Tags: Fed | rate | S&P 500 | bet

Stocks Set to Melt Up Before a Possible Crash

By    |   Wednesday, 04 Mar 2015 08:28 AM

Professional money managers often make bets with each other on the next 10 percent. There are lots of variations of the bet, but the idea is to answer the question "will the next 10 percent move be up or down?"

My current bet is that the next 10 percent in the S&P 500 will be up. With the index near 2,100, that means I believe we will see 2,310 before prices fall below 1,900. In other words, the potential rewards are much greater than the potential risks of the market are.

My bet is based on history. The market is probably going to "melt up" in price and deliver a rapid gain in a short amount of time. The catalyst for the melt up is the Federal Reserve.

Recent research from Guggenheim Partners noted, "Over the past six tightening periods since 1980, the S&P 500 has returned 23.5 percent on average in the nine months prior to the first rate increase. Assuming the next tightening cycle begins at the Fed's meeting in September, the nine-month period this time around began in mid-December."

Based on history, the S&P 500 could top 2,430 before the Fed starts tightening, a potential gain of 16 percent in the next six months.

In the past six years, traders have learned it is dangerous to bet against the Fed. The best way to trade the rate hike expected later this year is to stay long and benefit from the expected blow off rally that is most likely underway.

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MichaelCarr
Professional money managers often make bets with each other on the next 10 percent. There are lots of variations of the bet, but the idea is to answer the question "will the next 10 percent move be up or down?"
Fed, rate, S&P 500, bet
252
2015-28-04
Wednesday, 04 Mar 2015 08:28 AM
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