Today’s Plunge Is Next Week’s Bounce, Strategist Says

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In his Daily Market Notes report to investors, while commenting on a likely bouce, Louis Navellier wrote:

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A Bounce Next Week Is Highly Likely

The technical weakness in the market is disturbing right now. There are a lot of stocks meandering lower, and the selling pressure is persistent. But the volume is also light and a bounce next week is highly likely. But on the bounce, we're probably going to have to retest the lows.

Despite the bad payroll report today, which was approximately 300,000 less than the ADP payroll report on Wednesday, it's interesting how the unemployment rate fell from 4.6% to 4.2%. It's an apparent contradiction that the unemployment rate can fall if job creation is slowing down. The answer is the shrinking workforce. I think the Fed has fulfilled its unemployment mandate and it's time to pivot and fight inflation.

Despite the Fed's talk of raising rates and curtailing the quantitative easing, which is reducing the tapering, the ten-year treasury yield is at 1.4% and was well below that for a while today. That's a very favorable interest rate for people buying stocks. You can get a much higher dividend yield than if you have money in the bank, and the dividends are taxed at much lower rates. So the foundations of the stock market continue.

The Market Is Technically Very Weak

Goldilocks continues, which is low-interest rates and strong earnings. But the market is technically very weak. It got grossly overbought and it has refused to stay overbought, and now it's oversold. But anytime it goes down, it has to bounce and retest. And all of this is happening on light volume. It's very important that buying pressure reemerges which I think will be most likely in the last week of December and then in January when we get new pension funding.

The unusually weak market is bothering a lot of investors. But it is just sheer seasonality. Investors have other things on their minds. Markets are being neglected, but they can't be neglected forever. Smart money always comes back in the market. We're going to have a lot of tax selling this year because a lot of people want to realize losses and offset their gains before they pay their taxes.

Let the market bounce and retest. Let the tax selling get out of the way. Enjoy the holidays and get ready to invest in the last week of December. Good stocks always bounce. And if you do sell, I do recommend you sell into strength. Hang in there and I think we're going to have a nice bounce next week. We'll have a nice year-end rally and a good start to the new year.

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