A Year-End Rally?

By: Doug Fabian | Editor, Successful Investing | President, Fabian Wealth Strategies

This time of year, we normally can count on the market being in full-rally mode. There is a term that I use in my book "Maverick Investing" to describe this time of year. I call it the growth season, and it's from Nov. 1 through April 30. Historically, this is the time when the market grows three times faster than it does from May 1 through Oct. 31.

As we've been pointing out for weeks now, the current rally does not have widespread participation from the small-cap segment, nor has it included a rally in financial stocks. If we look at the chart below of the S&P 500 Index, we see that while this broad-market measure of stocks is trading near new highs, we haven't yet seen a really strong breakout from the psychologically and technically significant 1,100 mark.

Moreover, if we look at stocks in the small-cap segment via the iShares Russell 2000 Index (IWM), we can see that this area of the market is well below its October highs.


The Russell now is trading below its 50-day moving average (blue line), a sign that the growth season has yet to kick into high gear for small caps.

So, are we going to see a year-end rally in stocks?

I suspect we could; however, I also think we may see a lot of profit taking in the coming weeks. Profit taking after the year we've had is to be expected, so don't be surprised if you see stocks get really volatile as we head into the final month of this remarkable year.

The possibility for a less-than-robust, year-end rally means you must have an exit strategy in place that protects your gains and allows you to weather any kind of year-end storm.

Keep in mind that nearly every investor who held on and rode out the 2008-2009 bear has likely seen his or her portfolio recover sizably since this rally began in earnest back in March. I don't want anything to happen to that recovered money, and the only way to protect those gains is to have a plan in place that gets you out of the market with your profits intact.

My Successful Investing advisory service has just such a plan firmly in place, so if you are looking for a way to protect your 2009 bull market gains, then I invite you to check it out.