent guest on CNBC, Forbes, and Marketwatch, and you can catch him every week on Fox Business's "Varney & Co."
He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.