Here’s What The Rest Of December Could Look Like…

Many analysts are noting that on average, December is a bullish month.

One analyst found that it is the third best month of the year for the S&P 500 and Dow Jones Industrials, delivering an average gain of 1.5% on each index since 1950. It’s even better for small caps. December is the best month of the year for the Russell 2000.

However, when it comes to things like this, it always helps to look deeper. You’ll often find that there’s more to the story. After doing just that, I found that December is almost always a month when the indexes follow the trend. Average performance in bull and bear market years is shown below.

My data goes back to 1928, so is longer than the history used by many analysts. Here’s a breakdown of what you’re looking at:

– The green line is the average of “bullish” years, when the S&P 500 ended higher.
– The red line shows the average in “bearish” years, when the market finished the year lower.
– The blue line shows the S&P 500’s current performance since the beginning of 2020.
– The blue dashed line is December 1.

My conclusion is that December tends to move in line with the rest of the year. This year, that means we are likely to end the month with a gain, although we should also expect volatility. (I touched on this recently, detailing the unusual “volatility of volatility” that we’ve seen lately, in this piece.)

For now, I expect to see (1) a rally to last into next week, (2) a selloff into the middle of the month, and then (3) another rally into the end of the year.

How I’m Trading Right Now

One of my most recent trade recommendations illustrates the approach I’m taking in light of this information. As you may know, big-name retail stocks have been on a roll lately, and Target Corporation (NYSE: TGT) has been no exception. This stock carries a margin of safety to limit risks in the selloff I expect.

The stock is on an Income Trader Volatility (ITV) “buy” signal. (This is the award-winning indicator I’ve been using to identify trade candidates for years.) There is also significant support near $165.

That support level is the price target based on the March low. That level served as resistance for about six weeks before breaking out. Now that price level should offer resistance if the stock sells off.

Bullish investors could simply buy the stock and sit on it. But as I’ve been saying for months, investors would be smart to consider the options strategies I regularly talk about in these pages.

You see, there are a few options strategies that are nothing like the “risky” trading that most may think when they hear the word “options”. They allow investors the ability to make quick returns without risking a lot of capital in the process.

In this case, selling a put option with a strike price below that support level should be a low-risk trade. The rationale for this income is purely technical and focused on the short term.

Another strategy allows us to earn consistent and quick income from stocks we already own. In some cases, it can lead to thousands of dollars in one payout. And that makes it extremely valuable in a time like this…

Think of it like an “insurance” program for your stocks — or like the perfectly legal schemes an out-of-work Hollywood actor uses to still get paid.

I just released a brand-new report about this simple strategy, and you can get more details about it here.