The “pain trade” is likely higher over the next few weeks. I touched on this topic in this past weekend’s “Bull Bear Report:” Not surprisingly, the “bullish” short-term outlook garnered a substantial amount of pushback. However, there is more to this outlook than just “rosie optimism.”
Let’s review what I wrote, and then we will expand on why we believe the “pain trade” is higher over the next few weeks.
“From the bullish side of the ledger, the outlook for 2023 has statistical support for a positive outcome. After having a negative year in 2022, the markets were visited by “Santa Claus,” although very late, and the first 5-days of January turned out to be a positive return. As the table below shows, there are only a few periods in history where this has occurred, and each yielded positive returns in the following year.”
Critically, just because something has always occurred in the past does not mean it MUST happen this time. However, as investors, we must focus on statistical tendencies and invest according to the probabilities rather than the possibilities. At the moment, there are many “possibilities” bullish investors are betting on in the short-term, which have a larger potential “probability” of being wrong.