A 'Rain Or Shine' Strategy For An Uncertain Market
By Jimmy Butts | December 06, 2017 |

'Tis the season when pundits begin to make their predictions for what the stock market will do in 2018.

Predictions are a tough business. Yet, we continue to pursue them, whether it's the weather, a sporting event, the economy and, of course, how the stock market will perform next year.


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Some forecasters say the market will continue to rally another 20% in 2018, while others predict the return of volatility along with below-average returns over the next couple of years. 

Both sides will, of course, cite statistics to support their theories. One of the more popular ones you might hear is how markets tend to deliver below-average returns after a year when they deliver better-than-average returns (the S&P 500 is up 17.7% so far this year, which is much better than its historical 7.6% average). 

In 1980, for instance, the market rose by nearly a third (32.5%) and in 1981 it fell about 5%. In 1989, stocks soared 32%, only to fall 3.1% the following year. 

Nobody knows what the future holds. After all, just as there are examples of times where the market delivers below-average returns after a good year, there are examples of times where we've enjoyed extraordinary gains for several years in a row.

For instance, in 1954 the market soared 52%. The next year the market rallied 33%. Then there were the roaring 90s, where the market delivered a string of five years of better-than-average returns.

S&P 500 Total Return
YearTotal Return
199537.6%
199622.9%
199733.4%
199828.6%
199921.0%

 

There are other examples from the 1930s, 1940s and 1970s that demonstrate that a large gain in one year does not eliminate the possibility of big gains in the following year.

The point is, don't let these predictions -- one way or another -- influence your investing decisions. These forecasts are aimed at your emotions... and I've repeatedly said that emotions can be a portfolio killer.

A Tool That Works
So rather than focusing on data based on small sample sizes or analysts' predictions, it's better to put your money on time-tested tools that have worked under all market conditions. For my subscribers and I over at Maximum Profit, that means we use relative strength -- a tool that's been tested over a 212-year period. And it works.

Relative strength works to find market winners, but it can't be used to forecast the direction of the market. I believe it is more important to follow the market trend than to develop forecasts that are just as likely to be wrong as right.

For now, the direction of the momentum in prices is up. And like Newton's first law of motion, which says an object in motion stays in motion until an external force acts on the object to change the motion, the momentum in the market will continue until something causes a change in the momentum (think of the housing crisis in 2008 as the most recent example).

Stock market momentum can be derived from various external factors such as earnings, global economic conditions, interest rates and, more recently, the anticipated tax cuts proposed by the White House.

Right now, earnings are projected to continue rising, the global economy is expanding, unemployment is low and despite the recent increases by the Federal Reserve, interest rates are still relatively low. All these factors are bullish for stocks.

A negative external force, like the sudden credit crisis that began largely without warning in 2008, will eventually work against the momentum in stock prices. But until that force develops, we should remain bullish on stocks.

This analysis won't help us set a price target, but it should help us maximize profits -- and that is more desirable than trying to predict what the market is going to do next.

Let Maximum Profit Tell You When To Buy And Sell
As I mentioned, the momentum in the stock market remains bullish, and that means my Maximum Profit subscribers and I will continue to ride this trend until further notice. In fact, we added three new stocks to the portfolios this past week. 

And rather than rely on feelings, we'll stick to time-tested signals that our system gives us with each and every stock in the system. It's what's led us to gains of 82% in 48 days... 118% in 86 days... 266% in 12 months -- and more. If you'd like to learn more about how our system works, simply go here.

This article originally appeared on StreetAuthority.

 

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