What The Market Will Do Before The Election

I have a brief take on the outlook of the market this week.

That’s not because I can’t think of anything to say. The reason this update is so brief is because the trend is relatively clear based on my indicators.

In fact, it’s rare that I see such a consistent picture in my forecasting tools.

Last week, I looked at bearish indicators in the VIX and noted that my Income Trader Volatility (ITV) indicator was diverging from this outlook with a “buy” signal. I’m biased, but after a 3.7% gain in the S&P 500 since that signal, it seems like ITV was the better indicator.

ITV is based solely on the price action. I published the formula for ITV and details on how to use the indicator back in 2015. I developed this tool myself two years before that, and started using it to help my subscribers profit. Over the years, it has proven to be an excellent tool for determining the direction of the trend.

Bullish Momentum

In recent years, I’ve developed another indicator to help me determine when reversals are likely. This is my Profit Amplifier Momentum (PAM) tool, and it’s shown at the bottom of the chart below.

PAM is interpreted like the more well-known MACD indicator. It moves above and below zero, and crossovers tend to occur at the beginning of trends. While PAM is not always accurate, it does a good job showing the strength of the trend. Right now, the trend in the S&P 500 index is strengthening.

I believe the reason behind this strength is shown in the next chart. This chart shows the latest results of the weekly survey of the American Association of Individual Investors, or AAII.

Source: AAII

Every week since 1987, AAII conducts a survey. There’s just one question: Are you bullish, bearish or neutral about the next six months?

The long history allows us to test the usefulness of the data. For a survey with many design problems, the data is surprisingly useful.

The chart above shows a strong shift into the bullish group occurred last week. Bears are throwing in the towel, and investors who are neutral are shifting to the bullish camp.

Action To Take

These shifts could fuel further gains in the stock market, confirming the signals from ITV and PAM.

I’ve been expecting volatility before the election, and we are likely to see volatility increase from here. There are still three weeks left, but my forecast is for a week at a time because I believe we could see several price swings during that short time. It’s entirely possible we will see both an upswing and a downswing before the end of the month, with the upswing coming first.

That’s why I’m relying on strategies like earning “bonus” dividends on stocks that are likely to hold up in this market regardless of what’s going on…

Few investors know about this technique, but it’s incredibly simple to do this. You don’t need to be a sophisticated trader. And it’s not overly risky, either. Frankly, other than simply not knowing it exists, I don’t know why more investors don’t take advantage of it. It’s practically money left on the table.

I started sharing my insights with my Maximum Income subscribers a few years ago, and now they’re earning thousands in extra income every month, too.

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