Why There Could Be Even More Upside Ahead In The Market

Stock market volatility appears to be increasing.

After trading in a narrow range for much of December, the SPDR S&P 500 ETF (NYSE: SPY) seemed to break out to the upside.

If you recall, before Christmas I predicted that this could happen:

The bullish case for the market is based on the fact this bill will provide economic stimulus. At $900 billion, the stimulus represents more than 4% of GDP. That should boost consumer and business spending and has the potential to move stocks higher.

So, it’s reasonable to expect a big move in the market after the stimulus is finalized.

My indicators tell me the move is likely to be up.

Monday’s decline pushed the ETF back into its trading range. Tuesday was a relatively lackluster day with the range contained within the previous day’s range. That indicates neither bulls nor bears were prepared to trade with a high level of conviction.

The chart of SPY is shown below.

We could see a breakout this week as control of the Senate is determined by the elections in Georgia. This election is important to investors since a Republican win would almost certainly assure gridlock for at least two years. Stocks tend to perform well when the possibility of significant changes in taxes are low.

Looking into 2021, I will reiterate what I said recently. The overall economy does not seem like it will turn for some time. However, I expect the recovery to be K-shaped, and that’s good news for selective investors and traders. A K-shaped recovery is one where different parts of the economy recover at different rates. And that means there will be significant trading opportunities this year.

How I’m Trading

Looking ahead, the stock market is likely to break out of its trading range as the outlook from Washington becomes more certain. That could happen within days, or it could take weeks to determine what policies are likely to change in 2021.

Either way, I am seeing trading opportunities in this market. I believe we will have the chance to generate significant income in this market environment.

That’s why I recently recommended NXP Semiconductors N.V. (NASDAQ: NXPI) to my premium subscribers.

NXPI trades at about 20 times next year’s expected earnings. That’s a significant discount to the broad stock market, which is trading at more than 27 times earnings. NXPI is a value stock in a growth industry.

The company is a leader in secure ultra-wideband (UWB) technology. UWB is an enabling technology for 5G.

Action To Take

These are factors that make NXPI attractive for the long run. In the short run, the chart pattern is compelling. NXPI has been a market leader, is on an Income Trader Volatility (ITV) “buy” signal.

The stock has significant support near $140, which limits the downside risk in the stock.

But I am still trading conservatively. I’m recommending an option that expires this month, before NXPI reports earnings in February.

In the meantime, one of the biggest sectors of opportunity will be the 5G revolution that will take hold in 2021…

Experts estimate that 5G will eventually add $3.5 trillion to the U.S. economy. Smart homes, smart cars, smart offices…the dreams of science fiction are becoming daily reality.

My colleague Jimmy Butts is harnessing the power of his winning Maximum Profit system to identify the best investment opportunities in 5G. And if history is any guide, Jimmy and his followers will make some huge gains in 2021 from this massive trend.

Read our latest report on 5G right here.